Daily Current Affairs – 22nd June, 2016

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Daily Current Affairs – 22nd June, 2016

Statistics:

  • FDI inflows into India rose to $55.46 billion in 2015-16 from $36.04 billion two years ago— FDI into the country has been going up steadily
  • The top five sectors — services, construction, computer software and hardware, telecom and automobiles- accounts for a 45 per cent FDI share

FDI Liberalization

Easing entry of FDI: Government has taken a bold step in liberalising the foreign direct investment norms in nine key sectors (used to account 11 per cent of the total FDI received by India)— opens up the country to the global world

Ease of Doing Business staying true to its name: Boosting the economic growth

  • More investments have been brought under the automatic route— will not entail prior approval
  • Reduced bureaucratic discretion—Creation of an enabling environment
  • Promises of Policy certainty— improve investor sentiment
  • Creation of more jobs

Big mind-set shift: The move to prescribe a small negative list for FDI with most sectors under the automatic route

(Coverage in point format)

 

Defence—

Present:

  • Permitted foreign companies to own 49% in Indian units through the automatic approval route
  • Previously foreign OEMs (original equipment manufacturers) were required to form joint ventures with domestic firms if they wanted to establish a manufacturing base in India (an OEM can now independently plan and implement operations in India)

Changes:

  • Allowed foreign companies to own as much as 100% equity in the local defence sector through the government approval route
  • Applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959
  • The condition of access to ‘state-of-art’ technology in the country has been done away with

Implications:

  • Provides global OEMs (original equipment manufacturers) strong incentive to establish substantial local manufacturing in India –
    • With 60% of India’s defence requirements met through imports, local defence production is at the heart of the Make in India programme
    • Increase in Joint ventures— lack of expertise can be tackled with
    • More sense of ownership— encourage foreign defence equipment makers to open production centres leading to widening of the vendor base for local companies, increasing competition among suppliers for business, and better compliance with offset obligations
  • Will help to allay fears on technology transfer
    • Foreign players will be able to develop a local vendor base, with or without Indian partners
    • Ensure availability of cutting edge technologies for the defence forces
    • Boost to local manufacturing
    • Assured returns for international OEMs
    • Enhanced R&D to develop and deploy solutions catering specifically to the country’s security needs
  • Removal of procedural hurdles:
    • Removing the burden to prove the product/ technology as modern and state of the art
    • Flexibility in examining proposals and giving approvals quickly— allow the government to look at proposals at more proactive basis

Concerns:

  • Need to inject in a smooth process of an approval system
  • Revenue front should be taken into account at every step
  • More clarity on the issue if government will source from them
  • Highly regulated export of defence items from India

 

Pharmaceuticals—

Present: allowed 100% FDI under the automatic route in green-field pharma (projects built from scratch) and up to 100% FDI in brownfield pharma projects under the government approval route

Changes: allowed up to 74% FDI under the automatic route for investments in brownfield pharmaceutical projects with investments beyond 74% under the approval route

Implications:

  • Boost mergers and acquisitions (M&As) and private equity investments in the sector in future
  • Small and mid-sized companies may see more interest both from promoters and buyers
  • More clarity over ownership and removal of uncertainty
  • High margins owing to the low cost of production in India— will increase the number and size of deals
  • Incidences of international players getting into a partnership with local partners— a welcome change for global pharma players looking at establishing a presence in India but not looking for a 100% stake
  • Stimulate more M&A and investment in CRAMS (Contract Research and Manufacturing Services)

Concerns:

  • The limit could have been increased to 100% instead of 74%
  • Need to streamline regulations, particularly Drug Price Control Orders (DPCO)
  • Government should also take care of the following:
    • Price control mechanisms
    • Increasing use of compulsory licensing
    • The perception of an unfavourable regime for protection of intellectual property rights in India

 

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