India: Government woos global investors and opens doors to new FDI

The government recently allowed foreign direct investment (FDI) in the sectors of coal mining, digital media, and contract manufacturing while simplifying rules for all the single-brand retailers to make it more attractive and appealing for global brands like Apple, Uniqlo and IKEA to come and invest in the country.

Additionally, the finance ministry has informed about new rules that allow 100 percent FDI for insurance intermediaries. These FDI amendments are in line with the recent budget announcements, though a ruling on aviation is still awaited. “The changes in FDI policy will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment and growth,” said Piyush Goyal, the commerce and industry minister.

This simplification of FDI norms has been done days after India’s finance minister Nirmala Sitharaman introduced a draft of new measures to offer a boost to the slowing economy. These steps come amidst a predicted slowdown in the flow of global FDI and are aimed at encouraging investment, particularly in new ventures, provided that domestic firms are denying to pump in money for expanding facilities, quoting the main reason as excess production capacity.

At least two of these amendments are intended for more high-profile businesses. Thus, simpler rules in single-brand retail are basically aimed at supporting international players like Japanese retailer Uniqlo, who can now hope to accept online sales for the next couple of years while it opens its retail outlets. The Swedish household goods and furniture retailer IKEA, for example, could not commence online sales till the time they opened their first store in Hyderabad city recently.

Likewise, by permitting 100 percent FDI in the field of contract manufacturing, the government is hoping to pull in investment from big organizations like Apple that has stayed away from India so far and has been demanding some special sops. Though the government eased rules in the past too for the iPhone manufacturer, by decreasing the sourcing burden, this American giant has not agreed to open stores in the country. In addition, some rules were simplified recently to treat all the exports from India as part of the 30 percent domestic sourcing obligation, Piyush Goyal announced.

The minister also mentioned that the twin moves are basically meant to make Indian companies a part of the international value chain especially at a time when global players are thinking of expanding their footprint much beyond China and setting up in other markets as well.

Various analysts are of the view that the amendment in the rules for the coal mining sector, where 100 percent FDI was permitted in case of captive mines only, is now expected to open the entry for global giants like Shenhua Group, BHP Billiton and Anglo American Plc. Now, these organizations would be permitted to sell the coal that they mine besides the process of handling, separation, washing the coal and crushing it. In the last five years, the government led by Narendra Modi has simplified the rules for the coal sector, and has also moved to a method of auctioning blocks after a Supreme Court order. These steps are intended to tackle with the coal shortages in India, which happens to be among the biggest global producers of the mineral.