Review of Foreign Direct Investment on various sectors

Review of Foreign Direct Investment on various sectors

Department of Industrial Policy and Promotion has reviewed Foreign Direct Investment (FDI) policy on various sectors and specified amendments to same vide its Press Note No. 12 (2015 Series).

Glimpse of the said amendment are listed below:

1.   Definition of term ‘Manufacture’ is added in FDI Policy which is as follows:

“Manufacture” with its grammatical variations, means a change in a non- living physical object or article or thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

2.  Foreign Investment in Manufacturing and Trading of Goods:

FDI Policy is amended, Subject to the provisions of the FDI Policy, foreign investment in ‘manufacturing’ sector is under automatic route. Further a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce without Governmental approval.

3.  FDI in Limited Liability Partnerships:

Foreign Direct Investment (FDI) in Limited Liability Partnerships (LLPs) has been permitted subject to the following conditions:

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

b.     An indian company or 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.

c.     FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008

4.   The definition of ‘Control’ and ‘Ownership’ has been amended to include the same for LLPs.

5.   Condition for Downstream investment by Indian Companies:

Downstream investments by Indian Companies/LLPs will be subject to the following conditions:

a.     Such a company/LLP is to notify SIA, DIPP and FIPB of its downstream investment in the form available within 30 days of such investment, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme);

b.     Downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders agreement, if any

c.     Issue/Transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;

d.     For the purpose of downstream investment, the Indian companies/LLPs making the downstream investment would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies/LLPs, with operation, from raising debt in the domestic market. Downstream investment through internal accruals are permissible, subject to the provisions of para 3.10.3 and 3.10.4.1 For the purpose of FDI Policy, internal accruals will mean as profits transferred to reserve account after payment of taxes.

6.   Investment in Indian Companies with no operations and Downstream investment:

Indian Companies which does not have any operations and also does not have any downstream investment and which are under the automatic route and without FDI linked performance conditions, will be permitted to have infusion of foreign investment under automatic route.

However approval of the Government will be required for such companies for infusion of foreign investment for undertaking activities which are under government route.

Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

7.  Investment by Swap of shares:

In cases of Investment of Swap of shares, irrespective of the amount, valuation of the shares will have to be made by a Merchant Banker registered with SEBI of an investment Banker outside India registered with the appropriate regulatory authority in the host country.

Approval of the Government will also be a prerequisite for investment by swap of shares for sector under Government approval route.

No approval of the Government if required for investment in companies falling under the automatic route by way of swap of shares.

8.   Investment in India by Foreign entities owned and controlled by NRIs:

A Company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians can invest in India with the special dispensation as available to Non-resident Indians under the FDI Policy.

9.   Monitory limit for approval by Foreign Investment Promotion Board (FIPB):

Minister of Finance who is in charge of FIPB would consider the recommendations of FIPB and can now approve proposal up to Rs. 5000 crore.

The recommendations of FIPB on proposals above Rs. 5000 crore will be placed before CCEA which will consider the FDI proposals.

10. Foreign Investment in Tea/Coffee/Rubber/Cardamom/Palm Oil Tree/Olive Oil Tree:

Tea sector including plantations/Coffee plantations/Rubber plantations/Cardamom plantations/Palm Oil & Olive Oil tree Plantations are now open for 100% foreign Investment under automatic route

Prior approval of the State Government concerned is required in case of any future land use change.

Note: Besides the above, FDI is not allowed in any other plantation sector/activity.

11. Foreign Direct Investment in Defence Sector:

FDI in Defence Sector will be under Automatic route up to 49% (i.e. No Government approval required to invite such investments) and FDI above 49% on a case to case basis, wherever it is likely to result in access to modern and state of the art technology in the country will be under the Government approval route.

Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking Industrial License, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval

License applications will be considered and licenses given by DIPP, Ministry of commerce & Industry, in consultation with Ministry of Defence and Ministry of external affairs

Foreign investment in the sector is subject to security clearance and guidelines of Ministry of Defence; and

Investee Company should be structured to be self sufficient in areas of product design and development. The investee/ joint venture company along with manufacturing facility should also have maintenance and life cycle support facility of the product being manufactured in India.”

