Govt. to simplify policy norms to attract more FDI in manufacturing

To make it easier to do business in India and attract capital from abroad in the manufacturing sector, the government is planning a fresh overhaul of its overseas investment regime.

This will be part of the government’s Make in India programme and is expected to be targeted more at cutting the need for prior government approval and simplification of the overall policy rather than extending sectoral limits.

A Finance Ministry official said that the Foreign Direct Policy should be simple. “Why should proposals for Rs 5 crore or so wait for government clearance," he said.

The attempt is to simplify the policy to reduce delays. The official said the FDI policy should be short and concise and, except for a few sensitive sectors, barriers can be brought down for all the rest.

"FDI in certain important sectors continue to be restricted, requiring government approval... Growth in sectors such as financial services and real estate is restricted due to minimum capitalisation and lockin conditions. There is scope for further liberalising these conditions," said Punit Shah, partner, Dhruva Advisors.

As part of this plan, the government could dust off an old proposal, based on globally prevalent practices, to link the policy with industrial codes. Foreign investors can just look at the codes and know the relevant FDI policy for it.

Let’s read what has been done so far to attract investment in the country:
1. The government has raised foreign investment limits in many sectors including defence and has even persuaded Parliament to approve a higher 49% limit in insurance. It has also moved to a composite cap system where the limits include all forms of foreign investment without any sub-limits.
2. The current policy allows up to 100% foreign direct investment (FDI) in many sectors such as telecom and pharma.
3. It allows foreign direct investment (FDI) up to 74% in private banks and other sectors and 49% in some industries.
4. However, no foreign investment is allowed in some sectors such as gambling, manufacture of cigarettes and atomic energy.

It is important to note that India ranks 142 out of 189 economies in ease of doing business. FDI flows are up 31% in the first four months of the current fiscal at $9.5 billion.

Meanwhile, government policymakers have said this will ensure an enabling environment for doing business in India.

The Foreign Investment Promotion Board has met every 25 days and final notification usually takes a few more weeks. This means the approval process can take as much as two months in the best-case scenario where a proposal is taken up and cleared in the first meeting.

Many proposals take more than one meeting to be decided on. Meanwhile, it's now possible to file foreign investment proposals online.

The FDI inflow under the approval route rose 87% in FY15 to $2.22 billion despite more sectors having been liberalised during this period. Also, more than 90% of FDI is via the automatic route.

The department of industrial policy and promotion has opted for National Industrial Classification, 2008, replacing the NIC 1987 as part of the initiative to make doing business easy.

(Image: Indiatimes)