Govt relaxes FDI norms in aviation and defence, makes way for Apple stores

India eased on Monday foreign direct investment rules for several sectors, including defence, aviation and retail, clearing the way for businesses such as Apple to open its stores, in sweeping changes aimed at conveying the government’s commitment to reforms.

The latest move comes two days after Reserve Bank of India (RBI) Governor Raghuram Rajan, a darling of financial markets, unexpectedly announced he would return to academia when his term ends on September 4. Monday’s decisions are also seen designed to contain any fallout on investor confidence from Rajan’s exit and this week’s vote on Britain’s future in the European Union.

India’s equity and currency markets, which fell sharply in early morning trade on Rajan’s announcement, rebounded cheering the new FDI norms. The 30-share BSE Sensex, which fell 178 points shortly after markets opened, bounced back to close at 26,866.92 up 241 points.

The rupee also recovered from a 61 paise plunge in the morning to close 23 paise down at Rs 67.31 to a dollar.

The government lifted overseas investment ceilings for civil aviation, defence, pharmaceuticals, multi-brand food retail and eased so-called restrictive conditions for single brand retail. The decision to relax the norms was taken at a high-level meeting chaired by Prime Minister Narendra Modi on Monday.

Read: India now most open economy in the world for FDI, says Modi

“Key reform decisions were taken at a high level meeting, which makes India the most open economy in the world for FDI,” Modi said in a tweet.

In a second tweet, he said the changes would provide a “major impetus to employment and job creation in India.”

But a policy body linked to the BJP’s ideological fount, the Rashtriya Swayamsevak Sangh, decried Monday’s decisions, terming them a “betrayal” of people’s trust that would spell the “death knell” for local businessmen.

“In doing so, this government has not done any good to the country in general and local businessmen in particular,” said Ashwani Mahajan, the Swadeshi Jagaran Manch national co-convener.

Commerce and industry minister Nirmala Sitharaman said the decisions would help in attracting more investments, creating jobs and making India the global manufacturing hub.

The government relaxed local sourcing norms up to three years for entities undertaking single brand retail rrading of products having ‘state-of-art’ and ‘cutting edge’ technology.

Read: Govt allows 100% foreign direct investment in airlines, brownfield projects

This will likely benefit Apple’s plans to open its signature stores in India as the government relaxed the condition that stipulates companies to source atleast 30% of their components or merchandise for being eligible to set up company run retail stores in India.

The California-based company, whose CEO Tim Cook was in India recently, had sought easing of this norm to enable it to open stores that sell iPhone, iPads and its other proprietary products. Apple sells in India through distributors, such as, Redington, Ingram Micro and Bettel.

The government also allowed up to 100% FDI in domestic airlines and new airports, a move that will allow foreign companies to fully-own Indian domestic carriers and `greenfield’ airports and upto 74% in existing airports.

Overseas carriers, however, still can’t run domestic airlines in India through fully-owned subsidiaries as the ceiling of 49% FDI by foreign airlines stays

In defence, upto 100% FDI has now been allowed without the mandatory condition of bringing in “state-of-the-art” technology by the foreign partners.

FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

Sitharaman rejected the view that the new FDI rules were announced to counter the possible negative impact on markets of Rajan’s announcement.

“This work was going on for a couple of months. Can all this work be done in a day? It is proper to make the announcement when the work is complete.”