Govt may permit 100% FDI in contract manufacturing: Sources

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The commerce and industry ministry is working on a proposal that would be finalised soon and sent for Union Cabinet’s approval. 

NEW DELHI: India is considering allowing 100% foreign direct investment (FDI) in contract manufacturing to give a boost to manufacturing in the country along with foreign inflows. 

Although the existing norms allow 100% FDI in the manufacturing sector under the automatic route, there is no clarity on contract manufacturing. The rules say that “a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without government approval”. 

“This is a grey area, as the government feels that contract manufacturing is a trading activity because a company only sells a product after getting it manufactured from someone else, whereas industry says it should be considered manufacturing,” said a person aware of the details, speaking on condition of anonymity. 

If allowed, the move will give a push to the government’s efforts to increase the share of the manufacturing sector in the gross domestic product (GDP) to 25% by 2022 from 16-17% now, in line with the objectives of ‘Make in India’ program. 

The Department for Promotion of Industry and Internal Trade (DPIIT) has begun work on a proposal in this regard, following the announcement in the budget for 2019-20 to relax FDI rules for media, aviation, insurance, and single-brand retail. FDI equity inflows into India declined for the first time in six years in 2018-19, down 1% to $44.4 billion from $44.8 billion in the previous fiscal. 

Reviving manufacturing and making the sector internationally competitive have been the twin goals of Make in India, underpinned by a strategy of reducing costs of doing business. 

Courtesy: Economic Times