Budget 2019: Govt proposes to ease FDI in aviation, media and insurance sectors

The budget also announced that local sourcing norms will be eased for FDI in Single Brand Retail sector from the current mandatory norm of 30%.
Budget 2019: Govt proposes to ease FDI in aviation, media and insurance sectors
Budget 2019: Govt proposes to ease FDI in aviation, media and insurance sectors

In a bid to make India an investment-friendly state and attract more global investment to the country, Finance Minister Nirmala Sitharaman announced that the government will further open up foreign direct investment (FDI) in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.  

In terms of FDI in media, which includes Animation, Visual effects, Gaming and Comics, the government currently allows 26% FDI in publishing of newspapers and periodicals involved with news and current affairs through the approval route.

It was also announced that 100% Foreign Direct Investment (FDI) will be permitted for insurance intermediaries.

In aviation, currently, foreign airlines can invest up to 49% in Indian airlines.

The budget also announced that local sourcing norms will be eased for FDI in Single Brand Retail sector. Currently, foreign companies are mandated to source 30% of their raw materials locally. This move will come as a big boost for companies such as Apple and other Chinese technology majors. In fact, Apple had been seeking the same from the government for a long time.

According to Paresh Parekh, Partner and National Tax Leader, Consumer Products and Retail, EY India, 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. There was a lot of reluctance by the existing foreign JV 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.

“Accordingly, the budget proposal to relax the local sourcing conditions in the sector should have a positive impact for the existing players and also to the sector owing to the new FDI which should now enter the sector. While there were expectations around relaxing the stringent conditions in the Multi Brand Retail Sector as well, this proposal should give an initial boost to the retail sector while laying a road map for further relaxations,” he says.

“FDI inflows into India have remained robust despite global headwinds.  Global Foreign Direct Investment (FDI) flows slid by 13% in 2018, to US$ 1.3 trillion from US$ 1.5 trillion the previous year – the third consecutive annual decline, according to UNCTAD’s World Investment Report 2019.  India’s FDI inflows in 2018-19 remained strong at US$ 64.375 billion marking a 6% growth over the previous year,” Sitharaman said in her budget speech.

Further, she announced that the Government is contemplating organising an annual Global Investors Meet in India, using National Infrastructure Investment Fund (NIIF) as the anchor, to get all sets of global players—top industrialists, corporates, top pension/insurance/sovereign wealth funds and top digital technology/venture funds.

In a bid to attract more cross-border investments, the budget also proposes to increase the statutory limit for Foreign Portfolio Investors (FPI) in a company from 24% to sectoral foreign investment limit with option given to the corporates concerned to limit it to a lower threshold.

Foreign Portfolio Investment (FPI) is investment made by non-residents in Indian securities. This can include shares, government bonds, corporate bonds, convertible securities, among others.

And to further provide non resident Indians (NRIs) with more access to Indian equities, the budget also proposes to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route.

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