The Government’s efforts to make India a top destination for foreign investment received yet another boost when one of the world’s leading observers of global FDI gave it the top honours. The Government continued to open up more avenues for foreign investment. There are some fresh developments for the proposed entry of foreign law firms in the Indian legal services sector.
Top Global FDI Destination
In recent media reports in India, it was mentioned that India has replaced China as a top destination for greenfield foreign direct investment by attracting $63 billion in 2015. India was for the first time the leading country in the world for FDI, overtaking the US (which had $59.6 billion of greenfield FDI) and China ($56.6 billion worth of FDI projects announced in 2015.
The source was the fDi Report 2015 issued by fDi Intelligence, a division of The Financial Times. What was very encouraging is that the report mentioned that ‘In 2015. India was for the first time the leading country in the world for FDI, overtaking the US (which had $59.6 billion of greenfield FDI) and China ($56.6 billion)’.
Changes in FDI for Insurance
- The FDI cap of 49% in insurance is now permitted under the automatic route subject to verification by the Insurance Regulatory and Development Authority of India (IRDA). Earlier it was 26% under automatic route and beyond it up to 49% with Government approval.
- There must be compliance with the provisions of the Insurance Act, of 1938 and necessary licenses must be obtained from IRDA.
- An Indian insurance company must ensure that ownership and control remain in the hands of resident Indian entities.
Changes in FDI Policy For Pension Funds
- Foreign investment in pension funds is allowed as per the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013.
- This is subject to the condition that entities bringing in foreign equity investment as per section 24 of the PFRDA Act shall obtain the necessary registration from the PFRDA and comply with the provisions of the PFRDA Act and related rules.
- Ownership or control and/or transfer of such ownership or control from resident Indian citizens. Or companies to foreign investment entities vide transfer of shares or issue of new shares, will require Government approval in consultation with the Department of Financial Services, PFRDA and other concerned entities.
- The onus of the above compliance is on the investee Indian pension fund company.
FDI in E-commerce
FDI in B2C e-commerce is now permitted in the following circumstances
- A manufacturer is permitted to sell its products manufactured in India through e-commerce retail.
- A single-brand retail trading entity operating through brick-and-mortar stores is permitted to undertake retail trading through e-commerce
- An Indian manufacturer is permitted to sell its own single-brand products through e-commerce retail. Indian manufacturer would be 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.
- 100% FDI under automatic route is permitted in the marketplace model of e-commerce only. The marketplace model of e-commerce means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
Entry of Foreign Law Firms
Media reports earlier this month and last month indicated that there have been some significant developments relating to the entry of foreign law firms. Representatives of the Bar Council of India (BCI) met the officials of the Union Law Ministry in early March to discuss this issue. The outcome of the meeting was reported that BCI shall prepare a draft regulation for consideration of the concerned parties.
However, in another report, it was mentioned that the government will start the process afresh for the gradual opening of legal services. The report quoted a law ministry official ‘Advisory and arbitration are low-hanging fruits. We can begin with these. The initial consultation with the stakeholders will be initiated by the law ministry. The commerce ministry is strongly involved in the process.’
These reports indicate that the Government is certainly considering opening up the legal services sector in the near future. However, there is still no clarity on the timelines for the steps in this regard.