The government intends to examine the limits on foreign direct investment in industries including insurance, plantations, and defense and see whether procedures may be loosened to expedite the system.
The Department for Promotion of Industry and Internal Trade is investigating ways to make investment requirements for defense more appealing as the government looks to shift more production in the key sector to India, even though other industries enjoy a flexible framework that does not require automatic clearances. 100% FDI is permitted in the area under current regulations, provided that a business enters "for other reasons to be recorded" or has access to contemporary technology.
Review is necessary as India's FDI flows have stagnated
FDI is permitted by the automatic route up to 74% of the time, but there are restrictions, such as industrial license for specific industries and the manufacturing of small weapons, both of which have riders that might be reviewed.
FDI in general or life insurance companies is limited to 74%, although 100% FDI is permitted in insurance intermediaries. The insurance industry has been a controversial one since it opened to foreign firms 25 years ago. Life insurance continues to be a capital-intensive industry, requiring Indian and international partners to contribute equity for a minimum of six-seven years, whereas general insurance firms become profitable in a matter of years, providing cash for reinvestment. The study is being conducted at a time when the industry is sufficiently competitive and most life insurance businesses are now profitable.
However, gaining approval for insurance and plantations won't be simple, particularly because it's unclear why the regime for the latter is being reviewed when 100% of it is permitted in tea, coffee, rubber, and a number of other segments.
Congress and its partners from the INDIA bloc would not readily agree to an increase at a time when the government is unlikely to pursue controversial measures through the legislative path, given the BJP's stance on insurance while it was in the opposition.
According to officials, the purpose of the assessment was to make sure that everything went according to plan and that deadlines for interministerial processes were met, which wasn't always the case, particularly when security clearances were needed.
The evaluation is being conducted at a time when India is looking for more investments and has observed FDI stall despite its marketing strategy of seducing investors with the promise of "China Plus One." Any adjustments might be included in the budgetary announcements.
