19 Apr 2024 Centre liberalised FDI norms for the space sector
THIS ARTICLE COVERS ‘DAILY CURRENT AFFAIRS’ AND THE TOPIC DETAILS OF ”Centre liberalised FDI norms for the space sector.”. THIS TOPIC IS RELEVANT IN THE “Economy” SECTION OF THE UPSC CSE EXAM.
Why in the news?
The central government has notified amendments to the space sector’s Foreign Direct Investment (FDI) policy to attract offshore investors in satellite manufacturing and satellite launch vehicles segments. A notification from the finance ministry said the new rules are called Foreign Exchange Management (Non-debt Instruments).
An amendment to the FDI policy for the space sector, made through a gazette notification dated April 16, 2024, prescribes a liberalized entry route and provides clarity for FDI in satellites, launch vehicles and associated systems or subsystems, the creation of spaceports for launching and receiving Spacecraft, and the manufacturing of space-related components and systems.
The new rule under FDI for the space sector:
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- 100 per cent FDI has been allowed for the space sector category of manufacturing and operation of satellites, satellite data products, and ground segment and user segment.
- Up to 74 per cent FDI for satellite manufacturing & operation, satellite data products, ground segment & user segment are allowed under automatic route. Beyond 74 per cent, these activities are carried out by the government.
- FDI of up to 49 per cent is allowed for Launch Vehicles and associated systems or subsystems. Creation of Spaceports for launching and receiving Spacecraft is under the automatic route, but beyond 49 per cent, government permission would be required.
Foreign Direct Investment:
FDI refers to an investment made by a company or individual in one country in business interests in another country, either in establishing business operations or acquiring business assets in the other country, such as ownership or a controlling interest in a foreign company.
FDI plays a significant role in the global economy, fostering economic growth, technological transfer, job creation, and international trade. Governments often implement policies to attract FDI, offering incentives such as tax breaks, infrastructure development, and streamlined regulations to encourage foreign investors to invest in their countries.
FDI inflows can contribute to government revenue through taxes, royalties, and other fees levied on foreign investors. This additional revenue can fund public services, infrastructure projects, and social welfare programs, benefiting the economy and creating more employment. FDI promotes trade integration by facilitating access to global markets. FDI can stimulate domestic investment by creating a more competitive business environment, fostering entrepreneurship, and encouraging local firms to upgrade their operations to remain competitive in the face of foreign competition.
FDI in India:
India began economic liberalization in the early 1990s, opening its economy to foreign investment. Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA), 1999. The Indian government has introduced several policy measures to promote FDI across various sectors. These include increasing FDI limits, simplifying procedures, and offering incentives in strategic sectors like manufacturing, infrastructure, and technology.
India has been attracting substantial FDI inflows in recent years. Key sources of FDI include countries like the United States, Singapore, Mauritius, Netherlands, and Japan, among others. In FY 22-23, India witnessed total FDI inflows of $70.97 Bn, with FDI equity inflows reaching $46.03 Bn. The top five contributors to FDI equity inflows during FY 2022-23 were Mauritius (26%), Singapore (23%), the USA (9%), the Netherlands (7%), and Japan (6%).
Routes for FDI in India:
In India, foreign investors can make investments through two main routes: the Automatic Route and the Government Route. These routes determine the scrutiny and approval required for foreign investment in different sectors.
Automatic Route:
Under the Automatic Route, foreign investors do not require prior government or the Reserve Bank of India (RBI) approval for investment in most sectors. Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India in all activities/ sectors as specified in Regulation 16 of FEMA 20 (R). Under the ‘ 100% Automatic Route’ sectors are:
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- Broadcast Content Services (Up-linking & down-linking of TV channels, Broadcasting Carriage Services
- Agriculture & Animal Husbandry,
- Air-transport services (non-scheduled and other services under the civil aviation sector), Airports (Greenfield + Brownfield),
- Asset Reconstruction Companies, Auto-components, Automobiles, Biotechnology (Greenfield),
- Capital Goods,
- Cash & Carry Wholesale Trading (including sourcing from MSEs),
- Chemicals,
- Coal & Lignite,
- Construction Development,
- Construction of Hospitals,
- Credit Information Companies,
- Duty Free Shops,
- E-commerce Activities,
- Electronic Systems,
- Food Processing,
- Gems & Jewellery,
- Healthcare,
- Industrial Parks,
- IT & BPM,
- Leather,
- Manufacturing,
- Mining & Exploration of metals & non-metal ores,
- Other Financial Services,
- Services under Civil Aviation Services, such as Maintenance & Repair Organizations,
- Petroleum & Natural gas,
- Pharmaceuticals,
- Plantation sector,
- Ports & Shipping,
- Railway Infrastructure,
- Renewable Energy,
- Roads & Highways,
- Single Brand Retail Trading,
- Textiles & Garments,
- Thermal Power,
- Tourism &
- Hospitality and
- White Label ATM Operations.
Government Route:
The Government Approval Route requires foreign investors to seek prior approval from the government or the RBI before making investments in specific sectors. 100% Government Route’ category are:
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- Banking & Public sector: 20%
- Broadcasting Content Services: 49%
- Core Investment Company: 100%
- Food Products Retail Trading: 100%
- Mining & Minerals separations of titanium-bearing minerals and ores: 100%
- Multi-Brand Retail Trading: 51%
- Print Media (publications/ printing of scientific and technical magazines/speciality journals/ periodicals and facsimile editions of foreign newspapers): 100%
- Print Media (publishing of newspapers, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%
- Satellite (Establishment and operations): 100%
Government+ Automatic Route are:
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- Infrastructure Company in the Securities Market: 49%
- Insurance: up to 74%
- Medical Devices: up to 100%
- Pension: 49%
- Petroleum Refining (By PSUs): 49%
- Power Exchanges: 49%
- Telecom: 100%
India has specific prohibitions against FDI in certain sectors. These are:
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- Atomic Energy Generation
- Any Gambling or Betting businesses
- Lotteries (online, private, government, etc.)
- Investment in Chit Funds
- Nidhi Company
- Agricultural or Plantation Activities (although there are many exceptions, such as horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
- Housing and Real Estate (except townships, commercial projects, etc.)
- Trading in TDRs
- Cigars, Cigarettes, or any related tobacco industry
CONCLUSION:
FDI has played a crucial role in India’s economic transformation, and the government continues pursuing policies to attract more foreign investment to fuel growth and development. However, its benefits depend on effective governance, sound economic policies, and favourable business environments in host and home countries.
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Prelims Practice Question:
Q. Which of the following countries share the highest FDI in India in 2023?
A. Singapur
B. Mauritius
C. U.S.A
D. Japan
ANSWER: B
MAINS PRACTICE QUESTION:
Q. Critically examines the key factors driving Foreign Direct Investment (FDI) in India and how it has impacted the country’s economic growth.
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