On June 7th, 2016, the Department of Industrial Policy & Promotion (“DIPP”) under the Ministry of Commerce, had issued the consolidated foreign direct investment or FDI policy. On June 20, 2016, twenty-four months into its first term the government of India announced “radical” reforms through an issue of press release. The last set of reforms was introduced by the government in November 2015, shortly after an electoral debacle in the state elections. The political pundits and the opposition have continued to play the usual game and attribute a variety of reasons for the timing of the current announcement, but that should not be and is not material. It is important to see whether, after the liberalization of the Indian economy in 1992, the present announcement will muster the same degree of interest, enthusiasm and, most importantly, the type of investment that the government has been hoping for.
The changes are positive and a necessary step in the right direction. On June 24th, 2016, DIPP has formally notified by issuing Press Note 5 of 2016, and these changes have come into immediate effect.
The Union government allowed foreign investors, other than overseas airlines, to bring in 100% FDI in airlines in India. And overseas or foreign airlines can make investment only up to 49% in the domestic airlines. In order to modernize airports, the government has also allowed 100% FDI in brownfield airport projects under the automatic route.
Although the FDI limit unchanged – at 49% under the automatic route and 100% under approval route, the government has paved the way for foreign investors to bring in FDI in defence sector by doing away with the “state of the art” clause. According to this clause only state of the art technology was allowed for consideration of investments for over 49% share in projects. It is expected that the revised rules will give a fillip to the small arms manufacturing sector, and attract major firms such as Heckler and Koch, Beretta, Colt and IWI, etc. to India.
Under the new FDI rules, a relaxation has been made in local sourcing norms for Single Brand Retail Trading up to three years with the option of extending it by another five years. But there is a requirement for the Single Brand Retailer to produce goods with “cutting-edge and state-of the-art technology”.
Previous to this, the 30 % sourcing commitment was stipulated in single-brand retail, and a waiver was also given to the sourcing requirement if products deemed as having ‘state-of-the-art’ and ‘cutting edge’ technology.
However, the term ‘cutting edge’ is yet to be defined by the government.
In order to give a fillip to the pharmaceutical sector, the government allowed foreign investors to bring in 74 per cent FDI in brownfield pharmaceuticals through the automatic route, while FDI beyond 74 per cent will require government approval route.
According to the existing FDI policy, 100 per cent FDI is allowed under automatic route in greenfield pharma, while government approval route is required for FDI up to 100 per cent in brownfield pharma.
FDI in real estate investment trusts (ReIT), atomic energy, Lottery, gambling, and railway operations has been prohibited under the new norms.
 The Indian economy was liberalized in July 1992 and, since then, subsequent changes have been carried out over the next two decades, but the investors and India Inc. wanted a different pace to keep itself aligned with global developments.