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Significant Amendments in foreign direct investment policy

By May 3, 2018 May 2nd, 2020 No Comments

A. SIGNIFICANT AMENDMENTS IN FOREIGN DIRECT INVESTMENT POLICY:

With a view to encourage the ease of doing business in India and to simplify the process of foreign investments into the country by putting more FDI proposals on automatic route instead of government route, the Department of Industrial Policy and Promotion vide Press Note dated November 10, 2015 introduced a number of amendments in the FDI Policy. The amendments are aimed at:

  • Simplifying the conditionality of foreign investments in key sectors like construction, defence, single brand retail trading, whole sale cash and carry sector, etc;
  • Increasing the sectoral caps in certain sectors like broadcasting, plantation sector, airport transport service etc;
  • Relaxing the FDI norms for investing in Limited Liability Partnerships in India as well as downstream investment by such LLPs;
  • Bringing investments by non-resident Indian (NRI)-owned and controlled entities outside India on par with NRI investments; and
  • Raising the threshold limit for approval by Foreign Investment Promotion Board.

B. CONSTRUCTION AND DEVELOPMENT SECTOR:

Extant FDI Policy 2015 Amendment
Minimum area to be developed in case of construction-development projects would be a minimum floor area of 20,000 sq. meters. Removed
Investee Company will be required to bring minimum FDI of US$ 5 million within six months of commencement of the project. Removed
The investor will be permitted to exit on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.

The Government may, in view of facts and circumstances of a case, permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project. These proposals will be considered by FIPB on case to case basis.

A foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed.

Further, transfer of stake from one non-resident to another non-resident, without repatriation of investment will neither be subject to any lock-in period nor to any government approval. Nonetheless, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period.

This lock-in period condition will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs

FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs). It has been clarified that “earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.” Hence, the same will not be prohibited from receiving FDI under the FDI policy.
100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres. The Press Note provides that consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted, provided that there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.
The definition of the word “Transfer” in relation to FDI policy on the construction sector was not provided earlier. Through the press note the definition of “Transfer” in relation to the FDI policy on the construction sector has been inserted.

The Press Note also provides that each phase of the construction development project would be considered as a separate project for the purposes of FDI policy.  

C. DEFENCE SECTOR: 

Extant FDI Policy 2015 Amendment
Government route up to 49% Automatic route up to 49%.

Further, in case of infusion of fresh foreign investment within the permitted automatic route level, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, Government approval will be required.

Foreign investment above 49% is also permitted, subject to approval of Cabinet Committee on Security (CCS) on case to case basis, wherever the investment is likely to result in access to modern and ‘state-of-art’ technology in the country. Proposals for foreign investment in excess of 49% will be considered by Foreign Investment Promotion Board (FIPB).
Portfolio investment and investments by FVCIs together will not exceed 24% of the total equity of the investee/joint venture company. Portfolio investment and investment by FVCIs will be allowed up to permitted automatic route level of 49%.

D. BROADCASTING SECTOR: 

1. Broadcasting carriage services: 

Sector/Activity Extant FDI Policy 2015 (Cap & Route) Amendment (Cap & Route)
  i.      Teleports;

ii.      Direct to home;

iii.      Mobile TV;

iv.      Cable networks (Multi System operators (MSOs) operating at national or state or district level and undertaking up gradation of networks towards digitalization and addressability); and

v.      Headend-in-the Sky Broadcasting Service (HITS)

74% (upto 49% under automatic route and beyond 49% and upto 74% under government route)
100% (upto 49% under automatic route and beyond 49% under government route)
Cable networks (Other MSOs not  undertaking up gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs) 49%  under automatic route

 

100% (upto 49% under automatic route and beyond 49% under government route)

2. Broadcasting content services: 

Sector/Activity Extant FDI Policy 2015 (Cap & Route) Amendment (Cap & Route)
Terrestrial broadcasting FM (FM Radio) 26% under government route

 

49%  under government route

 

Up-linking of ‘news and current affairs’ TV channels
Up-linking of non news and current affairs TV channels 100% under government route 100% under automatic route

 

Down-linking of TV channels

E. BANKING- PRIVATE SECTOR: 

Full fungibility of foreign investment in Banking Private sector has been introduced. Accordingly, FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74%, provided that there is no change of control and management of the investee company 

F. COFFEE/ RUBBER/ CARDAMOM/ PALM OIL & OLIVE OIL PLANTATION SECTOR: 

Extant FDI Policy 2015 Amendment
As per the present FDI policy on the Plantation sector, only tea plantation is open to foreign investment. It has been decided to open certain other plantation activities namely; coffee, rubber, cardamom, palm oil & olive oil plantations also for 100% foreign investment under automatic route.

