Post tax, govt now reforms FDI to propel growth

Coming within a week of Finance Minister Nirmala Sitharaman unveiling a raft of measures to boost growth, the Union Cabinet headed by Prime Minister Narendra Modi liberalized foreign direct investment (FDI) rules in the four sectors. “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 Minister Piyush Goyal told a media briefing after the meeting of the Union Cabinet.

He said 100 pc FDI under automatic route in coal mining and sale of coal as also associated infrastructure activity has been allowed to help attract international players to create an efficient and competitive coal market.

Also, 100 pc FDI under automatic route has been allowed in contract manufacturing to give a big boost to domestic manufacturing. In single-brand retail trading (SBRT), the definition of 30 pc local sourcing norm has been relaxed and online sales permitted without prior opening of brick and mortar stores. “Online sales will lead to the creation of jobs in logistics, digital payments, customer care, training and product skilling,” he said.

On Friday, Sitharaman had announced tax incentives and some reforms across a variety of sectors in an effort to stimulate slowing economic growth. After rapidly expanding in last couple of years, India’s economic growth momentum has been slipping since the last 3-4 quarters. Not only did GDP growth fall to a 20-quarter low of 5.8 pc in January-March, tell-tale signs of distress are visible in sectors like NBFCs, automobile, real estate, and FMCG.

To pull out the economy from the current slump, the finance minister provided tax relief for foreign portfolio investors (FPIs) and startups coupled with targeted steps for the automobile sector and upfront support of Rs 70,000 crore to public sector banks with an aim to revive demand conditions.

Goyal said decisions of the Cabinet are aimed to “liberalise and simplify the FDI policy to provide ease of doing business in the country, leading to larger FDI inflows and thereby contributing to the growth of investment, income and employment”.

FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country. The Centre has put in place an investor-friendly policy on FDI, under which investment up to 100 pc is permitted on the automatic route in most sectors/ activities.

These reforms have led to total FDI into India reaching $286 billion in five years from 2014-15 to 2018-19 as compared to $189 billion in the previous five-years, he said. At $64.37 billion, FDI in 2018-19 is the highest ever investment received for any financial year.