Big Bang Reforms Part 2: FDI Norms Eased In Pharma, Aviation, Defence

Big Bang Reforms Part 2: FDI Norms Eased In Pharma, Aviation, Defence

NDTV Profit Team | Last Updated: June 20, 2016 15:06 (IST)

The decision to ease FDI norms was taken at a high-level meeting chaired by Prime Minister Narendra Modi today
The decision to ease FDI norms was taken at a high-level meeting chaired by Prime Minister Narendra Modi today

Hours after Raghuram Rajan said he will not seek a second term as Reserve Bank chief, the government on Monday eased foreign direct investment (FDI) norms in pharma, aviation and defence sectors in what is being called a major reform move.


The decision to relax FDI norms in key sectors, taken at a meeting chaired by Prime Minister Narendra Modi, is likely to calm foreign investors, rattled by the exit of Dr Rajan, analysts say.

The government had last year relaxed FDI norms in about dozen sectors, a move that helped FDI flows to hit an all-time high of $55.46 billion in 2015-16. The relaxation in FDI in more key sectors will provide major impetus to employment and job creation in India, the government said.

"This is the second major reform after the last radical changes announced in November 2015. Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI," the government added.

Under the new norms, 74 per cent FDI would be allowed in pharma sector under the automatic route, which means that foreign investors will not need government's approval to invest up to 74 per cent in existing domestic companies. Currently, FDI up to 100 per cent is permitted in new projects in the pharmaceutical sector while the government's approval is required for investing in existing companies.

The government also allowed 100 per cent FDI in scheduled airlines, where 49 per cent FDI was allowed under automatic route. However, existing rule that prevents foreign airlines from owning more than 49 per cent in scheduled airlines stays.

The decision to relax FDI norms in aviation space led to a sharp rally in listed carriers, with shares of SpiceJet, Jet Airways and InterGlobe Aviation gaining over 5 per cent.

In the crucial defence sector, foreign companies can own 100 per cent equity, according to the latest rules. Present FDI regime permits 49 per cent FDI participation in the equity of a company under automatic route.  FDI above 49 per cent is permitted through government approval on case to case basis.

India stock markets rallied sharply following the announcement of new FDI norms, with the BSE Sensex rising over 250 points and the Nifty edging close to the key 8,250.
Big Bang Reforms Part 2: FDI Norms Eased In Pharma, Aviation, Defence Big Bang Reforms Part 2: FDI Norms Eased In Pharma, Aviation, Defence Reviewed by Ajit Kumar on 3:14 PM Rating: 5

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