The Union Cabinet chaired by the Prime Minister Narendra
Modi, gave its approval to a number of amendments to the FDI Policy. These are intended to liberalize and simplify the FDI policy so as to provide ease of
doing business in the country. In turn, it will lead to larger FDI inflows
contributing to the growth of investment,
income, and employment.
Foreign Direct Investment (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%, is permitted
on the automatic route in most sectors/ activities. In the recent past, the
Government has brought FDI policy reforms in a number of sectors viz. Defence,
Construction Development, Insurance, Pension, Other Financial Services, Asset Reconstruction Companies, Broadcasting, Civil
Aviation, Pharmaceuticals, Trading etc.
Measures undertaken by the Government have resulted in
increased FDI inflows into the country.
During the year 2014-15, total FDI inflows received were the US $ 45.15 billion as against the US $ 36.05 billion in 2013-14. During 2015- 16,
the country received total FDI of US $
55.46 billion. In the financial year 2016-17, total FDI of US $ 60.08 billion
has been received, which is an all-time high.
It has been felt that the country has potential to
attract far more foreign investment which can be achieved by further
liberalizing and simplifying the FDI regime. Accordingly, the Government has
decided to introduce a number of amendments in the FDI Policy
Government approval no longer required for FDI in Single Brand Retail Trading (SBRT)
- Extant
FDI policy on SBRT allows 49% FDI under automatic route and FDI beyond 49% and up to 100% through Government approval
route. It has now been decided to permit 100% FDI under automatic route for SBRT.
- It
has been decided to permit single-brand
retail trading entity to set off it's
incremental sourcing of goods from India for global operations during initial 5
years, beginning 1st April of the year of the opening of first store against the mandatory sourcing requirement of 30% of
purchases from India. For this purpose, incremental sourcing will mean the
increase in terms of value of such global sourcing from India for that single
brand (in INR terms) in a particular financial year over the preceding
financial year, by the non- resident entities undertaking single-brand retail trading entity, either
directly or through their group companies. After completion of this 5 year
period, the SBRT entity shall be required to meet the 30% sourcing norms
directly towards its India’s operation, on an annual basis.
- A
non-resident entity or entities, whether the owner
of the brand or otherwise, is permitted to undertake ‘single brand’ product
retail trading in the country for the specific brand, either directly by the
brand owner or through a legally tenable agreement executed between the Indian
entity undertaking single-brand retail
trading and the brand owner.
Civil Aviation
As per the extant policy, foreign airlines are allowed
to invest under Government approval route in the capital of Indian companies
operating scheduled and non-scheduled air transport services, up to the limit
of 49% of their paid-up capital.
However, this provision was presently not applicable to Air India, thereby
implying that foreign airlines could not invest in Air India. It has now been
decided to do away with this restriction and allow foreign airlines to invest
up to 49% under approval route in Air India subject to the conditions that:
- Foreign investment(s) in Air India
including that of foreign Airline(s) shall not exceed 49% either directly or indirectly.
- Substantial ownership and effective control of Air
India shall continue to be vested in Indian
National.
Construction Development: Townships, Housing,
Built-up Infrastructure and Real Estate Broking Services
It has been decided to clarify that real-estate broking
service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route.
Power Exchanges
Extant
policy provides for 49% FDI under automatic route in Power Exchanges registered
under the Central Electricity Regulatory Commission (Power Market) Regulations,
2010. However, FII/FPI purchases were restricted to secondary market only. It
has now been decided to do away with this provision, thereby allowing FIIs/FPIs
to invest in Power Exchanges through primary
market as well.
Other Approval Requirements under FDI Policy
- As
per the extant FDI policy, issue of equity shares against non-cash
considerations like pre-incorporation expenses, import of machinery etc. is
permitted under Government approval route. It has now been decided that issue
of shares against non-cash considerations like pre-incorporation expenses,
import of machinery etc. shall be permitted under automatic route in case of
sectors under automatic route.
- Foreign
investment into an Indian company, engaged only in the activity of investing in
the capital of other Indian company/ies/
LLP and in the Core Investing Companies is presently allowed upto 100% with prior Government approval. It
has now been decided to align FDI policy on these sectors with FDI policy
provisions on Other Financial Services. Thus, if the above activities are
regulated by any financial sector regulator, then foreign investment upto 100% under automatic route shall be
allowed; and, if they are not regulated by any Financial Sector Regulator or
where only part is regulated or where there is doubt regarding the regulatory
oversight, foreign investment up to 100% will be allowed under Government
approval route, subject to conditions including minimum capitalization
requirement, as may be decided by the Government.
Competent Authority for examining FDI proposals from countries of concern
As per the existing procedures, FDI applications
involving investments from Countries of Concern, requiring security clearance
as per the extant FEMA 20, FDI Policy and security guidelines, amended from
time to time, are to be processed by the Ministry of Home Affairs (MHA) for
investments falling under automatic route sectors/activities, while cases
pertaining to government approval route sectors/activities requiring security
clearance are to be processed by the respective Administrative
Ministries/Departments, as the case may be. It has now been decided that for
investments in automatic route sectors, requiring approval only on the matter
of investment being from country of concern, FDI applications would be processed
by Department of Industrial Policy & Promotion
(DIPP) for Government approval. Cases under the government approval route, also
requiring security clearance with respect to countries of concern, will
continue to be processed by concerned Administrative Department/Ministry.
Pharmaceuticals
FDI policy on Pharmaceuticals sector inter-alia provides
that definition of medical device as contained in the FDI Policy would be
subject to amendment in the Drugs and Cosmetics Act. As the definition as
contained in the policy is complete in itself, it has been decided to drop the
reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been
decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.
Prohibition of restrictive
conditions regarding audit firms
The extant FDI policy does not have any provisions in
respect of specification of auditors that can be appointed by the Indian
investee companies receiving foreign investments. It has been decided to
provide in the FDI policy that wherever the foreign investor wishes to specify
a particular auditor/audit firm having international network for the Indian
investee company, then audit of such investee companies should be carried out
as joint audit wherein one of the auditors should not be part of the same network.
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