Policy easing: A cracking start needs a strong finish

India’s inflow of foreign direct investment (FDI) rose to US$55.46 billion in 2015-16 from US$36.04 billion in 2013-14 due to radical liberalization by the current government.

Efficient and swift decision making has replaced policy paralysis, leading to a slew of FDI reforms. These include: moving about seven sectors from the approval to the automatic route; removing sectoral caps in about 10 sectors; recognizing only two levels of caps (49% and 100%, barring in two sectors); introducing full fungibility between direct and portfolio investments for reckoning compliance with sectoral caps; allowing FDI in multi-brand retailing of food products manufactured in India; introducing significant reforms in the construction development sector; and allowing investment in real estate and infrastructure investment trusts and alternative investment funds.

Further, the marketplace model for e-commerce has been recognized under the guidelines issued by the Department of Industrial Policy and Promotion (DIPP). In the pharmaceutical sector – one of the largest recipients of FDI – a foreign investor can now acquire up to 74% of the equity of a brownfield pharmaceutical company, without prior approval by the Foreign Investment Promotion Board (FIPB). Also particularly noteworthy is permitting 100% FDI in the defence sector, in certain cases, with 49% under the automatic route.

Vaibhav Kakkar is a partner and D Preethika is an associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.