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Budget 2024: FDI makeover on the horizon? Govt eyes major overhaul in defence, insurance and plantation


Jul 8, 2024

The government is likely to review foreign direct investment (FDI) caps for critical sectors like defence, insurance, and plantations, examining processes that could be streamlined for a more efficient investment regime, reported The Times of India. This response aims to address stagnating FDI flows into India, despite the country promoting itself on ‘China Plus One’ plank.

The report added the changes, if any, may be part of the budget announcements.

Currently, the Department for Promotion of Industry and Internal Trade is assessing how to make investment norms in defence more appealing to attract more manufacturing to the sector. Currently, the rules allow 100% FDI wherever modern technology is accessed or “for other reasons to be recorded.”

While up to 74% FDI is permitted under the automatic route, this comes with various conditions, including the requirement of industrial licensing for certain sectors and small arms production, which might be subject to review.
FDI up to 74% is allowed under the automatic route, but there are strings attached including industrial licensing for certain sectors and for small arms production and there are riders within that, which may be reviewed, the report said.

In the insurance sector, which has sparked debate since its opening to overseas players 25 years ago, FDI in general or life insurance companies is capped at 74%, with 100% FDI permissible in insurance intermediaries. General insurance companies often become profitable after a few years and generate funds for reinvestment. However, life insurance remains a capital-intensive industry, necessitating equity infusion from both Indian and foreign partners for six to seven years. The review follows an increase in competition in this sector, with the majority of life insurance companies now showing profitability.In plantations, obtaining approval for insurance as well as plantations may face challenges given that the purpose of reviewing the regime in this sector is not clear. Currently, 100% FDI is allowed in tea, coffee, rubber, and several other segments. Given the BJP’s prior opposition to increased caps in this sector, the Congress and its allies from the INDIA bloc are likely to resist any legislative changes, especially contentious ones.

Authorities emphasised that the review aims to facilitate smooth investment flows and ensure adherence to inter-ministerial process timelines, which can be inconsistent, particularly when security clearances are required.

Officials told TOI that the review was meant to ensure smooth flows and the idea was also to ensure that timelines involving inter-ministerial processes were adhered to, which was not always the case especially when security clearances were required.

By admin