india

Updated: Aug 29, 2019 00:00 IST

The Union Cabinet on Wednesday approved a raft of changes to foreign direct investment (FDI) rules, easing the local sourcing norms for overseas single-brand chain stores and permitting FDI through the so-called automatic route in contract manufacturing and coal mining for open sale.

“The changes in FDI policy will result in making India a more attractive destination, leading to benefits of increased investments, employment and growth,” a Cabinet statement said.

The changes come in the aftermath of a deceleration in economic growth a five-year low of low of 5.8% in the quarter ended March and a consumption slump signalled by high-frequency indicators, including automobile sales.

Most analysts expect the economy to slow further in the June quarter, GDP data for which will be released on Friday. Last week, finance minister Nirmala Sitharaman announced a number of measures to boost investor sentiment and spur economic growth.

Watch | Cabinet eases FDI norms in single-brand retail, allows 26% in digital media

“This government since 2014 has kept reforms as a part of the agenda. It is an ongoing process for us. It is not as if in this tenure, post 2019, we have forgotten the reform agenda. Not at all. Reform is a continuous process and we are treating it as a continuing endeavour,” Sitharaman said on Friday.

The reforms are part of India’s strategy to become a part of the global supply chain amid its disruption due to the US-China trade war.

In her first Budget speech on July 5, Sitharaman proposed examining suggestions to open the doors wider to FDI in the aviation, media and insurance sectors .

In single brand retail, the government on Wednesday allowed companies to conduct online retail trading prior to opening of physical stores, subject to the condition that brick and mortar stores come up within two years from the date online operations begin.

“Online sales will lead to creation of jobs in logistics, digital payments, customer care, training and product skilling,” the statement said.

To provide greater flexibility and ease of operations to foreign single brand retail entities with more than 51% FDI, the Cabinet decided that all procurements made from India by the entity for that single brand shall be counted towards local sourcing of 30%, irrespective of whether the goods procured are sold in India or exported. The current cap of considering exports for five years only was removed to give an impetus to exports.

So far, only incremental sourcing of the single brand entity was taken into account while current sourcing was not considered. From now on, total sourcing including by group companies will be considered for meeting the 30% local sourcing norm.

The Cabinet on Wednesday allowed 100% FDI in contract manufacturing, allowing large foreign electronics and pharmaceutical companies to directly invest in local or foreign contract manufacturers. This will give a big boost to the government’s Make in India policy, aimed at promoting foreign investment in local manufacturing.

“Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent basis,” the statement added.

The Cabinet on Wednesday allowed 100% FDI under the automatic route for coal mining as well as sale and export of coal. This is expected to end the monopoly enjoyed so far by state-run Coal India Limited which is seen as lacking the capability to mine coal fields.

So far, 100% FDI under the automatic route, which requires no prior approval, was allowed for coal processing plants as well as for coal mining for captive consumption by power projects, iron and steel and cement units.

(Shreya Nandi contributed to this story)