Reforms in FDI Policy Framework

Government has taken measures to put in place an enabling investor friendly FDI Policyto ensure against opportunistic takeovers and acquisitions while also facilitating an increased flow of long-term capital, global technology, processes and international best practices to support the growth of the economy.This has resulted in increased FDI inflows setting up new records.Services sector is the largest recipient of FDI inflows in India.

The changes in the FDI policy can be broadly categorized as:

(a). Measures taken to allow greater foreign participation

1. Defence Sector: Now, FDI in defence sector is allowed up to 74 per cent through automatic route (from earlier 49 percent) for companies seeking new industrial licenses. FDI beyond 74 percent and up to 100 per cent will be permitted under Government route.
2. Insurance Sector: FDI limit has been raised from 49 percent to 74 percent in Insurance Companies under the automatic route and allow foreign ownership and control with safeguards.
3. Petroleum & Natural Gas Sector: Foreign investment up to 100 percent is permitted under the automatic route in cases where the Government has accorded an ‘in-principle’ approval for strategic disinvestment of a Public Sector Undertaking (PSU) engaged in the Petroleum and Natural Gas Sector.
4. Telecom Sector: Foreign investment up to 100 percent is permitted under automatic route in Telecom services sector.

(b). Curbing opportunistic acquisitions/takeovers: Government amended the FDI policy according to which an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, in the event of the transfer of ownership of any existing or future FDI in an entity in India, directly orindirectly, resulting in the beneficial ownership falling within the restriction/purview of the said policy amendment, such subsequent change in beneficial ownership will also require Government approval.

(c). Measures to improve transparency and to rationalize processes include amendment of the Standard Operating Procedure (SOP) to improve ease of processing FDI proposals.

(d). ‘FDI Monitoring Cell’ has been formed which follows up with applicant/ investor, to expedite FDI proposals .