India announces sweeping reforms to FDI rules

NEW DELHI (Reuters) - India announced on Monday sweeping reforms to rules on foreign direct investment, opening up its defence and civil aviation sectors to complete outside ownership and clearing the way for Apple to open stores in the country.

The reforms also loosen restrictions on inbound investments in pharmaceuticals and retail.

Apple is expected to be a beneficiary of a three-year relaxation India is introducing on local sourcing norms with an extension of up to five years possible if it can be proven that products are "state of the art".

Other single-brand retailers like furniture giant IKEA are also expected to benefit.

Defence contractors that have been reluctant to transfer technology to manufacture equipment in India would get the right to own local operations outright, up from 49 percent previously.

In other changes, India allowed 100 percent foreign direct investment (FDI) in civil aviation, following on from last week's launch of a new policy that lowered barriers to entry for airlines that want to fly international routes.

The government also allowed foreign companies to own up to 74 percent in 'brownfield' pharmaceuticals projects without prior government approval. India already allows 100 percent ownership of greenfield pharma businesses.

The reforms announcement comes two days after India's central bank governor Raghuram Rajan, feted by foreign investors, announced he would not be available for reappointment when his term expires in September.

Rajan's decision, whose reforms have been credited for much of the economy's success in recent years, came as a jolt to the country's financial markets. The rupee fell to a near one-month low and bonds weakened on Monday.

The last time Prime Minister Narendra Modi's two-year-old government announced a loosening of FDI norms was after his nationalist political party suffered a heavy defeat in a state election last autumn.

(Reporting by Manoj Kumar; Writing by Douglas Busvine; Editing by Malini Menon and Muralikumar Anantharaman)