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RECENT LIBERALIZATION IN FOREIGN DIRECT INVESTMENT (FDI) LIMITS IN INDIA

An investment made by a company or entity based in one country, into a company or entity based in another country, in order to acquire management control and profit sharing or the whole ownership of an accredited company operating is called Foreign Direct Investment (FDI). It plays an extraordinary and growing role in global business. FDI in India is subject to certain Laws, Rules and Regulations and is also subject to predefined limits in various sectors which range from 20% to 100%. There are also numerous sectors where in FDI is not permitted by the Union Government of India. From time to time the FDI limits are reviewed by the Government as per its need. FDI is permitted in new sectors where the limits of investment in the existing sectors are modified accordingly. In order to liberalize the FDI limits to attract more foreign Investor in India, the Union Government of India constituted a committee named, Arvind Mayaram (Rajasthan Cadre IAS Officer) Committee headed by the Economic Affairs Secretary. On July 16, 2013 the Government approved the recommendations given by this Committee to step up the FDI limits in twelve (12) sectors out of the proposed twenty (20) sectors, including defence and telecom, which were considered very crucial.
 
There were significant changes approved in the Existing FDI Limits on the recommendation of Arvind Mayaram Committee, are provided below:
 
1. FDI Limit in Telecom Sector is increased from 74 percent to 100 percent, out of which up to 49 percent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) i.e. Government of India approval. A similar regime has been considered for Asset Reconstruction and Tea Plantations sector's Companies.
 
2. FDI in Gas Refineries, Commodity Exchanges, Power Trading and Stock Exchange have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 percent under automatic route as against current routing of the investment through FIPB.
 
3. FDI Limit in Single Brand Retail Trading is allowed 100 percent, out of which up to 49 percent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB).
 
4. 74 percent FDI shall be allowed in Credit Information Companies via automatic route.
 
5. FDI limit in defense sector has been unchanged (26%), however higher limits of foreign investment in ―state-of-the-art‖ manufacturing would be considered by the Cabinet Committee on Security (CCS). It means CCS may permit up to 100% FDI in the State-of-Art‖ manufacturing.
 
6. FDI limit of courier services shall be allowed up to 100 percent under automatic route. Earlier it was allowed similar amount of investment through FIPB route.
 
7. In the emerging insurance sector, FDI cap has been increased from 26 percent to 49 percent via automatic route under which companies investing do not require prior government approval.
 
Civil Aviation, Airport, Media, Multi-brand Retail and Brownfield (existing firms) pharmaceuticals Sector were expected to be increased FDI limits, however it remain unchanged.
 
FDI inflows have affirmative impact by supplementing domestic capital, technology and skills of existing companies including in the telecom sector, as well as through establishment of new companies. Keeping in view the need of more telecom companies, investment by foreign investor has been allowed up to 100 Percent out of which 49% will be allowed under automatic route. In India, FDI in telecom sector has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, a competitive business environment. A sectoral analysis demonstrates that FDI shows a steady increase and has become a backbone for India's success. The telecom & other sectors are the reason for the success of India Infrastructure.

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