An attractive bet

With the slowdown in the economy, especially in the auto sector, the easing of FDI norms could provide the much-needed relief

AuthorPublished: 30th Aug 2019  12:00 amUpdated: 29th Aug 2019  11:58 pm

India’s economic growth has been declining since the last one year. Not only did the growth fall to a 20-quarter low of 5.8% in January-March, but there were also signs of distress in sectors such as NBFC, automobile and real estate. To reverse this phenomenon, the Central government, in a fresh move, allowed 100% foreign investment in coal mining and contract manufacturing, eased local sourcing norms for single-brand retailers and cleared 26% overseas investment in digital media. The Union Cabinet headed by Prime Minister Narendra Modi on Wednesday liberalised foreign direct investment (FDI) rules in these four sectors. In the coal sector, foreign companies can now invest 100% for mining and sale of coal under the automatic route. They will also be allowed to carry out other associated processing infrastructure related to the sector such as coal washeries, crushing and coal handling. To streamline contract manufacturing, 100% FDI has been allowed under the automatic route. In addition, the Centre permitted 26% overseas investment through the government approval route for uploading/streaming of news and current affairs through digital media, on the lines of print media. In single-brand retail trading, the definition of 30% local sourcing norm has been relaxed and online sales have been permitted without prior opening of physical stores.

The fresh FDI move is aimed at liberalising and simplifying the FDI policy to enable ‘ease of doing business’ in the country, leading to more FDI inflows and thus contributing to the growth of investment, income and employment. The past FDI reforms have led to total FDI into India reaching $286 billion in five years from 2014-15 to 2018-19 as compared with $189 billion in the previous five years. The fresh move comes within a week of Finance Minister Nirmala Sitharaman unveiling a series of measures to boost growth. With the slowdown in the economy, especially the auto sector taking a big hit, this policy could be a booster dose. It would also put India on the global supply chain map. The move to permit 100% FDI in contract manufacturing will further make way for the success of ‘Make In India’ campaign. These efforts to create a level-playing field for foreign investors by removing market access barriers will go a long way in boosting investor sentiment and reviving manufacturing apart from creating jobs in the country. Several industry bodies and global agencies, including the US India Strategic and Partnership Forum, have recognised this move as the one that will help India not only in the revival of short-term growth but also provide a platform for long-term economic stability.

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