NEW DELHI :
The cabinet on Wednesday permitted 100% foreign direct investment (FDI) in contract manufacturing through the automatic route, in a big push to the Make in India initiative at a time when US President Donald Trump is pushing American companies in China to scout for alternative locations.
India has until now allowed 100% FDI through the automatic route but there was no specific provision in the policy for contract manufacturing.
“Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on principal to principal or principal to agent basis," the cabinet said.
Allowing 100% FDI through the automatic route for contract manufacturing is true to the Make in India initiative and will attract global companies in India looking to establish alternative manufacturing hubs, said Harsha Razdan, partner at KPMG. “The changes to FDI norms may well reposition India on the global map," he said.
So far, an electronics or pharmaceutical company had to buy its products from the contract manufacturer, but can now bring in FDI to put money in technology and machinery in the contract manufacturer, said a government official privy to the matter. “This could also lead to mushrooming of local contract manufacturers if they acquire the necessary expertise," the official said.
The contract manufacturers can also sell products produced in India after abiding by the 30% local sourcing norm for foreign single-brand retail companies.
“Modi Govt approves major FDI policy reforms. The revised FDI policy will now allow contract manufacturer to sell products manufactured in India through wholesale and retail channels, including through e-commerce, without the government’s approval," the BJP tweeted.