India eases foreign investment rules for several sectors to boost growth

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NEW DELHI (Reuters) – India’s cabinet on Wednesday (Aug. 28, 2019) approved further liberalizing of foreign direct investment (FDI) rules in four sectors, in an effort to get economic growth back on track.

The government approved foreign investment in digital media up to stakes of 26%, allowed 100% foreign investment for coal mining, associated infrastructure and sales of fuel.

Till now, foreign investment was only allowed in coal mines allotted for captive use, meaning for use by the companies themselves.

The new mining investment policy will to open up investment avenues for companies like PeaBody, Glencore and BHP Group Ltd.

New Delhi also allowed 100% foreign direct investment in contract manufacturing and eased sourcing norms for single-brand retailers.

The government said single-brand retail firms would be permitted to open online stores before setting up bricks-and-mortar stores, making it easier for firms like Apple Inc, which do not operate retail stores in the country, to start selling their products online.

Lack of investment was partly responsible for the country’s relatively sluggish economic growth of 5.8% in the January-March quarter. Analysts predict a slower growth rate for April-June, data on which is expected to be released on Friday.

Last week, Finance Minister Nirmala Sitharaman proposed a series of measures to help the economy and financial markets, and earlier this week the central bank said it would transfer nearly $21 billion in dividends, 64% more than expected, which could be used to further stimulate the economy.

“Liberalising foreign direct investment will help in increasing economic growth” Piyush Goyal, trade and railways minister, told reporters in New Delhi.

Presenting the annual budget for 2019/20 in July, Finance Minister Nirmala Sitharaman had said the government would hold discussions with stakeholders to relax FDI rules in the aviation, media, animation and insurance sectors, and ease rules for single-brand retailers.

“The FDI relaxations fulfils long standing reforms sought by many companies that wanted to set up shop in India. Particularly, easing local sourcing norms and contract manufacturing will help us compete with manufacturing hubs in South and south east Asia,” said Vaibhav Kakkar, partner at a law firm L&L Partners.

($1 = 71.4920 Indian rupees)