For 44 years after attaining independence, India was virtually a closed economy. And then in 1991 Manmohan Singh, the then Union Finance Minister, changed the face of business in India by taking the first steps to liberalise the economy. Looking back now, it appears to be pioneering milestone which has firmly placed India on the global map. The Central Government celebrated the silver jubilee of this landmark initiative by virtually opening up the entire economy. Here are some of the recent changes relating to foreign investment:

1. Food Products manufactured/produced in IndiaIt has now been decided to permit 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

2. Foreign Investment in Defence Sector up to 100%

  • Foreign investment in defence beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with.
  • FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

3. Broadcasting Carriage ServicesThe sectoral cap for FDI has been made 100% under automatic route in (a) Teleports (b) Direct to Home (DTH) (c) Cable Networks (d) Mobile TV.

Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require approval from Foreign Investment Promotion Board (FIPB).

4. PharmaceuticalIt has been decided to permit up to 74% FDI under automatic route in brownfield pharmaceuticals and government approval route beyond 74% will continue.

5. Civil Aviation SectorWith a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route in brownfield airport projects.

As per the present FDI policy, foreign investment up to 49% is allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. It has now been decided to raise this limit to 100%, with FDI up to 49% permitted under automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route. However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing policy.

6. Private Security AgenciesFDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with government approval route.

7. Establishment of branch office, liaison office or project officeFor establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is defence, telecom, private security or information and broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.

8. Animal HusbandryAs per FDI Policy 2016, FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture is allowed 100% under automatic Route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

9. Single Brand Retail TradingIt has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology.

The above changes are significant considering that most of the sectors are now available for foreign investment mostly under the automatic route. The annual edition of the Consolidated FDI Policy of India was published earlier this month. However, the above changes in FDI policy less than a fortnight later have completely overshadowed the annual updation exercise.

However, in order to give these policy changes a legislative backing, the Government will table an amendment to the Foreign Exchange Management Act before the Parliament in its upcoming monsoon session in July. The Government has come under severe criticism for opening up certain sectors like defence. We will wait to see the long term effects of these steps.

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

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