The government allowed on Wednesday foreign direct investment (FDI) in coal mining, contract manufacturing and digital media. Meanwhile it eased rules for single-brand retail to make it attractive for global brands such as Uniqlo, Apple and IKEA to invest in the country.
Separately, the finance ministry has notified rules allowing 100% FDI for insurance intermediaries. The FDI changes are in line with budget announcements, although a decision on aviation is awaited. “The changes in FDI policy will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment and growth,” commerce and industry minister Piyush Goyal told reporters after the Cabinet meeting.
The easing of FDI norms comes days after finance minister Nirmala Sitharaman unveiled a raft of measures to provide a boost to a slowing economy. The moves come amid an anticipated slowdown in global FDI flows and are aimed at spurring investment, especially in new ventures, given that domestic companies are refusing to pump in money in expanding facilities, citing excess production capacity.
At least two of the changes are aimed at more high-profile businesses. So, easier rules in single-brand retail are aimed at helping international players such as Japanese retailer Uniqlo, which can now hope to undertake online sales for two years while it opens its retail outlets. Swedish furniture and household goods retailer IKEA, for instance, could not undertake online sales till it opened its first store in Hyderabad recently.
Similarly, by allowing 100% FDI in contract manufacturing, the government is hoping to attract investment from companies such as Apple that has so far stayed away from India, demanding special sops. Although the government had in the past too eased rules for the iPhone manufacturer, by reducing the sourcing burden, the American giant has refused to open stores in the country. Besides, rules were eased on Monday to treat exports from India as part of the 30% domestic sourcing obligation, Goyal announced.
The minister said the twin moves are aimed at making Indian companies part of the global value chain at a time when international players are looking at expanding their footprint beyond China and locating in other markets.
“The changes to FDI norms may well reposition India on the global map — 100% FDI via automatic route for contract manufacturing is true to the ‘Make in India’ initiative and will attract global players looking to set up alternate manufacturing hubs. In the same vein, adding exports to the local sourcing norms may help build larger capacities, reinforcing India’s stand as a potential global manufacturing hub,” said Harsha Razdan, a partner at consulting firm KPMG.
Analysts said that the change in the rules for coal mining, where 100% FDI was allowed in case of captive mines only, is expected to open the doors for the entry of global giants such as BHP Billiton, Shenhua Group and Anglo American Plc. Now, these companies will be allowed to sell coal that they mine apart from handling, separation, washing and crushing. Over the last five years, the Narendra Modi government has eased the rules for the coal sector, while moving to a system of auctioning blocks following a Supreme Court order. The steps are meant to reduce coal shortages in India, which is among the largest global producers of the mineral.
“The complete opening up of coal mining to foreign investment beyond the captive use is a welcome step. The discoms are really the beneficiaries of this as they can now attract larger global operators with lower cost of capital to undertake end-to-end coal mining of their allocated blocks to reduce the fuel costs,” said Kameswara Rao, who leads the energy and mining practice at consulting firm PwC India.