Addressing a press briefing in Delhi, Commerce and Industry Minister Piyush Goyal and Information & Broadcasting Minister Prakash Javadekar on Wednesday announced the key decisions taken in the Cabinet meeting held immediately prior. Goyal contended that there was a slowdown of Foreign Direct Investment (FDI) worldwide, which had led to the government easing FDI norms. Essentially, the government has approved 100% FDI in coal mining and all related processing activities and contract manufacturing under the automatic route. It has also paved the way for 26% FDI in digital media. This comes days after Finance Minister Nirmala Sitharaman announced a slew of initiatives and amendments to current protocol and policy to buttress PM Modi's Independence day statement that his was a government that respects wealth creators as the 'wealth of the nation'.
The Cabinet's decisions have impacted the single-brand retail sector too. The earlier rule that mandated online retailing only after opening a physical store has been relaxed. Additionally, the compulsory 30% local sourcing requirement has been done away with. The procurement policy was opposed by many foreign retailers. Currently, they are allowed to adjust procurement of goods from India for their global operations for meeting the mandatory local sourcing requirement.
Allowing 100% FDI in coal mining will allow foreign entities to own and sell coal mines in India. Previously, 100% FDI was permitted only in captive coal mining. Similarly, the mention of contract manufacturing is significant. While 100% FDI was prevalent in the manufacturing sector under the automatic route, there was ambiguity about contract manufacturing as it was not defined as such. Goyal asserted that these changes would give a big boost to FDI and the Make in India programme. According to him, this would help the companies looking for alternate manufacturing hubs. This, in turn, could create a large number of jobs for people in India.
These reforms come at a juncture when the FDI equity inflows have declined for the first time in 6 years. They have fallen from $44.8 billion to $44.4 billion in 2018-19. Finance Minister Nirmala Sitharaman, in her Budget speech in July, had hinted at the government exploring suggestions to open up FDI in aviation, media and insurance sectors. There were also speculations about the FDI reforms in other sectors like gaming, information utilities, and animation. In early 2019, Commerce and Industry Minister Piyush Goyal had said that the government could initiate changes which could enable foreign investors in single-brand retail to circumvent the compulsory 30% local sourcing requirement.