Business Standard

Cabinet approves 100 pc FDI in coal mining, 26 pc in digital media, contract manufacturing


In major decisions to liberalise Foreign Domestic Investment (FDI) norms to boost investment, the Union Cabinet on Wednesday approved 100 per cent FDI in coal mining and contract manufacturing through automatic route.
The Cabinet also liberalised sourcing norms concerning single-brand retail and allowed 26 per cent FDI in the digital media. It also decided that single-brand retail trading entities can do retail online trade prior to the opening of brick and mortar stores.
Briefing the media on the decisions of the Cabinet, Commerce and Industry Minister Piyush Goyal said the decisions have been taken to make the country an attractive destination for FDI. Information and Broadcasting Minister Prakash Javadekar was also present at the briefing.
Goyal said that changes in the FDI Policy were meant to liberalise and simplify the FDI policy to provide ease of doing business in the country, bring larger FDI inflows and contribute to the growth of investment, income, and employment.
He said that presently 100 per cent FDI under automatic route is allowed for coal and lignite mining for captive consumption by power projects, iron and steel, and cement units and other eligible activities.
Hundred per cent FDI under automatic route is also permitted for setting up coal processing plants like washeries subject to some conditions.
"Now 100 per cent FDI through automatic route will be allowed in coal mining and associated infrastructure including processing, washing, and thrashing," he said.
The changes in FDI norms in coal mining activities are expected to attract international players to create an efficient and competitive coal market, he said.
The minister said the Central government was keen to make India a manufacturing hub and many people were wanting to manufacture goods in India due to change in the global environment, but there were some difficulties.
He said companies get their goods manufactured on the contract due to the reduction in costs due to scales of operation.
"It has been decided to allow 100 per cent contract manufacturing through the automatic route. It will be a big boost to the manufacturing sector in India," added Goyal.
He said manufacturing through contract contributes equally to the objective of Make in India.
The existing policy provides 100 per cent FDI under the automatic route in the manufacturing sector. There is no specific provision for contract manufacturing in the policy.
Manufacturing activities may be conducted either by the investee or through contract manufacturing in India under a legally tenable contract, "whether on principal to principal or principal to agent basis."
Referring to the decision to ease local sourcing norms for FDI in Single Brand Retail Trading (SBRT), he said that it had been announced in the Union Budget.
"This will lead to greater flexibility and ease of operations for SBRT entities besides creating a level-playing field for companies with higher exports in a base year," he said.
The minister said that extant FDI Policy provides that 30 per cent of the value of goods has to be procured from India if SBRT entity has FDI more than 51 per cent. As regards local sourcing requirement, the same can be met as an average during the first five years and thereafter annually towards its India operations.
"It has been decided that all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. The current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports."
He said the existing policy provides that as regards local sourcing requirement, incremental sourcing for global operations by the non-resident entities undertaking single-brand retail trading, either directly or through their group companies, will also be counted towards local sourcing requirement for the first five years.
However, prevalent business models involve not only sourcing from India for global operations by the entity or its group companies, but also through an unrelated third party, done at the behest of the entity undertaking single-brand retail trading or its group companies.
"In order to cover such business practices, it has been decided that 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident}, or indirectly by them through a third party under a legally tenable agreement," he said.
An official release said that the existing policy provides that only that part of the global sourcing shall be counted towards local sourcing requirement which is over and above the previous year's value.
"Such requirement of a year-on-year incremental increase in exports induces aberrations in the system as companies with lower exports in a base year or any of ' the subsequent years can meet the current requirements, while a company with consistently high exports gets unduly discriminated against. It has been now decided that entire sourcing from India for global operations shall be considered towards local sourcing requirement," it said.
Goyal said that the present policy requires that SBRT entities have to operate through brick and mortar stores before starting retail trading through e-commerce.
He said this is out of sync with current market practices.
"It has been decided that retail trading through online trade can also be undertaken prior to the opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from the date of start of online retail," he said.
Online sales are also expected to lead to the creation of jobs in logistics, digital payments, customer care, training, and product skilling.
Referring to the digital media, the release said that the existing policy provides for 49 per cent FDI under approval route in uplinking of 'News and Current Affairs' TV Channels and 26 per cent FDI in print media.
"It has been decided to permit 26 per cent FDI under government route for uploading and streaming of News & Current Affairs through Digital Media, on the lines of print media," it said.
The minister said that FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country.
He said FDI up to 100 per cent is permitted on the automatic route in most sectors and activities.
FDI policy provisions have been progressively liberalized in sectors such as defence, construction, trading, pharmaceuticals, power exchanges, insurance, pension, broadcasting, and civil aviation to make India an attractive investment destination.
"These reforms have contributed to India attracting record FDI inflows in the last five years. Total FDI into India from 2014-15 to 2018-19 has been US dollar 286 billion as compared to US do1lar 89 billion in the 5-year period prior to that. The FDI in 2018-19 at US dollar 64.37 billion (provisional figure) is the highest ever FDI received for any financial year," he said.
Goyal said global FDI inflows have been facing headwinds for the last few years but India continues to remain a preferred and attractive destination for global FDI flows and has potential to attract far more foreign investment by liberalising norms.

Disclaimer: No Business Standard Journalist was involved in creation of this content

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 28 2019 | 9:37 PM IST

Explore News