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I
ndia
B
riefing
·
Issue 33
·
December
2016
Liberalized FDI Regime
The Modi-led government further liberalized India’s foreign
investment climate in 2016 in an effort to build investment
momentum and grow the country’s domestic manufacturing
capabilities. So far, two rounds of reforms (November 2015 and June
2016) under the present government have eased the restrictions on
the limit of FDI permitted, increased the number of sectors allowing
100 percent FDI, and put many sectors on the automatic route for
FDI approval.
Given Modi’s ambitious economic reform agenda, the government
views foreign investments as a critical source of non-debt financial
resources for India’s growth needs. High inbound investments are
therefore encouraged in most sectors and are expected to boost
employment prospects and infrastructure development. In fact,
the government also incentivizes foreign investment in sectors like
construction and expansion of roads, highways, railways, and ports
through greenfield and brownfield projects.
Further, the Union Cabinet has approved a scheme allowing the grant
of Permanent Residency Status (PRS) to foreign investors based on
a minimum investment of US$1.5 million (Rs 100 million) within 18
months or US$3.6 million (Rs 250 million) within 36 months.
Automatic & Government Routes
India offers two routes for allowing foreign investment – the
automatic route (which does not require pre-approval by the
government) and the government approval route. Approvals are
done by the Foreign Investment Promotion Board (FIPB). Recently,
the government expanded foreign investment limits under the
automatic route for several sectors, raising it to 100 percent FDI in
certain instances. If FDI exceeds the prescribed limit in the sector,
it must go through the government approval route for permission
to proceed.
In the next page, we list a few of the sectors under the automatic
and government approval routes as of June 2016.
Corruption Perception Index (CPI), Transparency International
Country
2014
2015
Rank
Score
Rank
Score
RUSSIA
136
27
119
29
SOUTH AFRICA
67
44
61
44
CHINA
100
36
83
37
NEPAL
126
29
130
27
SRI LANKA
85
38
83
37
BRAZIL
69
43
76
38
INDIA
85
38
76
38
PAKISTAN
126
29
117
30
BANGLADESH
145
25
139
25