Indian Finance Minister Piyush Goyal: AFP
Indian Commerce and Industry Minister Piyush Goyal. Photo: AFP

In order to kickstart the faltering economy the Indian government has announced a slew of relaxations in the foreign direct investment norms, which would bring significant changes in the retail, coal and digital media sectors.

According to announcements by Commerce and Industry Minister Piyush Goyal the rules for overseas single-brand retailers have been relaxed, taking into consideration their long-standing demands. They will now be allowed to conduct online retail trading prior to the opening of physical stores, subject to the condition that brick-and-mortar stores are established within two years from the date online operations begin, Mint newspaper reports.

While 30% local sourcing remains a mandatory condition for single-brand retail, some of the rules have been diluted. All procurements made from India by the entity for that single brand shall be counted towards local sourcing of 30%, irrespective of whether the goods procured are sold in India or exported.

The government also allowed 100% FDI in contract manufacturing, permitting large foreign electronics and pharmaceutical companies to directly invest in local or foreign contract manufacturers. This will provide a boost to the government’s Make in India policy.

Industry watchers now feel that these changes may bring in iconic smartphone maker Apple Inc to open exclusive stores in India.

Digital media

Another major announcement made was to allow 26% foreign direct investment in digital media platforms. This was previously only applicable to print media.

Industry experts point out that there was no explicit policy on digital media previously. These companies were part of the legal entities of their parent organizations. But the new norm will allow these digital platforms to seek separate valuation.

However, some also argue that current imposition of 26% is restrictive, as earlier there was no such cap, and hence it is not good for the sector.

Coal sector

The government has now approved 100% foreign direct investment under the automatic route in coal mining, processing and sales.

This move to fully open up coal mining to foreign players is expected to help bring in the latest technologies and reduce fuel shortages that have crippled the power sector. Currently, 100% foreign direct investment is allowed for coal and lignite mining for captive consumption by power projects as well as iron and steel and cement units.

This move will help global companies such as BHP, Peabody Energy and Glencore to own coal mines and carry out related operations in India.

The Indian economy decelerated to a five-year low of 5.8% growth in the March quarter, with many sectors facing consumption slumps. Most analysts expect the economy to slow down further in the June quarter, GDP data for which will be released on Friday.

Leave a comment

Your email address will not be published. Required fields are marked *