Discussion on Liberalization of FDI in Defense and Retail

Posted by Reading Time: 2 minutes

Jul. 4 – According to the Finance Minister of India, recent FDI policies have become more user-friendly, as all previous regulations and guidelines have been consolidated into one comprehensive document that is now reviewed every six months. The Finance Minister said that this has been done to enhance the clarity and accessibility of our FDI policy to foreign investors. The Minister also affirms that possession and control are now central to the FDI policy, and that the methodology in maintaining these aims has been more clearly defined.

Furthermore, the Finance Minister explained that discussions are also underway to build consensus on the further liberalization of FDI policy in the retail and defense sectors. In addition, proposals have been made to further liberalize the pricing and payments of technology transfer fees, trademarks, brand names and royalties.

In an effort to facilitate investment opportunities in India, the government also decided to permit Indian mutual funds to directly draw investments from overseas investors who meet the “Know Your Customer” (KYC) guidelines. Previously, this privilege was only available to Foreign Institutional Investors (FIIs) and their sub accounts. The upper limit for investment by FIIs into corporate bonds has also been raised significantly from the existing US$15 billion to US$40 billion, with the extra limit being accessible by bond offerings that have more than five years residual maturity. This particular improvement also carries a lock-in period of three years, in which these bonds are allowed to be traded between FIIs. In theory, these new authorizations should encourage FIIs to increase their commitment in India.

According to the Finance Minister, major initiatives are also being undertaken to streamline bureaucratic processes. Administrative procedures which concern taxation, trade and social transfers are to be processed electronically, in order to enhance the speed of decisions and limit bureaucratic delays. The Direct Tax Code, to be put into effect on April 1, 2012, along with the planned Goods and Services Tax are vital measures that will create a modern and more efficient tax system for India.

Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. To contact the firm, please email india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.