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Budget 2016: sectoral FDI & related issues

FDI norms relaxed for various sectors with the aim to

  • Promote “Make in India” and “ease of doing business”.
  • Involve states in attracting foreign capital
  • Strengthen financial institutions

Major proposals:

  1. Insurance and Pension sectors: foreign investment will be allowed through automatic route for up to 49 per cent subject to the guidelines on Indian management and control, to be verified by the regulators.
  • Earlier, foreign investment up to 26 per cent was allowed through automatic route.
  1. Asset Reconstruction Companies (ARCs): 100 per cent FDI will be permitted through automatic route.
  • Earlier it was allowed only up to 49 per cent.
  • Foreign portfolio investors (FPIs) will be allowed up to 100 per cent of each tranche in securities receipts issued by ARCs subject to sectoral caps.
  1. Indian stock exchanges: Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 per cent to 15 per cent on par with domestic institutions.
  2. Central public sector enterprises, other than banks: the existing 24 per cent limit for investment by FPIs in central public sector enterprises, other than banks, listed in stock exchanges, will be increased to 49 per cent to obviate the need for prior approval of government for increasing the foreign portfolio investment.
  3. NBFC: FDI allowed beyond the 18 specified NBFC activities in the automatic route in other activities which are regulated by financial sector regulators.

Other proposals for foreign investments

  1. Residency status to foreign investors: To promote ‘Make in India’ and following the practices in advanced countries, foreign investors will be accorded “residency status” subject to certain conditions.
    Currently, these investors are granted business visa only up to five years at a time.
  2. Centre State Investment Agreement: proposed to introduce a “Centre State Investment Agreement” to ensure effective implementation of Bilateral Investment Treaties (BITs) signed by India with other countries.
    This will ensure fulfilment of the obligations of the state governments under these treaties. States which opt to sign these agreements will be seen as more attractive destinations by foreign investors.
  3. Hybrid instruments: The basket of eligible FDI instruments will be expanded to include hybrid instruments subject to certain conditions.
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