The Government of India has announced a new wave of
liberalization in its foreign direct investment ("FDI")
policy issued on Monday, 20 June 2016. These developments impact a
number of sectors in which investors have shown interest and are
anticipated to provide further impetus to India's strong
economic growth trajectory.
100-percent FDI is now far more
easily achievable in the defence sector. Currently, 49 percent is
permissible through the automatic route, which means that
government approval is not required for up to 49-percent
investment. Investment beyond 49 percent is on a case-by-case basis
and subject to India being likely to obtain access to "state
of the art" technology. With the new reforms, the
consideration regarding access to "state of the art"
technology has been removed and investments in defence over and
above 49 percent and up to 100 percent will be permitted through
the government approval route;
100-percent FDI is now permitted in
the scheduled airlines industry; however, foreign airlines will be
able to hold up to only 49 percent of paid-up capital in the entity
In the pharma sector, up to
74-percent FDI will be permitted via the automatic route;
100-percent FDI in existing airport
projects is now permitted; and
100-percent FDI under the government
route for trading of food products manufactured or produced in
India, including those traded online, will now be permitted.
Single-brand retail has also benefitted by the latest round of
reforms. The Indian Government has announced a three-year
relaxation on local sourcing requirements that had stipulated that
30 percent of the products that such retailers sold had to be
sourced from within India, with an extension of up to five years
possible. This measure had previously been implemented in order to
encourage local manufacturing; however, the Indian Government has
chosen to adopt a long-term view on this agenda.
The latest reforms are anticipated to attract considerable
interest from companies that have been closely monitoring the
reform cycle. Indian Prime Minister Modi declared on Monday that
the latest round of reforms "makes India the most open economy
in the world for FDI." The reforms are also expected to have a
positive impact on job creation, training and development.
If you have any questions about this Alert,
please contact Babita Ambekar, any of the attorneys in the India
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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