On August 28, 2019, Commerce minister Piyush Goyal  ji, announced a host of changes in the current FDI policy. I am confident that these changes will usher in a new era in the Indian economy. The changes introduced also reflect the promises which were made by Nirmala Sitharaman ji in the Union Budget earlier this year.

 Statistics show that there has been an influx of USD 64.4 billion through FDI in 2018-19, making FDI a major component of the Indian economy. 

Let us take a look at the key policy changes announced and understand the potential impact.

Changes in the FDI policy

• Contract Manufacturing: 100% foreign direct investment is allowed in contract manufacturing. It is important to note that under the existing FDI regime, 100% FDI is allowed under the automatic route for manufacturing sector,. This enabled the manufacturers to sell their products which are manufactured in India through wholesale or retail. However, by allowing 100% FDI in contract manufacturing, the government has now allowed the investee companies to outsource the manufacturing activities under a lawful contract. 

This move will hugely boost the ‘Make in India’ initiative of the government.  I am certain that this change will attract giants like Apple Inc., to undertake contract manufacturing in India and open stores in India, which it has earlier refused to do.

• Single Brand Retail: The norms for single brand retail sourcing have been eased. As per the new norms, local sourcing requirements have been relaxed: this means that all procurements which are made in India, inclusive of where goods are sold in India and exported by such single brand retail company for the particular brand will be counted as local sourcing. Under the present laws, single-brand retailers with over 51% FDI have to locally source 30% of the value of goods sold. With the relaxation, the target can be averaged out during the first five years of the operation of the single-brand retail entity. Then the requirement will to be met annually.

I am convinced that this relaxation in particular will lure in international players like Uniqlo which can now start operations in India through online stores while physical stores are opened. This move will surely attract industry giants in a variety of sectors to invest in India. It will also result in the creation of more job opportunities within India. This move is in consonance with the promise of the present government to accelerate the growth of economy. I must congratulate the government on taking the right steps towards fulfilling the promise.

Swedish furniture giant IKEA has already congratulated the government’s move by stating that they are committed to increase local sourcing from India offer low prices of products for the many people in India. This is indeed very encouraging.

• Coal Mining sector: 100% foreign direct investment is now allowed in the coal mining sector under the automatic route. Earlier, 100% FDI was only allowed for captive mines. With the change in the regulation, the investors will have access to the coal mines beyond the usage of captive mines. 

It is expected that the bigwigs of the global coal industry like BHP Billiton, Shenhua Group, Peabody Energy and Anglo American Plc. will be attracted to the Indian markets as now they will be able to sell the coal that they mine.

• Digital news: Up to 26% FDI in digital news and current affairs media is allowed under the approval route. This move brings digital news services at par with print news. 

As per some of the industry experts, this relaxation will allow the domestic media houses to break up their digital media businesses and broadcasting and print businesses. In any case, this move is bound to attract the foreign players in the media sector.

Good news for the Indian economy

The relaxations in the norms are excellent news for the economy. Like I pointed out earlier, it will make India a more attractive destination for foreign investors. At the same time, it will help in the creation of more employment opportunities; local sourcing and contract manufacturing will mean that the global companies will now look for domestic talent. These moves also demonstrate the promise of Modi ji to liberalise the FDI regime. Critics who have been slamming the government for slowdown of economic growth should now be more optimistic. I am certain that these measures will reassure the confidence of the foreign investors and attract more FDI. The changes also reiterate the fact the government is committed to improve the ease of doing business in India. I am hopeful that the modified FDI regime will carve a new growth story for India.