Announced on Monday, the new rules increase the permitted percentage of foreign ownership of local enterprises for industries including aviation, defence and pharmaceuticals, while watering-down local sourcing rules for foreign retailers. Under previous regulations, global retailers like Apple and IKEA were required to ensure at least 30 per cent of their good were locally sourced in order to set up shop in India. Now, companies will be given a three-year window after opening their doors to meet the local sourcing threshold, extendable to five years for companies whose products are deemed ‘cutting edge’ or ‘state-of-the-art’.

Defence cap lifted

Notably, the new rules lift the threshold of foreign ownership in defence companies from the previous 49 per cent cap to an allowance for 100 per cent ownership. Swedish defence and aerospace company Saab released a statement welcoming the change: ‘We think this is a very good move and this decision by the government only encourages us to start out business in India,’ he said. However, former Indian defence minister AK Antony has voiced strong opposition to the move, arguing that allowing for full foreign ownership will throw the country’s defence sector ‘mostly into the hands of Nato-American defence manufacturers.

‘Made in India’

The reforms mark the next stage of Indian Prime Minister Narendra Modi’s ‘Made in India’ liberalisation agenda, which aims to grow foreign investment in local manufacturing as a means of buoying the Indian economy. Under Modi’s leadership, the value of FDI in India has grown from $36bn in the last year of the previous government to $55bn for the year ending March 2016.

Sources: Asian Legal Business; Financial Times