The government of India is opening up the Coal sector to 100% Foreign Direct Investment (FDI). It is one of the significant changes in the FDI policy for different sectors that the Modi Cabinet has approved on 28th August. Besides the Coal sector, Contract Manufacturing can also take in 100% FDI through automatic route. Government has brought about changes in the FDI policy for Single Brand Retailing Trade (SBRT) and has allowed 26% FDI in digital media.
An official statement says, “The amendments to the FDI Policy are meant to liberalize and simplify the FDI policy to provide ease of doing business in the country, leading to larger FDI inflows and thereby contributing to the growth of investment, income, and employment.”
FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country. Government has put in place an investor-friendly policy on FDI, under which FDI up to 100% is permitted on the automatic route in most sectors/ activities. FDI policy provisions have been progressively liberalized across various sectors in recent years to make India an attractive investment destination. Some of the sectors include Defence, Construction Development, Trading, Pharmaceuticals, Power Exchanges, Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting and Civil Aviation.
These reforms have contributed to India attracting record FDI inflows in the last 5 years. Total FDI into India from 2014-15 to 2018-19 has been the US $ 286 billion as compared to the US $ 189 billion in the 5-year period prior to that (2009-10 to 2013-14). In fact, total FDI in 2018-19 i.e. the US $ 64.37 billion (provisional figure) is the highest ever FDI received for any financial year.
Global FDI inflows have been facing headwinds for the last few years. As per UNCTAD’s World Investment Report 2019, global foreign direct investment (FDI) flows slid by 13% in 2018, to the US $1.3 trillion from the US $1.5 trillion the previous year – the third consecutive annual decline. Despite the dim global picture, India continues to remain a preferred and attractive destination for global FDI flows. However, it is felt that the country has the potential to attract far more foreign investment which can be achieved inter-alia by further liberalizing and simplifying the FDI policy regime.
In Union Budget 2019-20, the Finance Minister proposed to further consolidate the gains under FDI in order to make India a more attractive FDI destination. Accordingly, the Government has decided to introduce a number of amendments in the FDI Policy.