FDI reform 2.0: Banking, defence, insurance reforms on table

2024-04-22 00:00:00

New Delhi: The government is examining if foreign direct investment norms (FDI) for banking, insurance and defence can be further liberalised, following rules were relaxed for the space and satellite sectors recently.
Officials said that although the bulk of the heavy lifting in terms of FDI reforms has been completed, talks are ongoing to see if conditions for these key sectors can be further eased. Any changes will be made following the elections that end on June 1.

“Some areas in finance and insurance, (and) even in defence, might still be looked at in terms of further reduction. Brainstorming is going on, but it has not reached anywhere,” said an official aware of deliberations. A final call will be taken following consultations among officials and with stakeholders.

FDI equity inflows fell 13% year-on-year to $32.03 billion during April-December 2023.

The United Nations Conference on Trade and Development (Unctad) has attributed the FDI slump in developing nations to weak investment and economic uncertainty.

FDI in banking, financial services and insurance (BFSI), outsourcing as well as R&D — the group that attracted the highest inflows — was at $5.18 billion in April-December 2023. The Centre’s view is that India should relax FDI rules further, though its current policy is more liberal than that of some other nations, officials said.“We are more liberal than most of the Asean countries, which are generally considered very open,” the official said.

India allows 74% FDI in private sector banking. Up to 49% is permitted through the automatic route; government approval is needed beyond that. In public sector banking, the FDI cap is fixed at 20% through the government route.

India permits 49% FDI in insurance companies through the automatic route and 100% in insurance intermediaries, subject to conditions.

The defence industry is subject to industrial licence under the Industries (Development & Regulation) Act. FDI can go up to 100% in manufacture of small arms and ammunition under the Arms Act, of which up to 74% is permitted through the automatic route, subject to conditions.

Between April 2000 and December 2023, FDI equity inflows in defence amounted to $16.38 million.

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