Business

India overhauls foreign ownership rules

Tim Cook and Narendra Modi Image copyright EPA
Image caption Apple's Tim Cook recently visited India

India has announced a radical overhaul of its foreign ownership rules to attract more overseas investment.

Airlines and some defence industries may now be 100% foreign owned - up from 49% and 74% respectively.

And for overseas retailers there's respite from a rule that required 30% of what they sold to be Indian sourced.

The BBC's Simon Atkinson in Mumbai said it was the biggest signal yet that the country is serious about attracting more foreign investment.

The move will be welcomed by brands like IKEA and Apple which see India as the next big market, he added

Investment rules in pharmaceuticals and food production have also been relaxed.

The new rules were introduced "with the objective of providing major impetus to employment and job creation in India," the government said in a statement.

"With these changes, India is now the most open economy in the world for FDI [foreign direct investment]."

Prime Minister Narendra Modi last announced major reforms in November 2015.

Image copyright AP
Image caption Companies such as Apple and Ikea are expected to benefit from the ruling

Analysis: Simon Atkinson, India Business Editor, Mumbai

So just a couple of days after central bank governor Raghuram Rajan says he is leaving - to howls of anguish about the damage this will do to India's credibility abroad - we get this.

Sweeping changes to foreign investment rules in some major sectors, which show that India's very much open to international investment.

Attracting foreign investment into India is the main reason Prime Minister Narendra Modi has spent so much of his first two years in office travelling the world.

A relaxation of arduous sourcing rules, which require foreign retailers to source 30% of what they sell from India, will appeal to companies like Apple. Its boss Tim Cook was here recently and he sees India as the next big market.

Notably there are no steps to let the likes of Walmart and Carrefour come and operate supermarkets here without a local partner. Those firms would love access to India's growing middle class.

But the cries of protest from the millions running small stores would likely be too much for politicians to bear.

So even if it created jobs and infrastructure, some industries remain just too sensitive when it comes to FDI. A least for now.


The local sourcing rules have been relaxed for up to three years - and for another five years if the company can prove that "state-of-art" and "cutting edge" technology is involved.

"We will inform Apple to indicate whether they would like to avail new provisions," Rajesh Abhishek, secretary of the Department of Industrial Policy and Promotion told a news conference.

"These changes are fairly significant, particularly if you look at them in the context of what happened over the weekend with Governor Rajan's decision to step down," said Shilan Shah, India economist at Capital Economics in Singapore.

"It might be the government's way to illustrate its commitment to reforms and mitigate any investor fallout following [Mr] Rajan's decision," he told Reuters news agency.

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