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India announces sweeping reforms to FDI rules
[NEW DELHI] India announced on Monday sweeping reforms to rules on foreign direct investment, opening up its defence and civil aviation sectors to complete outside ownership and clearing the way for Apple to open stores in the country.
The reforms also loosen restrictions on inbound investments in pharmaceuticals and retail.
Apple is expected to be a beneficiary of a three-year relaxation India is introducing on local sourcing norms with an extension of up to five years possible if it can be proven that products are "state of the art".
Other single-brand retailers like furniture giant IKEA are also expected to benefit.
Defence contractors that have been reluctant to transfer technology to manufacture equipment in India would get the right to own local operations outright, up from 49 per cent previously.
In other changes, India allowed 100 per cent foreign direct investment (FDI) in civil aviation, following on from last week's launch of a new policy that lowered barriers to entry for airlines that want to fly international routes.
The government also allowed foreign companies to own up to 74 per cent in 'brownfield' pharmaceuticals projects without prior government approval. India already allows 100 per cent ownership of greenfield pharma businesses.
The reforms announcement comes two days after India's central bank governor Raghuram Rajan, feted by foreign investors, announced he would not be available for reappointment when his term expires in September.
Mr Rajan's decision, whose reforms have been credited for much of the economy's success in recent years, came as a jolt to the country's financial markets. The rupee fell to a near one-month low and bonds weakened on Monday.
Indian Prime Minister Narendra Modi hailed the sweeping liberalisation of rules, saying they would make Asia's third-largest economy the most open in the world. "Key reform decisions were taken at a high level meeting chaired by the PM, which makes India the most open economy in the world for FDI," Mr 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."
The last time Mr Modi's two-year-old government announced a loosening of FDI norms was after his nationalist political party suffered a heavy defeat in a state election last autumn.