The Indian government on Friday [July 5] said it will consider further liberalizing foreign direct investment (FDI) rules in certain sectors, part of its efforts to make Asia’s third-largest economy a more attractive investment destination.
Presenting the annual budget for 2019/20, Finance Minister Nirmala Sitharaman said the government would hold discussions with stakeholders to relax FDI rules in the aviation, media, animation and insurance sectors, and ease rules for single-brand retailers.
“I propose to further consolidate the gains in order to make India a more attractive FDI destination,” Sitharaman said.
Broadening access to India’s economy for foreign investors could help Prime Minister Narendra Modi, who won a thumping election majority in May but is still battling a slowdown in economic growth and foreign inflows.
The government’s move to ease FDI rules is also seen aimed at assuaging concerns of foreign investors who have become wary of India’s investment climate of late, especially after new FDI rules for the e-commerce sector were seen as protectionist.
Sitharaman did not provide many details about the proposals, but there are plenty of clues about the directions the government may be heading in a government document, dated May 3, seen by Reuters. And they may be more ambitious than those made public on Friday.
That document outlined what it called the “justification” for easing FDI rules for seven sectors, including single-brand retail and insurance – which Sitharaman mentioned on Friday.
The document also laid out FDI proposals for digital media, contract manufacturing, coal mining, certain plantation crops and firms that store financial information for bankruptcy proceedings.
The proposals included the extension of FDI limits in some of the sectors, while easing rules for others. Told about the plans listed in the document, three senior Indian officials told Reuters last month the proposals had been in the works for some time.
At the time two top officials, Secretary of India’s industries department Ramesh Abhishek and Additional Secretary Shailendra Singh, told Reuters there were no FDI changes under consideration, calling Reuters findings based on the government document speculative. The industries department is the key ministry for FDI reforms.
Abhishek and Singh did not respond to a Reuters request on Friday seeking clarifications on their earlier remarks.
For the insurance sector, the government document proposed that investment of up to 74% should be allowed with necessary government approvals, above the current 49% limit that is allowed without approval under a so-called automatic route.
The move would come as a boost to firms such as Italy’s Generali Group, France’s AXA and U.S. insurer MetLife Inc , which already operate joint ventures in India.
Explaining the rationale, the government document said the private banking sector was “financially more sensitive” but allowed up to 74% foreign investment, and so the limits for the insurance sector should be relaxed to provide parity.
Sitharaman on Friday said the government would allow 100% FDI in insurance broking and ease local-sourcing regulations for the single-brand retail sector – both proposals that were listed in the government document seen by Reuters. Multi-brand retailers, who would not be covered, would include department store companies selling a wide range of goods.
In addition, the document also proposed considering that single-brand retailers be allowed to sell goods online without first opening physical stores, as the current policy mandates. That, if approved, would allow companies such as Apple Inc to sell its devices online without first opening shops.
“Online sales will lead to creation of jobs in logistics, digital payments, customer care, training, and product skilling,” said the document, calling the current requirement of first opening physical stores an “artificial restriction.”
(Reporting by Aditya Kalra and Aftab Ahmed; editing by Martin Howell and Alex Richardson)
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