Government looking at more FDI reforms; relief for investors in defence, telecom and broadcasting

NEW DELHI: India is set to make further changes in its overseas investment regime, scrapping the need for approvals in sectors where licences are also required, such as defence, telecom and broadcasting, eliminating one layer completely from the process.

"Clearance for FDI ( foreign direct investment) separately after securing a licence adds another layer of approval from same authorities," said a senior government official. "Anyone who has gone through one level of scrutiny for licence from the authorities concerned should not need to go through the same checks again."

Conditions related to FDI can be examined by the licensing authority, the person said. A big-ticket defence order expected to be floated soon should make quick progress once these changes are effected.

Under current rules, investors have to apply for licences in many sectors besides clearances from multiple ministries, including security from home affairs. After securing licences, they are required to apply for approval of foreign investment, if any, which again goes through an inter-ministerial clearance process.


Defence investment, for instance, is subject to industrial licensing under the Industries (Development & Regulation) Act, 1951. The licence is given by Department of Industrial Policy and Promotion in consultation with the ministries of defence, external affairs and home, a process that takes time.

"Why should there be a need for another level of clearance from same authorities?" said the official cited above.

Up to 100% FDI is allowed in defence on a case-to-case basis. India is the world’s biggest importer of defence goods, accounting for 13% of global purchases during 2012-16.

The government is looking to give a push to domestic manufacturing of defence equipment to reduce imports and also create more local jobs. Since 2000, the defence sector has attracted just over $5 million in FDI.

In the case of telecom too, 100% FDI is allowed but subject to licensing by the Department of Telecommunications. Similarly, broadcasting is subject to rules and conditions framed by the ministry of information and broadcasting.

Telecom has been among the biggest recipients of FDI with $24 billion in inflows since 2000, 7.4% of the total.

The government has already announced its intent to scrap the Foreign Investment Promotion Board (FIPB) and leave FDI clearance to the relevant ministries or departments in sectors where government approval is needed. The official cited above said removing the additional clearance could be taken up at the same time.

"Abolition of FIPB will be truly be impactful if government approval is done away with in FDI policy across sectors," said Akash Gupt, partner, PwC.

"If a licensor would grant FDI approval under licensing requirement but RBI would eventually be monitoring the compliance of same under FEMA (Foreign Exchange Management Act), it would need some consistency and connecting of dots."

A transition framework for replacing the FIPB process should be in place before the end of the financial year. The departments of industrial policy and promotion and economic affairs have begun consultations on the process.

Keen to attract foreign funds in the country, the government has put a number of sectors on the automatic route.