Big reforms: Narendra Modi govt clears 100% FDI in defence and aviation

A day after Raghuram Rajan’s announcement of not seeking a second term as the Governor of Reserve Bank of India (RBI), the government on Monday relaxed Foreign Direct Investment (FDI) norms, putting most sectors under the automatic route. The norms have been eased for single brand retail, civil aviation, airports, pharmaceuticals, animal husbandry and defence sectors.

The major reform is believed to be a bid to calm the foreign investors, who are distressed following the exit of Raghuram Rajan. The decision was taken on Monday at a high-level meeting chaired by Prime Minister Narendra Modi.

The new norms allow 74 per cent FDI in pharma sector under the automatic route. This means that the investors will no longer require approval from government to invest up to 74 per cent in existing companies. Currently, FDI up to 100 per cent is allowed in new projects in the pharmaceutical sector.

100 per cent FDI in scheduled airlines has also been allowed. Currently, the Foreign airlines are allowed to own just 49 per cent in local airline.

According to the new norms, the foreign companies can own 100 per cent equity in the defence sector. Last year, the FDI norms were relaxed by the government in about dozen sectors. The move had helped FDI flows to hit an all-time high of $40 billion in 2015-16.