What India's decisions on FDI mean

NEW DELHI: The government on Monday allowed 100 per cent FDI in trading of food products, including through e-commerce, to boost food processing sector in the country. The decision was taken at a meeting chaired by Prime Minister Narendra Modi. The government had in Budget this year announced that 100 per cent FDI would be allowed through FIPB route in marketing of food products produced and manufactured in India. What the decisions mean: 100% FDI in projects that make or produce food products locally or trade in them, including through e-commerce What does it mean? The sole new segment that has really been thrown open on Monday. All the other decisions either increase the quantum of already allowed foreign investment or ease conditions for such investments. The food-processing segment will gain if foreign investors show interest • Local sourcing norms relaxed for single-brand retail trading What does it mean? Single-brand retailers such as Apple, whose chief had met the Prime Minister last month, to benefit. Apple is trying to expand its presence in India, the world’s fastest-growing smartphone market, when sales in the US and China have slowed. Under the relaxed norms, Apple would have three years to meet the sourcing rules with an extension of another five years if its products are judged “state-of-art” and “cutting edge” • 100% FDI allowed in airlines What does it mean? The doors are being fully thrown open only to non-aviation foreign investors. The cap of 49% stake for foreign airlines in such projects is still in place, although they can go beyond ceiling through the indirect investment route • Automatic approval for 74% FDI in brownfield pharma What does it mean? Brownfield means existing projects. Foreign investors can now pick up to 74 per cent in existing pharma projects without government approval. But previous rules allowed 100 per cent foreign ownership if government approval was obtained, and analysts doubted the change would have a big impact • 100% automatic FDI for brownfield airport projects What does it mean? 100% FDI was already allowed but with government approval if it crossed 74 per cent. The change to 100% automatic FDI cuts tape and adds to ease of investing. It is designed to provide impetus to the plan to start airline services to regional destinations • 100 per cent FDI in defence projects without the condition on access to “state of the art” technology What does it mean? The phrase has now been modified to “modern or for other reasons”, which widens the scope of investment by foreign players. Defence foreign funds inflows to India have been poor till now — last year, it was a paltry Rs 1.12 crore. Since there is only one big customer (the defence ministry), unless the government steps up orders, investments are unlikely to pick up. One segment where a government monopoly could be broken is the manufacture of small arms and ammunition, for which also the new rules will apply. This could mean that some of the pistols and rifles of less than 12mm calibre, now made in the Ordnance Factory Board factories in Ichhapore and Cossipore in Bengal, may be manufactured by foreign companies. QUICK RESPONSE Some companies welcomed the news, but others and industry analysts said changes in several industries appeared limited and the headline-grabbing announcement was more about seeking to wrest control of the economic narrative.