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Home / India News / Relaxation in regulations to encourage foreign investments, consolidate gains

Relaxation in regulations to encourage foreign investments, consolidate gains

India received robust inflows of FDI in the last financial year despite global headwinds, finance minister Nirmala Sitharaman said in her budget speech, adding that the government wanted to consolidate the gains.

india Updated: Jul 06, 2019 00:19 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
Jet airways Aircraft taxis for take off at Mumbai International Airport in Mumbai, on July 24, 2009.
Jet airways Aircraft taxis for take off at Mumbai International Airport in Mumbai, on July 24, 2009. (Photograph: ABHIJIT BHATLEKAR/MINT)

The budget on Friday proposed to permit 100% foreign direct investment (FDI) in insurance intermediaries like brokers, advisers and web aggregators, promised to ease local sourcing norms for single-brand retailers and to examine proposals for opening up wider to overseas investors in some sectors such as aviation, insurance and the media segment that comprises animation, visual effects, gaming and comics, or AVGC.

India received robust inflows of FDI in the last financial year despite global headwinds, finance minister Nirmala Sitharaman said in her budget speech, adding that the government wanted to consolidate the gains.

“India’s FDI inflows in 2018-19 remained strong at $ 64.375 billion, marking a 6% growth over the previous year,” she said .

Global FDI flows declined by 13% in 2018 to $1.3 trillion from $1.5 trillion the previous year, the third consecutive annual decline, she said, citing the United Nations Conference on Trade and Development’s World Investment Report 2019.

The move to raise the FDI limit in insurance, which should attract more foreign investments, is belated, experts said. EY India partner & leader - financial services advisory, Sandeep Ghosh, said the government should have allowed 100% FDI in insurance intermediaries in 2015 when foreign investment norms had been changed.

“In the first instance, to apply the same cap [of 49%] to both insurance manufacturing [insurance companies] and intermediaries [insurance agents, web aggregators of insurance policies, brokers] was not ideal,” he said.

“World over there are a number of specialist brokers, aggregators and other intermediaries who would be encouraged to set up operations in India. This would lead to market expansion, innovative and superior offerings for customers,” he said.

India needs continued and increased foreign investment inflows to power economic growth, experts said. Gross domestic product eased to 6.8% in the financial year ended March 31, from 7% the previous year.

“It is clear that India needs investment dollars to drive growth. The statement regarding easing FDI norms for aviation, media, single brand retail and insurance intermediaries is welcome and will spur investments..,” said Vivek Gupta, partner and national head of the merger and acquisitions and private equity tax practice at KPMG in India.

He also noted signals around enabling more foreign portfolio investor participation in the debt market and more capital into platforms such as real estate investment trusts and infrastructure investment trusts.

Easing local sourcing norms for single-brand retail would also attract more FDI, experts said.Existing norms stipulate 30% local sourcing by such retailers, preferably from micro, small and medium enterprises (MSMEs), village and cottage industries,and artisans and craftsmen if foreign investment in a local venture exceeds 51%.

“While there was a recent relaxation provided to offset the sourcing from India for global operations against the local sourcing, the same didn’t have the expected impact to boost FDI in the sector,” said Paresh Parekh, partner and national tax leader, consumer products and retail, EY India.

“There was a lot of reluctance by the existing foreign joint venture players in the sector to increase FDI beyond 51% to avoid coping with the sourcing norms and also reluctance shown by new foreign brands to enter the sector owing to the sourcing norms,” Parekh added.

He said that the budget proposal to relax the local sourcing conditions in the sector should have a positive impact on existing single-brand retailers as well as the sector as a whole owing to new FDI inflows.

On opening up the entertainment and media industry to FDI, the finance minister said the government would examine a suggestion to permit overseas investment in and AVGC and decide in consultation with stakeholders in the sector.