PRESS NOTE
PRESS NOTE
-COPY OF-
PRESS NOTE
Dated 10th
November, 2015
Review of Foreign Direct Investment
(FDI) policy on various sectors
Today,
India is the fastest growing economy among major Nations. The World Bank has
improved India's ranking by 12 places in the 2016 Study of Ease of Doing
Business. FDI has gone up by 40%. Several Global Institutions have projected
India as the leading destination for FDI in the World. IMF has branded India as
the brightest spot in the Global Economy whereas the World Bank projects
India's growth at 7.5% and even better.
2.With coming of NDA Government to
power, Shri Narendra Modi has expressed his commitment to poverty elimination,
inclusive development [make India a developed Country] and also to make India a
Global Manufacturing Hub. Being aware of the constraint of financial resources
for fast tracking the development process, a series of Economic Reforms and a
number of measures to improve the Ease of Doing Business in the country have
been set in motion. A number of stalled projects have been de-bottlenecked and
fast-tracked. The results are showing up.
3.However, the commitments to the
millions of youth of the Country to provide them remunerative employment or
entrepreneurial opportunities is not yet fully realized. With this in mind,
Prime Minister Mr. Modi launched the Campaigns like 'Make In India' and 'Skill
India'. The latest in the series is the upcoming 'Start-up India' initiative.
To further boost this entire investment environment and to bring in foreign
investments in the country, the Government has brought in FDI related Reforms and
liberalisation touching upon 15 major Sectors of the Economy. The salient
measures are:
i.Limited Liability Partnerships, downstream
investment and approval conditions.
ii.Investment by companies owned and
controlled by Non-Resident Indians (RIs)
iii.Establishment and transfer of
ownership and control of Indian companies
iv.Agriculture and Animal Husbandry
v.Plantation
vi.Mining and mineral separation of
titanium bearing minerals and ores, its value addition and integrated
activities
vii.Defence
viii.Broadcasting Sector
ix.Civil Aviation
x. Increase of sectoral cap
xi. Construction development sector
xii. Cash and Carry Wholesale Trading
/ Wholesale Trading (including sourcing from MSEs)
xiii.Single Brand Retail Trading and
Duty free shops
xiv.xiv.Banking-Private Sector; and
xv.xv. Manufacturing Sector
4.The Crux of these reforms is to
further ease, rationalise and simplify the process of foreign investments in
the country and to put more and more FDI proposals on automatic route instead
of Government route where time and energy of the investors is wasted. It is one
more proof of minimum government and maximum governance. Further refining of
foreign investments in key Sectors like Construction where 50 million houses
for poor are to be built. Opening up the manufacturing Sector for wholesale,
retail and E-Commerce so that the Industries are motivated to Make In India and
sell it to the customers here instead of importing from other countries. The
proposed reforms also enhance the limit of Foreign Investment Promotion Board
(FIPB) from current Rupees Three thousand crores to Five thousand crores. The
proposal also contains many other long pending corrections including those
being felt by the limited liability partnerships as well as NRI owned Companies
who seem motivated to invest in India. Few other proposals seek to enhance the
sectoral Caps so that foreign investors do not have to face fragmented
ownership issues and get motivated to deploy their resources and technology
with full force.
5.With this round of Reforms, the
Government has demonstrated that India is unstoppable on the path of Economic
Development. Prime Minister has reiterated that Economic Wellbeing of the
people of India is the main Task before him. It is also clear that India is a
Country which is more than ready to integrate with the Global Economy because
it feels that the Fruits of Development will reach to the common man only if
there is Development. Above all every citizen in all nooks and corners must
have a stake.
6 Along with these sectoral reforms,
DIPP has also been advised to consolidate all FDI related instructions
contained in various notifications & press notes and prepare a booklet so
that the investors do not have to refer to several documents of different timeframes.