G. INVESTMENT BY ENTITIES OWNED AND CONTROLLED BY NRIs:

NRI investment in India is deemed to be domestic investments at par with the investment made by residents. Henceforth, the investments made by entities such as companies, trusts, and partnership firms which are incorporated outside India and are owned and controlled by NRIs has been brought at par with NRI investments in India.

H. E-COMMERCE SECTOR: 

The Press Note provides that a manufacturer will be permitted to sell its product through wholesale and/or retail, including through e-commerce without Government approval 

I. SINGLE BRAND RETAIL TRADING (SBRT) SECTOR: 

Extant FDI Policy 2015 Amendment
FDI Policy on SBRT mandates that sourcing of 30% of the value of goods purchased from India would be reckoned from the date of receipt of FDI. It has now been decided that sourcing requirement has to be reckoned from the opening of first store. Further, it is seen that in certain high technology segments, it is not possible for retail entity to comply with the sourcing norms. To provide opportunity to such single brand entities, it has been decided that in case of ‘state-of-art’ and ‘cutting edge technology’ sourcing norms can be relaxed subject to Government approval.
Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of single-brand retail trading. It has been decided that an entity which has been granted permission to undertake SBRT will be permitted to undertake ecommerce activities.
The word “Indian manufacturer has not been defined. Indian manufacturer, for the purpose of FDI Policy has been defined to include the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers. Further Indian brands should be owned and controlled by resident Indian citizens and/or companies, which are owned and controlled by resident Indian citizens.
The FDI policy, 2015 is silent about Duty free Shops. 100% FDI is now permitted under automatic route in Duty Free Shops located and operated in the Customs bonded areas.

The Press Note also clarifies that Indian brands are equally eligible for undertaking single brand retail trading and therefore certain conditions of FDI Policy viz. products to be sold under same brands internationally and investment by non-resident entities as brand owner will not be applicable for FDI in Indian brands.

J. WHOLESALE CASH AND CARRY ACTIVITY SECTOR: 

Extant FDI Policy 2015 Amendment
The FDI Policy allows 100% investment under automatic route in this sector. However, a wholesale/cash & carry trader cannot open retail shops to sell to the consumer directly. It has now been decided that a single entity will be permitted to undertake both the activities of SBRT and wholesale with the condition that conditions of FDI policy on wholesale/ cash & carry and SBRT have to be complied by both the business arms separately.

K. LIMITED LIABILITY PARTNERSHIP(“LLP”): 

Extant FDI Policy 2015 Amendment
The policy allows FDI in LLP through the Government approval route.

.

100% FDI under automatic route is now permitted in LLPs, operating in sectors/activities where 100% FDI is allowed and there are no FDI-linked performance conditions.

Further, It has been decided that an LLP having foreign investment will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

L. REGIONAL AIR TRANSPORT SERVICE (“RSOP”): 

Extant FDI Policy 2015 Amendment
The FDI Policy does not provide for this. RSOP is now eligible for foreign investment up to 49% under automatic route.

M. ENHANCING CAPS IN CERTAIN SECTORS: 

Sector/Activity Extant FDI Policy 2015 (Cap & Route) Amendment (Cap & Route)
Non-Scheduled Air Transport Service
74% (upto 49% under automatic route and beyond 49% and upto 74% under government route)
100% under automatic route

 

Ground Handling Services
Satellite Establishment and Operation 74% under government route 100% under government route
Credit Information Companies 74% under automatic route

 

100% under automatic route

N. COMPANIES WITHOUT OPERATIONS NOT TO REQUIRE GOVERNMENT APPROVAL FOR FDI FOR UNDERTAKING AUTOMATIC ROUTE SECTOR ACTIVITIES:

It has now been decided that for infusion of foreign investment into an Indian company which does not have any operations and also does not have any downstream investments, Government approval would not be required, for undertaking activities which are under automatic route and without FDI-linked performance conditions, regardless of the amount or extent of foreign investment.

O. ESTABLISHMENT AND TRANSFER OF OWNERSHIP AND CONTROL OF INDIAN COMPANIES:

As per the FDI policy establishment and ownership or control of the Indian company in sectors/activities with caps requires Government approval. This provision has now been amended to provide that approval of the Government will be required if the company concerned is operating in sectors/ activities which are under Government approval route rather than capped sectors. Further no approval of the Government is required for investment in automatic route sectors by way of swap of shares.

P. SIMPLICATION OF CONDITIONALITY FOR CERTAIN SECTORS:

Certain conditions of FDI policy on Agriculture and Animal Husbandry, and Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities have been simplified. The changes have not been provided in this press note and it may be expected that the same may be notified by DIPP in due course.

R. RAISING THE THRESHOLD LIMIT FOR APPROVAL BY FOREIGN INVESTMENT PROMOTION BOARD:

It has been decided that the threshold limit for FIPB approval may be increased from Rs. 3000 crore to Rs. 5000 crore.

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