NEW DELHI: At a time when the global economy is moving towards increased protectionism, India has decided to open up more sectors for global investors. Finance minister Nirmala Sitharaman in her maiden Budget speech Friday proposed relaxation in the foreign direct investment (FDI) norms for sectors such as aviation, insurance, animation media and single brand retail.
“Global FDI flows slid by 13 per cent in 2018 to $1.3 trillion from $1.5 trillion in 2014. India’s inflows remained strong at $64.37 billion marking 6 per cent growth over the previous year. I propose to further consolidate the gains in order to make India a more attractive FDI destination,” she said.
While the government is likely to permit 100 per cent FDI for insurance intermediaries, it is yet to decide on raising FDI limit on aviation sector that currently stands at 49 per cent. Insurance industry has welcomed the move that is expected to help in infusion of required capital into the intermediaries segment.
Ashish Mehrotra, MD & CEO, Max Bupa Health insurance said, “Increasing FDI limits in sectors like aviation and insurance is a positive step since these sectors are highly capital-intensive.” Aviation analysts said the increase in FDI limit will increase competition in the local market and help the government when it restarts Air India’s divestment process.
Relaxing local sourcing norms in the single brand retail sector is expected to erase concerns of global firms such as Apple Inc, Walmart and Ikea, who want so big but solo in the country. Currently, the FDI policy allows 100 per cent foreign investment in single-brand retail under the automatic route, but requires an investor to source 30 per cent material locally.
49 per cent foreign investment is allowed in the insurance sector, which includes insurance broking, insurance companies, third party administrators, surveyors and loss assessors.
Representations have been made to the government that insurance brokers should be treated on par with other financial services intermediaries, where 100 per cent FDI is permitted.
Insurance penetration in the country was 3.4 per cent in 2015 against the world average of 6.2 per cent. In 2014, it was 3.3 per cent in India.
Similarly, 26 per cent FDI is permitted with government approval in the publishing of newspaper and periodicals dealing with news and current affairs; and publication of Indian editions of foreign magazines in news and current affairs.
Foreign investments are considered crucial for India, which needs around billions of dollars for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
FDI helps improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.
(With inputs from PTI)