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Cabinet eases FDI rules (Relevant for GS Prelims & Mains Paper III; Economics)

Source: The Hindu

The Union Cabinet announced a number of measures to attract increased foreign direct investment into the country. These measures include the following:

  1. Currently, the FDI policy says that a single-brand retail company with more than 51% FDI needs to source 30% of its goods from within India. The new decision says that this 30% will be calculated over the first five years of operation.

Further, sourcing for exports will also count towards the local sourcing requirement, the government said. In other words, it has been decided that all procurements made from India by the entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.

The existing policy says that incremental sourcing for global operations by non-resident single brand retail trading, either directly or through group companies, will also be counted towards the local sourcing requirement for the first five years. In other words, it has been decided that ‘sourcing of goods from India for global operations’ can be done directly by the single brand retail entity or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.

Another change the Cabinet has approved is that single-brand retail companies can now start selling online before setting up a brick and mortar store as long as they set one up within two years of starting online sales. Earlier, they had to set up a brick and mortar store before selling online.

  1. The current FDI policy provides for 100% FDI under the automatic route in the manufacturing sector. There was no specific provision for contract manufacturing in the policy. It has now decided to allow 100% FDI under the automatic route in contract manufacturing as well.
  1. It has also been decided to permit 26% FDI, with government approval, for uploading and streaming news and current affairs using digital media, on the lines of print media.
  1. It has also been decided to permit 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure.


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