India Now the most open economy in the world. Changes in FDI Regime in India. June Prepared by. T&A Consulting

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1 India Now the most open economy in the world Changes in FDI Regime in India June 2016 Prepared by

2 The BJP led Modi Government liberalized the FDI regime on 20 th June Under this announcement, about 94% of the sectors would be under automatic approval route. This is the second major reform after the last radical changes announced in November Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. These amendments seek to simplify the FDI regulations in the country and make India an attractive destination for foreign investors. Prime Minister Narendra Modi tweeted: In two years, Govt brings major FDI policy reforms in several key sectors India now the most open economy in the world for FDI; most sectors under automatic approval route. He added: Today s FDI reforms will give a boost to employment, job creation & benefit the economy. The Narendra Modi Government had made certain significant changes to the Consolidated FDI Policy ( FDI Policy ) in November 2015 with a view to liberalising India s foreign direct investment ( FDI ) framework. In furtherance of its endeavor to relax FDI Policy for foreign investors, the Government has through its Press Release dated June 20, 2016 ( Press Release ), announced far reaching changes to the foreign direct investment, in order to further facilitate ease of doing business in India, provide a major impetus to employment and job creation, incentivize industrialization and attract greater inflow of FDI into India. The changes introduced can be classified into the following heads Increase in Sectoral Caps Sectors brought under Automatic Route Liberalization of Sectoral Conditions Pharmaceuticals Airports Civil Aviation Private Security Agencies Food Products Broadcasting Defence Manufacturing Animal Husbandry Single Brand Retail Trading Branch/Liaison/ Project Office 1 P age

3 Food Retail The Government has decided to permit 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India. The government s move on Trading of food retail has made it easier for Walmart, Marks and Spencer and Tesco, among others, to set up food manufacturing and food-only retail bases in India. Single Brand Retail Trading The Government has decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having state-of-art and cutting edge technology. The decision on FDI reforms on Single Brand Retail, will pave the way for companies such as Apple Inc to open its own stores in India. Apple has been lobbying for the exemption from the mandatory 30 per cent local sourcing on the grounds that its products have such high-end technology and were therefore could not be sourced locally here. 2 P age

4 Civil Aviation The government has permitted 100 per cent FDI in Indiabased airlines. However, a foreign carrier can only own upto 49 per cent stake in the venture, and the rest can come from private investors including those based overseas. This is expected to bring in more funds into domestic airlines. To boost airport development and modernisation, 100 per cent FDI in existing airport projects has been allowed without government permission, from 74 per cent permitted so far. The new FDI regime for civil aviation will attract Ground Handling companies and will bring professionalism & expertise into the sector. The biggest beneficiary will, however, be the general aviation space, where entry of foreign players will bring in a lot of significance into the sector. The 100% FDI could also make Indian airlines interesting to foreign capital markets that could support initial public offerings without worrying about foreigner ownership limits. With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an Indian airline company by working in concert with a related party. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation s sovereign wealth fund, Qatar Investment Authority. 3 P age

5 Defence In defence, foreign investment beyond 49 per cent (and upto 100 per cent) has been permitted through the government approval route, in cases resulting in access to modern technology in the country. The decision to scrap the condition of access to state-of-the-art technology for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. The decision is expected to attract major firms such as Heckler and Koch, Beretta, Colt and IWI to India, which has a requirement of firearms for the armed forces, paramilitary as well as police forces. Heckler & Koch GmbH is a German defence manufacturing company Colt's Manufacturing Company is an American firearms manufacturer Israel Weapon Industries (IWI),. (IMI) is an Israeli firearms manufacturer Further, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its Joint Venture with a local partner to make the Gripen air craft in India. Note: The above information has been collated from various media releases and news articles 4 P age

6 About is a boutique advisory firm with extensive experience of working with overseas enterprises towards achieving successful and accelerated entry into India s portfolio of market entry services includes opportunity assessment, feasibility studies, partner identification (Joint Venture, distributor, vendor, licensee and franchisee) competitor analysis, price benchmarking, location identification and technology collaboration. has built a network of relationships in key sectors of the Indian economy including education & training, medical technology, healthcare, life sciences, food and agriculture, energy, financial services, transportation and logistics, ICT, automotive, gems & jewellery, advanced manufacturing, clean technology and electronics. Our International engagement s includes India representative Queen s University, Belfast Strategic Advisor Switzerland Trade & Investment Promotion" India representative "Six Swiss Exchange" India representative "South Carolina Department of Commerce" India Trade advisor "Invest Northern Ireland" India Trade Advisor Finpro Oy Approved list of advisory Service Providers by US Commercial Service, Australian Trade Commission (Austrade) and MATRADE (Malaysia External Trade Development Corporation) 5 P age