12.  FDI in DTH/Cable Networks:

Foreign capital infusion up to 49% - Automatic Route and beyond 49 % under Govt. route in the following activities:

a.       Telesports (setting up of up-linking HUBs/Teleports),

b.      Direct to Home;

c.       Cable Networks (Multi System Operators [MSOs] operating at National or State or District level and undertaking upgradations of networks towards digitalization and addressability;

d.      Mobile TV;

e.       Headend-in-the Sky Broadcasting services (HITS)

f.       Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators [LCOs]) are allowed

13. FDI in FM radio

The Limit for Foreign Direct Investment has been increased to 49% under the Government Route.

The grant of permission for setting up of FM radio stations would be subject to the terms and conditions, as specified from time to time, by the ministry of Information and Broadcasting.

14. Up-Linking of ‘News & Current Affairs’ TV Channels

The Limit for Foreign Direct Investment has been increased to 49% under the Government Route.

15.  Up-Linking of ‘Non-News & Current Affairs’ TV Channels/ Down-linking of TV Channels

The Limit for Foreign Direct Investment is now placed under the Automatic Route up to 100%. Hence no Government approval will be required.

16.  FDI in Air Transport Service:

FDI in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and Regional Air Transport service is now allowed up to 49% under the Automatic route for Non Residents and up to 100% for Non-resident Indians.

FDI in non-scheduled Air Transport service is allowed up to 100% under the Automatic route.

FDI in Helicopter services/seaplane services requiring DGCA approval will be allowed up to 100% under the Automatic route.

17.  FDI in Ground Handling Services:

FDI in Ground Handling Services subject to sectoral regulations and security clearances will be allowed up to 100% under the automatic route.

FDI in Maintenance and Repair organizations; flying training institutes; and technical training institutions will be allowed up to 100% under the Automatic route.

18.  FDI in Establishment and operation Space Satellites:

FDI in Satellites- establishment and operations, subject to the sectoral guidelines of Department of Space / ISRO will be allowed up to 100% under the Government route.

19.  FDI in Credit Information Companies:

FDI in Credit Information Companies will be allowed up to 100% under the Automatic Route.

Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005

Foreign investment is permitted subject to the regulatory clearance from RBI.

Such FII/FPI investment would be permitted subject to the conditions that:

a.       A single entity should directly or indirectly hold below 10% equity.

b.      Any Acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and

c.       FII/FPI investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.

20.  Condition for FDI in Construction Development:

As per the existing policy the foreign investor was allowed to exit the company and repatriate the money only after completion of the project.

A foreign investor will be permitted to exit and repatriate the foreign investment before the completion of the project provided that the lock-in-period of 3years with reference to each phase of project is now classified as project.

Each phase of project is to be calculated separately which was not provided before the amendment. This will give flexibility to the foreign investor to exit the project.

21.  Whole Sale Trading conditions

Now a wholesale/ cash & carry trader can undertake Single Brand Retail Trading (SBRT)subject to the conditions related to FDI in SBRT sectors.

Conditions of the FDI policy for wholesale/cash and carry business and for retail business have to be separately complied with by the respective business.

22.  Conditions for Single Brand Retail Trading:

As per existing policy for SBRT mandates that in case of FDI beyond 51%, sourcing of 30% of the value of goods purchased has to be done from India.

Now this outsourcing requirement has to be reckoned from the opening of first store.

SBRT entities operating through brick and mortar services are now allowed to take retail through e-commerce.

As against average of first five years now this condition has to be fulfilled for the opening of first store which appears to be more stringent.

23.  FDI in duty free shops:

FDI in duty free shops was not permitted as per existing policy.

FDI in duty free shops in now permitted up to 100 % under Automatic Route.

Foreign Investment in Duty Free Shops is subject to compliance of conditions as stipulated under the Customs Act, 1962 and other laws, rules and regulations.

Duty Free Shop entity shall not engage into any retail trading activity in the Domestic Tariff Area of the country.