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बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. Big reforms in FDI: Comment on recent large scale reforms in Foreign Direct Investment (FDI) in various sectors.
Jun 21, 2016 Related to : GS Paper-3

Ans :

Introduction-

Recently central government has eased norms for Foreign Direct Investment (FDI) in host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership.

Key features of FDI reforms-

  • Now Government has permitted 100% FDI under the approval route for trading processed foods, including through e-commerce.
  • In the defence sector, foreign investment beyond 49 per cent has been permitted through government approval.
  • In civil aviation sector FDI has been raised to 100%, with FDI up to 49% permitted under automatic route and beyond it through government approval.
  • Also overseas investors, barring foreign airlines, can now buy up to 100% stake in Indian carriers.
  • In case of single brand retail, local sourcing norms relaxed up to 3 years and for entities trading products with state-of-the-art and cutting edge technology, the relaxation is extended for further 5 years.
  • In pharmacy sector FDI up to 74% allowed under automatic route in brown-field or existing pharmaceutical units. Beyond 74% government approval route will continue.
  • For private security agencies, FDI up to 49% is permitted under automatic route and up to 74% with government approval.
  • In broadcasting service 100% FDI is permitted through automatic route.

Analysis-

  • The central governments big reforms in various sectors like civil aviation, single-brand retail, defence and pharma, will attract large scale foreign investments in India.
  • Liberalisation of the FDI regulations reflects the India’s commitment to big bang reforms. It also improves the India’s rating in ease of doing business.
  • FDI is stickier and more resilient to business cycles than volatile Foreign Portfolio Investor inflows. Huge FDI in various sectors plays crucial role in the India’s growth and development cycle.
  • As India is blessed with huge demographic dividend, large scale investment will create huge jobs for Indians.

Apprehensions-

  • Under relaxed FDI norms, sectors which are already witnessing booming consumer demand (pharma, airlines) are more likely to attract quick investment flows than those that are in need of bailouts (asset reconstruction firms) or entail long gestation periods (airports or defence).
  • Government has removed entry level barriers, but frequent market or pricing interventions by government may deter investors.

Suggestions-

  • Government should create a healthy environment for investors and encourage them to invest in sectors where it is most needed in the contemporary time like airport, defence.
  • Government should ensure investors that, there won’t be any intervention from government end in the normal functioning of the market.

Conclusion-

The government’s recent decision to liberalise FDI norms is bold step in attracting investments in India. India, as the fastest-growing large economy, already is a magnet for foreign capital. Reforms in FDI sector is welcome move and vital step towards opening up of doors for wider FDI in India.


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