Government relaxed FDI norms:
- Further opened up several key sectors like defence, construction, civil aviation etc.
- Eased norms for business such as single-brand retail and private banking
- Allowed FIPB to clear proposals up to Rs. 5000 crore (Earlier Rs. 3000 crore)
- Moving towards automatic from the government approval route
Recently the government decided that investments by nonresident Indians (NRIs), overseas citizens of India (OCIs) and persons of Indian origin (PIOs) would be treated as domestic investment instead of treating them as FDI. Examine why this decision was taken and its likely impact on the Indian economy. (200 Words)
The government has recently decided to treat foreign investments made by the NRIs, OCIs and PIOs, under Schedule IV of FEMA 1999 on a non-repatriable basis, at par with domestic investments made by Indian residents. This decision has been taken on account of the following reasons:
- It falls in line with a series of similarly placed reforms, which have been undertaken with the objective of encouraging the inflow of FDI into the country, especially in the manufacturing sector in order for the nation to be able to take advantage of the demographic dividend.
- It would allow for greater assimilation of the NRIs, OCIs and PIOs with India’s growth story. Again this decision is in line with other decisions that have been taken by this government in the recent past to win over this constituency like – the decision to allow voting rights to NRI and the merger of the PIO and OCI schemes (amended the Citizenship Act to merge the PIO and OCI cards, offering benefits like a life-long visa and exemption from appearing before the local police station on every visit). Besides the obvious economic benefit that this move will have, it will also reaffirm the role of this constituency in projecting India’s soft power.
While the impact of this move cannot be gauged precisely, it is likely to have the following implications for the Indian economy:
- Increased investment across sectors and greater inflow of foreign exchange remittance, thereby leading to economic growth of the country;
- As the investment will be on a non-repatriable basis, the FDI would be of a permanent nature. This will translate into greater stability for the economy, besides creating a revolving fund for investment because the amount once invested would not be eligible for repatriation outside India.
- As the NRIs, OCIs and PIOs will now not be subjected to the FDI ceilings, this decision will allow space to be vacated by them on the FDI landscape, which can then be filled by foreign investors.
All in all, this move will be beneficial for the economy as it could stoke a fresh round of fund flows into the country, besides drawing the overseas Indians into a closer huddle with India