Days after RBI chief steps down, India eases foreign investment rules

Mon Jun 20, 2016 10:54am EDT
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By Manoj Kumar and Rajesh Kumar Singh

NEW DELHI (Reuters) - India announced on Monday sweeping reforms to rules on foreign direct investment, clearing the way for Apple (AAPL.O: Quote) to open stores in the country and announcing easier terms for investors in sectors ranging from civil aviation to pharmaceuticals.

The move comes two days after central bank governor Raghuram Rajan, a darling of financial markets but under pressure from political opponents at home, announced he would not seek another term, a surprise move that raised concerns about whether reforms he set in motion would stall.

"These changes are fairly significant, particularly if you look at them in the context of what happened over the weekend with Governor Rajan's decision to step down," said Shilan Shah, India economist at Capital Economics in Singapore.

"It might be the government's way to illustrate its commitment to reforms and mitigate any investor fallout."

Prime Minister Narendra Modi hailed the changes to foreign direct investment (FDI) rules, tweeting they would make India "the most open economy in the world for FDI" and provide a "major impetus to employment and job creation".

Modi, 65, has pitched to global business to come and "Make in India" since winning power two years ago. His government has touted a 29 percent rise in FDI to $40 billion in the fiscal year to March as proof the policies are gaining traction.

Yet, with India ranking 130th in the World Bank's latest Ease of Doing Business index, multinationals remain cautious amid lingering concerns about bureaucratic red tape and unpredictable tax officials.

The last time Modi loosened FDI rules was after his nationalist party suffered a heavy defeat in a state election last autumn.   Continued...

Reserve Bank of India (RBI) Governor Raghuram Rajan delivers a lecture at Tata Institute of Fundamental Research (TIFR) in Mumbai, India, June 20, 2016. REUTERS/Danish Siddiqui