Liberalisation of India’s economy has always been on the cards in Modi Government’s agenda from the start. However, it chose the time of heavy electoral losses in state of Bihar to announce the goodies for foreign investors.

The sweeping changes to the FDI policy were announced vide Press Note issued earlier this month. It has partially overhauled the existing regulations. These changes are likely to boost foreign investor confidence with respect to India and improve the flow of foreign funds. The important changes are highlighted below:

Construction Development:

  • Conditions of area restriction of floor area of 20,000 sq. mtrs in construction development projects and minimum capitalization of US $ 5 million to be brought in within the period of six months of the commencement of business, have been removed.
  • Each phase of the construction development project would be considered as a separate project for the purposes of FDI policy.
  • 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.

Defence:

  • Foreign investment up to 49% will be under automatic route.
  • Portfolio investment and investment by FVCIs will be allowed up to permitted automatic route level of 49%.
  • Proposals for foreign investment in excess of 49% will be considered by Foreign Investment Promotion Board (FIPB).
  • 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.

Media & Broadcasting: The sectoral cap is now 100% with 49% cap under the automatic route for most activities like telesports, Direct To Home, Cable Networks, mobile TV etc. The exceptions are FM radio and up-linking of ‘News & Current Affairs’ TV channels, where the cap is 49% under Government route.

Coffee/Rubber/Cardamom/Palm Oil & Olive Oil Plantations: Foreign investment in the plantation sector would henceforth be under automatic route. This includes coffee, rubber, cardamom, palm oil tree and olive oil tree plantations along with the existing tea plantations.

E-commerce: It has been decided that a manufacturer will be permitted to sell its product through wholesale and/or retail, including through e-commerce without Government approval.

Duty Free Shops: 100% FDI is now permitted under automatic route in Duty Free Shops located and operated in the Customs bonded areas.

Sigle Brand Retail Trading (SBRT) & Wholesale Retail:

  • Sourcing of 30% of the value of goods purchased for SBRT would be reckoned from opening of first store instead of from the date of receipt of FDI. Further, in case of ‘state-of-art’ and ‘cutting-edge technology’ sourcing norms can be relaxed subject to Government approval.
  • An entity which has been granted permission to undertake SBRT will be permitted to undertake e-commerce activities.
  • A single entity will be permitted to undertake both 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.

Limited Liability Partnerships (LLPs): 100% FDI is now permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. Further, downstream investment has also been allowed by LLPs.

Miscellaneous:

  • Regional Air Transport Service (RSOP) is will also be eligible for foreign investment up to 49% under automatic route
  • Foreign Equity caps of certain sectors viz. Non-Scheduled Air Transport Service, Ground Handling Services, Satellites- establishment and operation and Credit Information Companies have now been increased from 74% to 100%. Further, sectors other than Satellites- establishment and operation have been placed under the automatic route.
  • 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.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s