Easier FDI norms coming for ‘most favoured nations’

The government is mulling a new investment law that will categorise nations into ‘most favoured’ and ‘not pro-India’ besides emphasising contract enforcement and fast-track dispute resolution.

A new Bill is likely to be introduced in the Budget session of Parliament that is scheduled to begin on January 31.

Officials told BusinessLine that the “draft of the Bill, which is being vetted by the Law Ministry, will be placed before the Cabinet for approval for introduction in Parliament.” The Bill might even get a mention in the Budget speech. Efforts will be made to get it passed during the Budget session itself.

The Bill is being proposed at a time when the government has drawn up a National Infrastructure Pipeline plan envisaging investments of over ₹102-lakh crore, a significant part of which is expected from overseas.

The infrastructure pipeline plan is critical to achieving a $5-trillion economy. ‘Most Favoured Nations’, under the Bill, will get more tax benefits and regulatory relaxations.

There is a also a feeling that India missed the opportunity to attract companies that moved out of China, post the tariff war with the US. In fact, many shifted base to South-East Asian nations, chiefly Vietnam. According to the officials, the proposed law could help attract more such companies to India.

Rise in FDI flows

Foreign Direct Investment (FDI) flows increased from $189.51 billion in 2009-10 to 2013-14 to $283.90 billion (2014-15 to 2018-19). This jump, however, hides the fact that the growth rate on a yearly basis has been declining. But there is some good news this fiscal year: During the first six months, FDI inflows registered an impressive 15 per cent growth.

The extant policy permits FDI up to 100 per cent under the automatic route in most sectors. The Government has undertaken a number of FDI policy reforms in sectors such as Defence, financial services, asset reconstruction companies, broadcasting, pharmaceuticals, single brand retail, civil aviation, e-commerce, coal mining, contract manufacturing and digital media.

The Bill will also focus on contract enforcement, an aspect of Ease of Doing Business in which the country showed no significant improvement even though in the overall rankings in 2020 it moved up 14 places to the 63rd rank. The indicator for enforcing contracts measures the time and cost for resolving a commercial dispute through a local first-instance court, as also the quality of the judicial process.

The officials said that keeping in mind the World Bank’s observations, this aspect has been given importance in the proposed law.

Resolving dispute takes contract enforcement to the next step. Dispute resolution through mediation and via dedicated courts will bring relief to businesses.

The officials said that setting up of more commercial courts and more NCLT (National Company Law Tribunal) benches will be the key to dispute resolution.

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