17 February , 2021 Fdiindia
FDI Reforms Required for More Domains
The Union Budget has blessed the Insurance sector in Union Budget 2021. Although the amendments have come with some warning, the budget scheme has permitted the sectoral cap of insurance to be increased from 49% to 74%. As far as the budget announcement is a concern, despite the rise in the shareholding limit, the directors and key management professionals of the Indian Insurance organizations have to be an Indian resident.
Therefore, this was a good initiative and should captivate FDI in this domain. While the Insurance sector was in benefit this time, the other domains continue to seek more such reforms. The pension domain-the FDI continues to be 49%, In the healthcare domain, the FDI cap in brownfield pharmaceutical project continues to be 74%. Any FDI above 74% will require government approval.
There are many sectors which have the potential for development. They can bring large value until they are in their environment. A more beneficial regime with clear FDI provision could captivate FDI inflow in these domains. For instance, real estate and e-commerce, despite being budding domains, both have given amazing results. The real estate sector has observed evident growth from the recent public offering from the Real Estate Investment Trust. The budget was a blessing for the REITs, they have exempted the tax deduction through dividend payout.
Although after observing success, real estate was adversely hit by Covid-19 pandemic. Any relief of this domain or the least development in the existing laws or clarification in FDI rules can bring some good news. For instance, FDI does not clearly state, if leasing of the constructed project is allowed. Although FDI policy has liberalized leasing during the period. It still suffers uncertainty. It is not clear if leasing is permitted. Permitting FDI in full-fledged leasing would be a good plan.
Another domain showing great potential is e-commerce. Indian customers are adopting online shopping method. Restricted to their homes amid lockdown and left with the limited options for shopping. The trend is likely to continue to post Covid-19 pandemic More people are adopting online shopping. FDI funded e-commerce organizations will keep seeking more liberalized rules and further opening in this domain. There is no-doubt on the FDI rules on trading whether it is a brick store or an e-commerce format have observed liberalization.
From permitting FDI in wholesale trade to single brand retails to multi-brand retail and now allowing market place e-commerce, the FDI policy in this domain has come a long way. Despite being liberalized, inventory-based e-commerce is forbidden. Favorable policies integrated with the FDI rules will surely captivate FDI. Unfortunately, strict FDI regulation continues to act as a roadblock.
The FDI rules controlling e-commerce is bringing some modification again. It seems some changes would be announced soon. This time modification is focusing on safeguarding FDI rules on e-commerce are followers by the letter of law but merely by the spirit of the law. Perhaps, the domain continued to look suspicious and generated a doubt of being a favorable destination in FDI. The budget looks good and transparent in the fiscal numbers. Its objective is to enhance the large capital expenditure without putting additional pressure on the taxpayer. However, some areas will continue to seek more.