New Delhi, Aug 28 (IANS) The Union Cabinet on Wednesday allowed 100 per cent foreign direct investment (FDI) in contract manufacturing through the automatic route.

An official statement following the cabinet meeting said that the decision has been taken to provide clarity on contract manufacturing in the country.

"Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent basis," the statement said.

The existing FDI policy, which provides for 100 per cent FDI under the automatic route in the manufacturing sector, has no specific provision in respect of contract manufacturing.

The Commerce and Industry Ministry statement also said that FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country.

"The government has put in place an investor-friendly policy on FDI, under which FDI up to 100 per cent is permitted on the automatic route in most sectors and activities. FDI policy provisions have been progressively liberalised across various sectors in recent years to make India an attractive investment destination," it said.