India relaxes foreign investment rules

India has further liberalized the foreign direct investment (FDI) rules in various industrial sectors including telecoms, single brand retail and oil and gas. 10o percent FDI will be allowed in the telecoms sector. Foreign invetsors are currently allowed to hold a maximum of 74 per cent in local phone carriers. This means that companies like Vodafone, Telenor and other major international telecom companies will be able to operate in India without requiring an Indian partner. 100 percent FDI will be allowed in single brand retail – 49 per cent through the automatic route and 49-100 per cent through the Foreign Investment Promotion Board (FIPB). The FDI limit of 49 percent in civil aviation and 26 percent in defence production remains the same. However, a FDI proposal above 26 per cent may be considered if the investment is in the state of the art technology. The following are some of the highlight of the new FDI limits:

  • Telecoms –FDI cap raised to 100 per cent from the current 74 per cent.
  • Civil Aviation – No change from the current limits of 49 per cent.
  • Defence production – FDI cap in defence production to remain at 26 per cent. Consideration may be given to proposals above 26 per cent if investment is in state of the art technology.
  • Single brand retail – 100 per cent FDI allowed in single brand retail – 49 per cent through the automatic route and 49-100 through the FIPB route.
  • Insurance – FDI limit raised to 49 percent from the existing 26 per cent.
  • Petroleum refining – FDI upto 49 per cent allowedunder automatic route compared with the current policy of FIPB approval route.
  • Power exchanges – 49 per cent FDI allowed through the automatic route compared with the current FIPB route.
  • Asset Reconstruction companies – FDI limit raided to 100 per cent from the current 74 per cent. Up to 49 per cent will be through the automatic route.
  • Credit information companies – FDI limit raised to 74 per cent from the existing 49 per cent.
  • Stock Exchanges – 49 per cent FDI allowed under automatic route.
  • Courier services – 100 per cent FDI allowed.
  • Tea plantations – FDI raised to 49 per cent through the automatic route; 49 – 100 per cent through the FIPB route.

This new FDI rules comes at a time when the Indian Rupee is at an all time low against the US dollar, hitting an all time low of 61.21 against the US dollar. The government will be hoping that the relaxation in the rules will attract investment, strangthen the currency and bolster the economy.