NEW DELHI: The government is looking at a multi-pronged strategy to address the decline in foreign direct investment (FDI) inflows. “Internal discussions are on for further liberalisation of FDI,” Rajesh Kumar Singh, secretary at the department of promotion of industry and internal trade (DPIIT) said on Thursday, without elaborating on the manner of relaxation, or the sectoral policies being reviewed.
According to sources, the possible changes include raising or dispensing with the equity limits that still exists for FDI investors in a few residual sectors, and removing the cumbersome conditions wherever possible. The government may also go slow on the import substitution (high tariffs) policy, that is inflating the costs of import of intermediates, and capital equipment by foreign investors in high-potential areas.
Two prominent areas where further FDI liberalisation is called for are multi-brand retail and e-commerce.
Other areas that can be considered is civil aviation where FDI is capped at 49% and government approval is required for holdings in airlines operating scheduled and non-scheduled air transport services. Print media, broadcast services and even in some areas of agriculture like cultivation of vegetables, FDI norms have been due for liberalisation for long, analysts feel.
Also being planned is further visa liberalisation for Chinese technicians and experts. While the visa norms for skilled Chinese workers have already been made less restrictive for the firms that signed up for production linked incentives (PLI) in 14 odd sectors, other companies present in these “PLI sectors” may also be given a similar dispensation soon.
“We are in the process of drawing up a similar streamlined (visa) process for non-PLI beneficiaries in the PLI sectors as well,” Singh said.
The government has been progressively easing the FDI policy, and has recently offered incentives of lower import tariffs for electric vehicle (EV) manufacturers subject to conditions, including indigenisation. In February, it relaxed the FDI policy with regard to the space sector by allowing 100% FDI in the manufacture of components for satellites.
However, it has been unresponsive to the demand for further easing of FDI in the high-potential area of multi-brand retailing (MBR). Even though FDI up to 51% was allowed in MBR as early as in 2012, stringent riders have kept investor interest lukewarm. Under the FDI policy, foreign investors in MBR are required to bring in at least $100 million, and at least half of the monies has to be invested in back-end infrastructure within three years. Additionally, it is mandatory for the investors to procure 30% from MSMEs, and there continues to be a var on e-commerce retail trading.
“The government can cautiously look at liberalising FDI rules in multi-brand retail and e-commerce. Multi-brand retail liberalisation can will bring lot of benefits to the wider economy and changes in FDI in e-commerce can be brought about in a way that also boosts exports through this route,” Anindya Ghosh, partner at IndusLaw, said.
The last two financial years saw a decline in FDI inflows, even as outbound flows remained rather strong. Inflows into greenfield ventures have been particularly unimpressive, even as repatriation and disinvestment tended to rise. Investors in infrastructure and other key industries like pharmaceuticals increasingly flag the rising risk perception of investing in India. Net FDI flows were $2 billion in Q4FY24 as compared with $6.4 billion a year ago.
Meanwhile, on the industry response to the EV policy announced just before the announcement of elections, Singh said the ministry of heavy industries (MHI) is learnt to be finalising the guidelines.
“It was meant to be a generic policy. We will see how many show interest when the window opens for accepting applications,” he added.
On whether Tesla has approached the government with its plans after the announcement of the policy and completion of the election process, Singh said “the tweet after the election is the last we have heard from Tesla”. In that tweet the founder of the company Elon Musk had congratulated prime minister Narendra Modi and said he is looking forward to “my companies doing exciting work in India”.
Source: The Financial Express
