FDI policy: What is needed to draw more investment?

Start-up India, Make in India and other ambitious government initiatives, coupled with a liberalized policy and legislative improvements in areas such as insolvency and taxation, have resulted in India rising to 100th on the World Bank’s ease of doing business index from its previous rank of 130. The consolidated foreign direct investment (FDI) policy, 2017, released on 28 August, reflects the government’s efforts to accelerate economic growth and create an investor-friendly environment.

The revised policy, in addition to consolidating changes made since last year’s policy (phase-out of the Foreign Investment Promotion Board, easing of FDI in startups, liberalization of sectors such as defence, aviation, pharmaceutical, financial services, etc.) announced fresh reforms in certain areas.

The FDI policy has long permitted a manufacturing entity to receive 100% FDI under the automatic route and allowed such an entity to undertake wholesale and retail trade (including e-commerce). However, in 2016 the government introduced a policy amendment stating that an Indian manufacturer would be required to manufacture at least 70% of its products in-house and source at most 30% from other Indian manufacturers, failing which the manufacturer would have to adhere to single-brand retail trading conditions including local sourcing norms. To the relief of the Indian manufacturing sector, the 70:30 norm has been removed in the revised policy.

Deepak THM is a partner and Vivek Pareek is a managing 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.