Who Gains From India’s New FDI Norms?

Foreign direct investment or FDI is when a foreign entity (an individual or a firm) invests into a business of another country. It is not simply a flow of investment in the form of monetary funds from one country to another; FDI comes with the notion of a controlling ownership of a business based in another country.

Recently, foreign direct investment norms were reformed by the current government in order to combat the sagging economy. The cabinet approved a few changes that were first proposed in this year’s financial budget by the Finance Minister Nirmala Sitharaman. These changes included new norms for single-brand retail, contract manufacturing, and digital media.

The government has permitted 100 per cent foreign direct investment in coal mining and contract manufacturing. Apart from this, it has permitted a 26 per cent overseas investment in digital media firms.

“The changes will result in India becoming a more attractive FDI destination, leading to benefits of increased investments, employment, and growth,” said Piyush Goyal, union minister for commerce and industry at a media briefing.”

The new norms in single-brand retailing is likely to benefit companies like IKEA, H&M, Uniqlo, Furla, Tommy Hilfiger, and other global firms.

All procurement made from the country by a single-brand retailer will from now on be counted towards the mandatory 30 per cent local sourcing norms, regardless of whether the goods are sold in India or exported.

“The government’s efforts to enhance the ease of doing business for single-brand retailers are encouraging. IKEA has been sourcing from India for more than 30 years and is committed to further increase local sourcing from the country,” the Swedish furniture retailer said in a statement.

While changes in single-brand retail are welcoming, analysts are sceptical about the result of the new norms in digital media.

“News and current affairs are present on social media platforms that are subsidiaries of foreign brands. How can you differentiate between TV channels, which have 49% (FDI), and their online streams, which will effectively have 26%?” asked group chief marketing officer of production house Eros International, Manav Sethi.

With new changes in foreign direct investment norms in the contract manufacturing sector, the government hopes to get investments from giants like Apple, who have so far been reluctant to enter the Indian market.

Apart from this, pharmaceutical firms that depend on contract manufacturers for drug production will benefit from these new norms and changes.

As per new norms, 100 per cent foreign direct investment under the automatic route for approval is allowed in coal mining. This change may see new entries of private players, which will give rise to healthy competition.