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Reasons FDI Policies Polarize In India

Reasons FDI Policies Polarize In India

India has represented a strong economic track record despite the pandemic and new FDI policy to ease the market access and business opportunities to boost the economy. Besides the enhancement of the business climate, it has introduced new sectors for foreign investment. India’s digital economy has offered bright prospects with 300 billion subscribers. The country consists of a wide range of industries and market consumption. India is looking forward to permitting 26% FDI from the countries which it shares borders with without government investigation in the domain which is on the automatic route. An inter-ministerial channel is considering various options. The FDI policy was revised in April, making government consent mandatory for foreign investment.

The FDI policy consists of rules and regulations on foreign investment, press releases subsumes and clarifications accommodated by the DPIIT which were enforced on October 15, 2020, replacing older policies. Here are some divergences in the FDI policy.

Sectoral Caps

  • Private Security Agencies: The NDI rules offer FDI in the private security agencies up to a sectoral cap, of 49% of the government consent. On the other hand, FDI policy is similar to the FDI policy in 2017, which allows private security agencies to receive FDI to 74% whereas it was allowed to 49% with the automated route. The FDI policy stated that FDI in private security agencies is related to the compliance to the Private Security Agencies Act, 2005. 
  • Commodities Spot Exchange: The NDI rules notify the commodities spot exchange as a separate domain and allow FDI up to 49% under the automatic route. However, the FDI policy does not mention the commodities spot exchange as a different domain. It implies that commodity exchange comes under the Forward Contract (Regulation) Act. Under the FDI policy if running a commodity exchange then it should come under the financial service sector.

Dichotomy Regarding Conditionalities in Certain sectors 

  • Establishment of condition on the Broadcasting sector: Certain conditions have been detailed in the FDI policy for example mandatory requirement of the resident Indian citizen, clearance of the key executive.
  • Updation for the defence Industry: There is no updation in the sectoral gap, it would remain to be 100%.It is declared FDI up to 74% under automatic route and FDI above 74% in government route. It would likely access modern technology after government approval.

The actual threshold might have laid down at the prescribed 25% beneficial ownership limit. In the Prevention of Money Laundering Act which will prohibit such investors the power to block special resolutions under company law.

For Easy of Doing Business

  • 25% PMLA also an option
  • Inter-ministerial panel to take a final call
  • Could be done for sectors on the automatic route
  • Policymakers of the current norms disturbing the investment

It is unclear to know where commodity exchange fits in the FDI regime. According to the FDI policy, the sectoral cap comes under the FDI policy.

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