NEW DELHI: Ostensibly on a reform overdrive, the NDA government on Tuesday considerably eased foreign investment regulations on several sectors ranging from banking, defence and construction to broadcasting and e-commerce. In what could be a major boost to greenfield investments in the construction sector including in townships as well as residential and commercial projects, the government has allowed foreign investors to invest in projects of all sizes without any minimum threshold for the funds to be brought in.

Also, these investors can exit three years after an investment is made, whether or not the project has been completed, and if the trunk infrastructure has been completed, even prior to that. In short, apart from the bar on making money by dealing in land and immovable property and the three-year lock-in, no restrictions will be there on foreign investors in construction development. Previously, foreign investment in construction was allowed only in projects above 20,000 sq m floor area and subject to condition that at least $5 million should be brought within six months after commencement of business.

Tuesday’s policy relaxations, according to finance minister Arun Jaitley, would address the slowdown in the construction sector. “With interest rates also coming down, I hope the sector will pick up now,” he said. Analysts also described the easing of foreign investment for the construction sector a “big development” that would help revive the economy. Transfer of stake from one non-resident to another without repatriation will be free.

Among other significant changes, the policy of fungibility among different types of foreign investment announced in July has been extended to private-sector banking and defence and the role of the Foreign Investment Promotion Board (FIPB) has been enhanced.

The policy of composite foreign investment cap, announced in July, has been extended to private-sector banking and defence, meaning that foreign portfolio investors (FPIs) and foreign venture capital investors (FVCIs) can now invest up to the respective sectoral foreign investment limits of 74% and 49%. In the case of defence, foreign investment up to the sectoral ceiling of 49% will now be allowed via the automatic route while investments above that, which earlier required to be cleared by the Cabinet Committee on Security provided state-of-the-art technology is brought in, will now require the FIPB’s approval only.

The policy review also relaxed foreign-owned single-brand retailers’ local operations by easing the 30% domestic sourcing requirement. The government will waive this requirement in the case of certain high-technology segments where local sourcing would not be possible. Also, foreign-owned single-brand retailers are now allowed to undertake e-commerce operations. Indian brands that are owned by Indians or Indian entities have been allowed online retailing provided 70% of their products are made in-house and sources “at most 30%” from local producers.

Also, foreign investors in single-brand retail, where 100% FDI is permitted in wholesale cash and carry activities, can now open retail shops as well. Of course, the norms regarding retail operations have to be complied with by the investor separately.

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