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Liberalisation 2.0: 5 Important Positive Effects Of 100% FDI Rule Across 9 Sectors

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Make in India Tiger Mumbai Airport-001

Foreign Direct Investment or FDI has always been one of the most strongest components & stimulants for economic growth of any developing country. In 1991, when India’s foreign exchange reserves plunged to $1.2 billion, Indian Govt. had to airlift around 70 tons of gold and send them to England & Switzerland to raise $600 million of foreign reserves.

Post 1991, India initiated a series of economic reforms, a phase which is called Economic liberalization in India, which abolished license raj and established a strong foundation for telecom and IT firms to attract FDI and make India’s economy stronger.

Yesterday, PM Modi led BJP Govt. allowed 100% FDI in 9 key sectors, triggering a new wave of economic stimulant for pushing India’s growth and development.

This new reform is in continuation with PM Modi’s earlier reforms wherein FDI regulations across 15 sectors were relaxed in November, 2015.

With this latest push for FDI, India has now become world’s most open economy for FDI.

Here are 5 positive effects of Liberalisation 2.0 unleashed my PM Modi:

Make In India Will Roar Loudly

Make in India policy of Indian Govt. will now be more progressive and loud. From $36 billion during 2014-15, FDI in India has increased to $55 billion in 2015-16, and this massive jump was mainly due to Make in India plan. However, as FDI in key sectors such as aviation and defense was curtailed, this could have been greater. Already electronics manufacturing firms such as Foxconn, Huawei, LeCo, Gionee etc have announced their special Make in India plans; and after this recent FDI relaxation, the tempo will only increase.

In future, we may witness more Make in India announcements related to food processing industry, TV and Broadcasting industry and more.

Civil Aviation Industry Can Transform

Although foreign airlines are still not allowed to hold controlling stake in domestic airlines, but now, they can invest upto 100% FDI to enable them to expand and grow. This is a masterstroke, as it perfectly complements the recent Civil Aviation Policy 2016 which set guidelines for price and number of flights within India.

Airports within India can receive 100% FDI to become robust and more effective; meanwhile air-transform services can be expanded to make transportation quicker, thereby de-stressing road transport mode. Some analysts are also stating that this single step can help to reduce price of commodities as well.

Defense Sector Will Revolutionize

Defense is one sector which is highly reliant on technology and investments; both of which are currently lacking in India. Earlier, FDI of more than 49% in defense sector was only allowed after Govt. reviewing the technological aspects and a reviewing a clause called ‘Access to State of Art technology’ which helps Indian defense sector.

With Govt. doing away with these requirements, defense experts have termed this decision as ‘pragmatic’ and hailed PM Modi for bringing in more clarity. In future, leading defense manufacturers can safely invest in Make in India factories to produce world class defense equipment and thereby generating millions of jobs.

Foreign Single Brand Retail Will Flourish

Local sourcing norms for establishing single brand retail by foreign brands have been relaxed for a period of 3 years; which means that Apple, Xiaomi and others can now set up their own stores in India. This would give a huge relief to brands such as Ikea which was keen on expanding their base in India.

Once Apple, Ikea and others set up their stores, the door would be opened for other leading brands to do the same.

Ecommerce Industry Can Bargain Hard

Govt. has allowed 100% FDI in food products and processing industry, which also includes ecommerce. This has actually opened up a window for this niche ecommerce sector, which is lobbying hard to get FDI permission for retail.

As of now, 100% FDI is allowed in B2B online marketplaces, but e-retail is still out of the gambit. After food products and processing industry has been granted permission to attract 100% FDI, other ecommerce verticals can also bargain hard.

Industry Reactions

Industry has reacted positively to the new FDI norms and hailed them as progressive and market friendly.

The moment new FDI norms were announced yesterday, share prices of several companies in civil aviation, pharma, media and FMCG increased sharply:

Aviation

  • SpiceJet 68.70 +6.43%
  • IndiGo 1048.35 +3.44%
  • Jet Airways 582.70 +5.96%

Pharma:

  • Brownfield Pharma: Biocon 727.10 +1.39%

Broadcast:

  • Dish TV 96.20 +2.56%

Defence:

  • Rel Defence 66.65 +8.64%
  • Walchandnagar 153.50 +5.21%

More jobs would be generated, more industries can be now set up, and overall, India’s development story received a new push with these new FDI norms.

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