Page 43 - BANKING FINANCE MARCH 2024

ARTICLE

Inclusion of all new issuances of 7-year and 14-year Shakti, single window clearance and GIS-mapped land
G-Secs under the Fully Accessible Route (FAR) for bank is expected to push FDI inflows in 2022.
FPls. The government is likely to introduce at least three

Exemption from the short-term limit for FPls' policies as part of the Space Activity Bill in 2022. This
investments in G-Secs and corporate debt made bill is expected to clearly define the scope of FDI in the
until October 31st, 2022. Indian space sector.
In September 2021, India and the UK agreed to an
Permitting FPI in commercial paper and non- investment boost to strengthen bilateral ties for an
convertible debentures with an original maturity of 'enhanced trade partnership'.
up to one year.
In September 2021, the Union Cabinet announced that
A temporary increase in the limit for external to boost the telecom sector, it will allow 100% FDI via
commercial borrowings (ECBs) under the the automatic route, up from the previous 49%.
automated route from US$ 750 million or its In August 2021, the government amended the Foreign
equivalent per fiscal year to US$ 1.5 billion. Exchange Management (non-debt instruments) Rules,

Increase in the all-in cost ceiling under the ECB 2019, to allow a 74% increase in FDI limit in the
framework by 100 basis points, subject to the insurance sector.
borrower having an investment grade rating. Many reforms like National Technical Textiles, Silk
Samagra-2 scheme, Seven Pradhan Mantri Mega
Permission for AD Cat-I banks to use foreign
currency borrowings made abroad to fund foreign Integrated Textile Region and Apparel (PM MITRA)
currency loans to organizations for a variety of end Parks, Production Linked Incentive (PLI) Scheme for
uses other than exports. Textiles to promote the production of Man-Made Fibre
(MMF) Apparel, MMF Fabrics and Products of Technical
The Government of India increased FDI in the defense Textiles, and more initiatives are taken by the
sector by liberalizing it to 74% through the automatic government to enhance export and to promote FDI in
route and 100% through the government route. the textile sector.
The Foreign Investment Facilitation Portal (FIFP) is a
new online single-point interface of the government for Road Ahead
investors to facilitate Foreign Direct Investment India has recently become a major global hub for FDIs.
proposals to evaluate and further authorize them under According to a survey held in 2020, India was among the
the Government approval route. top three global FDI destinations; about 80% of the global
The sectoral cap for the pharmaceutical industry has respondents had plans to invest in India. Furthermore, India
been lowered, 74% of FDI is permitted in the Brownfield has provided huge corporate tax cuts and simplified labour
pharma sector via the automatic method, and 100% is laws. According to the OECD FDI restrictiveness index, the
permitted via the approved route. country has also reduced its restrictions on FDI; overall FDI
restrictions have reduced from 0.42 in 2003 to 0.21 in 2020
In the civil aviation sector, 100% FDI is allowed under (i.e. last 17 years).
automatic routes in brownfield airport projects.
For single-brand retail trading, local sourcing norms India has remained an attractive market for international
have been relaxed for up to 3 years and 100% FDI is investors in terms of short- and long-term prospects. India's
allowed under automatic route. low-skill manufacturing is one of the most promising
The government has amended the Foreign Exchange industries for FDI. India has also developed excellent
Management Act (FEMA) rules, allowing up to 20% FDI government efficiency. The developments in government
in insurance company LIC through the automatic route. efficiency are primarily due to relatively stable public
finances (despite COVID-induced challenges) and optimistic
The government is considering easing scrutiny on sentiment among Indian business stakeholders concerning
certain FDIs from countries that share a border with
the funding and subsidies offered by the government to
India.
private firms. All of these factors may enable India to attract
The implementation of measures such as PM Gati FDI of US$ 120-160 billion yearly by 2025.

40 | 2024 | MARCH | BANKING FINANCE