Cabinet may ease FDI norms in single-brand retail, insurance today

Topics FDI norms | retail market

The government is likely to further ease foreign direct investment (FDI) norms, with the Cabinet on Wednesday expected to give its approval to relaxed norms in single-brand retail trade and insurance sectors.


In the Budget, the government had made clear its intent to further relax FDI norms in several sectors.


Earlier this year, Commerce and Industry Minister Piyush Goyal had said that the government was exploring ways to allow foreign investors in single-brand retail to meet their 30 per cent mandatory local sourcing requirement through other ways.


This includes counting the sourcing they do in India for exporters to other markets as part of the 30 per cent norm, apart from the goods they sell in their stores in the country. Currently, 100 per cent investment is allowed in the sector under the automatic route.


But the current rules stipulate that products should be sold under the same brand internationally, meaning products should be sold under the same brand in one or more countries other than India. Single-brand product retail trading also only covers products branded during manufacturing.


The procurement requirement has been opposed by major foreign retailers. Apart from the easier norms, the Department for Promotion of Industry and Internal Trade, the nodal body for investment-related policy, may also now count local sourcing in phases. For instance, it may be counted as an average of five years, the total value of the goods purchased, after which, it needs to be met on an annual basis, persons in the know said.


In the Budget, Finance Minister Nirmala Sitharaman had also signalled that FDI reforms in aviation as well as multimedia sectors like animation, gaming, digital media, and information utilities, may be taken up.


Sources say the insurance sector could be opened up to 74 per cent FDI under the approval route to bring parity with the banking sector, according to proposals under consideration. However, officials say the current 49 per cent foreign investment limit through the automatic route in insurance is likely to be maintained.


For insurance intermediaries like brokers, insurance repositories, and third-party administrators, 100 per cent FDI may be permitted.


Announcements in the contract manufacturing sector are also expected. In the existing foreign investment policy, 100 per cent FDI is permitted in the manufacturing sector under the automatic route. A manufacturer is also allowed to sell products manufactured in India through wholesale and retail channels, including through e-commerce, without the government’s approval.


But the current policy does not talk about contract manufacturing separately and the lack of a clear definition in the current policy is an area the government is aiming to rectify, sources said.


This comes in the wake of FDI equity inflows declining for the first time in six years in 2018-19, down 1 per cent to $44.4 billion, from $44.8 billion in the previous fiscal year.

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