Commerce and Industry Minister Piyush Goyal on Thursday said there is a tremendous scope to improve the processes, procedures and policies governing foreign direct investment (FDI) in India, adding that the government remained open to new ideas.
“There are very few sectors where FDI is restricted. But we are open to ideas, whatever industry demands. During engagements with industry in Japan new ideas have come up,” the minister told reporters at the end of his visit to Japan.
Easing downstream foreign investment rules
Among the proposals under consideration is making it easier for companies that already have foreign equity participation to make downstream investments.
At present, when a foreign-owned or controlled company (FOCC) invests in a downstream company, the entire downstream investment is counted towards the sectoral foreign investment cap of the target company. No proportionality rule applies.
Such an investment is treated at the investee level as indirect foreign investment (IFI), requiring the investee entity to comply with the applicable FDI entry route — automatic or government approval — as well as sectoral caps.
“We have floated a proposal (on downstream investments),” Goyal said.
“We believe by making Know Your Customer (KYC) procedures faster and more efficient. If we can have Mutual Recognition Agreements (MRAs) with regulators in other countries by which we respect each other’s approvals. These will make the FDI approval process faster,” he added.
India allows 100% FDI through the automatic route in most sectors, while certain sensitive sectors and activities remain subject to restrictions or government approval. Investors, however, have often flagged compliance requirements as cumbersome.
Apart from easing fuels for downstream investments by companies with FDI, the government is also considering a proposal to raise the threshold for foreign direct investment proposals requiring approval from the Cabinet Committee on Economic Affairs to Rs 15,000 crore from Rs 5,000 crore at present.
When asked if Japan is suggesting India to join the 12-member bloc Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the minister said a lot of people are asking India to consider this suggestion. “But we have not yet really applied our mind (on it),” he said. India’s focus is on bilateral trade pacts.
CPTPP spans 12 countries
The CPTPP is a major free trade agreement covering 12 countries across the Asia-Pacific region and Europe. Its members include Japan, Australia, Canada, the UK and New Zealand. India is not a member of the grouping.
India is currently negotiating trade agreements with countries and blocs including Israel, Chile, Peru, Canada, the Gulf Cooperation Council (GCC), the Russia-led Eurasian Economic Union (EAEU) and the Southern African Customs Union (SACU).
With Mexico, the terms of reference are being finalised to begin negotiations for a trade agreement. India and Mercosur are also considering an expansion of their existing preferential trade pact.
While Commerce Secretary Rajesh Agrawal is in Chile to review the trade pact talks, not much progress is happening with Peru, the minister added.