India, today, offers immense investment opportunitiesfor foreign investors. And, it is only a matter of time before the countryreaps the benefits of a liberalized economy.

The Covid-19pandemic has caused huge economic disruptions and changes in attitudes towardsnational security, public health, and globalization. It has had a significanteffect on a number of countries, and India is no exception.

During Phase 1 ofunlocking, the Government of India has announced a slew of business-friendlyreforms to kickstart the economy. It had announced an economic package of `20-Trillion ($265-billion) for industrialdevelopment through the Atma Nirbhar Bharat (Self Reliant India) program.

This is intended topromote local manufacturing and enable India to become a leading manufacturinghub. To achieve this objective, the government has cut red tape for foreigninvestments across various industry sectors.

Theself-reliant Bharat

The government hasannounced five stages of the economic stimulus package under the Atma NirbharBharat scheme. It is aimed to relieve the stressed economy while introducingmeasures such as credit and liquidity infusion for the MSME sector, equityoptions for small and medium businesses, a moratorium on loan instalments andinterest payments, easy access to working capital financing, special liquidityfor mutual funds, funds for commercial real estate projects, special liquidityscheme for NBFCs, and microfinance institutions, etc.

The government hasalso announced structural reforms in eight key sectors, including civilaviation, defence manufacturing, coal, atomic energy, minerals, and powerdistribution. These reforms are intended to simplify policy, enabling investors(domestic and foreign) to invest in growth sectors, invite new participation, andboost employment growth and employment opportunities. In addition, thegovernment has also established fast track clearing system for projectapprovals in coordination with various ministries.

FDIliberalization in key sectors

The typical routefor Foreign Direct Investments in India is through the automatedroute or approval route. Under the automatic route, FDI can be done without theReserve bank of India or Government approval. Under the approval route, priorgovernment permission is required.

The Indiangovernment has liberalized investment across various sectors to encourageforeign investments in India.

FDI limitrevision in the defence sector

In the defencesector, the existing policy caps the foreign investment to 49 per cent, and itrequires government approval depending on the level of modern technology used. However,under the economic stimulus package, the government has proposed to increaseFDI limits from 49 to 74 per cent with automatic approval, thus increasing theease of doing business in this sector.

Civilaviation reforms

Civil aviation hasgot a big boost from the government with the new reforms. The use of Indianairspace has been eased so as to enable civil flying without impediments. Thisis expected to greatly improve efficiencies.

This move willbenefit consumers and businesses by shortening air travel, saving fuel costs,and increase the annual revenues by `10-Billionfor the industry. Under this scheme, FDI is allowed in air transport services,such as regional air transport, scheduled passenger airlines through automaticapproval, and 49 per cent cap. Twelve airports are selected for modernizationunder Public-Private Partnership, allowing 100 per cent foreign investmentthrough automatic investment.

Otherreforms

The governmentplans to announce a new Public Sector Enterprise Policy, which allows privatecompanies to invest in new sectors. It is going to announce key strategicsectors which will have a public sector presence, and the rest will be open forprivate participation.

In key sectors,there will be at least one public sector enterprise and will also allow privateinvestment. This policy is aimed to improve the innovation and competitivenessof the companies involved in this sector.

The government hasintroduced reforms in the power distribution sector by protecting consumerrights, timely payments to power generation companies, reduced subsidies, andfast-tracking grants for open access. It also provides a level playing fieldfor private space companies to promote rocket launchers, satellites,space-based services, and provide remote sensing data to tech entrepreneurs.

India – Thepotential of a new manufacturing hub

During theCovid-19 pandemic, various countries suffered material shortages due to their over-relianceon China. This led these countries to look for alternatives to China as it hascaused significant supply shocks due to the lockdown in China. This shouldenable them to diversify their production value chain and safeguard theirinterests.

India isespecially of interest to foreign investors because it is one of the world’slargest economies, with an abundant and young workforce. The country is alsoeasing up regulations, such as land, labour, tax reforms, fast-tracking ofclearances, and streamlining processes. There is also competition betweenstates to promote economic growth and improve livelihoods.

The government hasimproved its ease of doing business ranking by relaxing the timeline forcompliance to tax, employment, corporate, and securities law by listed andunlisted companies. It has also taken steps to decriminalize compliance-relatedoffenses. It has also boosted technology transfer and investment in the MSMEsector and has encouraged technology upgradation.

The Reserve bankof India has also announced measures to improve the financial flows and promotefinancial stability. These include reforms to improve the market functioning,reduction in repo rate, reducing financial stress in industry sectors,promoting export and imports, and reducing financial constraints at the stategovernment level to promote businesses.

Conclusion

While the currentpandemic has severely affected the economy and industries globally, the Indiangovernment has taken this as an opportunity to simplify its regulations andpromote business friendliness. The self-reliant India movement is a great boonfor foreign investors to enter into new sectors. It is expected that thesemoves will enable increased investment and lead the way for India to become aglobal investment and manufacturing hub. India has become an attractivedestination for global investors because of these reforms.

This article hasbeen contributed by PruVisor Management Consulting.