With a view to attract overseas investments, the government is working on a proposal to allow 100% foreign direct investment (FDI) in contract manufacturing. The commerce and industry ministry is working on a proposal that would be finalised soon and sent for Union Cabinet's approval.
As per the current foreign investment policy, 100% FDI is permitted in the manufacturing sector under the automatic route. A manufacturer is also allowed to sell products manufactured in India through wholesale and retail channels, including through e-commerce, without government's approval. The current policy does not talk about contract manufacturing and it is not clearly defined in the policy. Big technology companies across the world are going for this, so there is a need for a clarification on the matter which government is considering positively.
Finance Minister Nirmala Sitharaman in Budget 2019 had proposed relaxation in the FDI norms for certain sectors such as aviation, AVGC (animation, visual effects, gaming and comics), insurance, and single brand retail with a view to attract more overseas investment. Last year, the government had relaxed FDI rules for several sectors, including single brand retail, non- banking financial companies and construction. In financial year 2019 (FY19), FDI in India dropped 1% to $44.36 billion.