India eases FDI rules to boost growth

Indian Prime Minister Manmohan Singh and his senior colleagues relaxed investment caps for foreign direct investment (FDI) in a recent policy meeting in order to boost the economy.

A range of sectors are included in the overhaul - including industries which have been among the country's most guarded such as telecom, high-tech defence production and insurance - highlighting the government’s determination to lure overseas capital. With high inflation, a falling currency and poor growth levels hindering the economy, the ruling United Progressive Alliance (UPA) party believes more FDI will prop up the rupee, generate jobs and boost incomes at a time when cutting interest rates is looking difficult.

Besides targeting several specific sectors, the government also eased norms allowing FDI to come in through the automatic route. This means that investors only need to make appropriate disclosures to the Reserve Bank of India (RBI), instead of going through the foreign investment promotion board (FIPB), removing a layer of bureaucracy from hampering the flow of overseas funds.

As well as increasing FDI caps in telecom, high-tech defence production and insurance, the government also decided to raise the limit on credit information companies to 74% through the automatic route against the existing 49% cap subject to approval by FIPB. Although caps have been retained in petroleum refineries, commodity exchanges, power exchanges and stock exchanges, investments in these areas will be allowed through the automatic route.

India has also ramped up its FDI projects abroad, particularly in Africa, where investment flows reached US$3bn. Investors interested in capitalising on the new moves will need help navigating the complex legal and regulatory requirements in the country. TMF Group helps businesses expand seamlessly across borders. With dedicated accounting, legal and HR and payroll staff globally, we can take care of the details, leaving you free to focus on your global ambitions.