This exercise of PM, Shri Narendra Modi is intended on the one hand to further
open up the Sectors for more foreign investments in the country and also to
make it easy to invest in India. In the normal course, the Policy corrections
in 16 areas would have taken at least one year to process and get approvals.
Thus, this action is a very dynamic step in terms of integrating the Indian
Economy with the rest of the World for attracting investments and technology
and generating employment for enhancement of income of the people of India.
Annexure
The
Government in the last few months has introduced many FDI policy reforms in a
number of sectors viz. Defence, Rail Infrastructure, Construction Development,
Insurance, Pension Sector, Medical Devices, White Label ATM Operations,
Investments by NRIs on non-repatriation basis and has introduced composite cap
for foreign investment. Measures undertaken by the Government have resulted in
increased FDI inflows in the country. However, it was 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. Changes
introduced in the policy include increase in sectoral caps, bringing more
activities under automatic route and easing of conditionalilities for foreign
investment. Further, new sectors have also been opened to foreign investments.
These amendments are path breaking and provide a new direction to foreign
investment regime in the country. Details of these changes are given in the
following paragraphs.
1. Radical Changes in FDI Regime in Construction
Development Sector
Following
changes have been made in the FDI policy on Construction Development sector:
i. 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.
ii. Each phase of the construction
development project would be considered as a separate project for the purposes
of FDI policy.
iii. 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.
iv. FDI is not permitted in an entity
which is engaged or proposes to engage in real estate business, construction of
farm houses and trading in transferable development rights (TDRs). Real Estate
Business will mean as 'dealing in land and immovable property with a view to
earning profit therefrom and does not include development of townships,
construction of residential/ commercial premises, roads or bridges, educational
institutions, recreational facilities, city and regional level
infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.'
infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.'
v. Condition of lock-in period will
not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones
(SEZs), Educational Institutions, Old Age Homes and investment by NRIs.
vi. 100% FDI under automatic route is
permitted in completed projects for operation
and management of townships, malls/ shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.
and management of townships, malls/ shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.
vii."Transfer", in
relation to FDI policy on the sector, includes,—
(a) the
sale, exchange or relinquishment of the asset ; or
(b) the
extinguishment of any rights therein ; or
(c) the
compulsory acquisition thereof under any law ; or
(d) any
transaction involving the allowing of the possession of any immovable property
to be taken or retained in part performance of a contract of the nature referred
to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(e) any
transaction, by acquiring shares in a company or by way of any agreement or any
arrangement or in any other manner whatsoever, which has the effect of transferring,
or enabling the enjoyment of, any immovable property.
2. Foreign Investment in Defence Sector up to
49% Under Automatic Route
As
per extant FDI policy in the Defence Sector, foreign investment up to 49% is
permitted under Government approval route. Foreign investment above 49% is also
permitted, subject to approval of Cabinet Committee on Security (CCS) on case
to case basis, wherever the investment is likely to result in access to modern
and 'state-of-art' technology in the country. Portfolio investment and
investment by FVCIs is restricted to 24% only. In this regard, the following
changes have inter-alia been brought in the FDI policy on this sector:
i. Foreign
investment up to 49% will be under automatic route.
ii. Portfolio investment and
investment by FVCIs will be allowed up to permitted
automatic route level of 49%.
automatic route level of 49%.
iii. Proposals for foreign investment
in excess of 49% will be considered by Foreign
Investment Promotion Board (FIPB).
Investment Promotion Board (FIPB).
iv. 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.
level, resulting in change in the ownership pattern or transfer of stake by existing
investor to new foreign investor, Government approval will be required.
3. New Sectoral Caps & Entry Routes in
Broadcasting Sector
FDI
policy on Broadcasting sector has also been amended. New sectoral caps and
entry routes are as under:
Sector/Activity
|
New
Cap and Route
|
6.2.7.1.1
|
|
(1)Teleports(setting
up of up-linking
|
|
HUBs/Teleports);
|
|
(2)Direct
to Home (DTH);
|
|
(3)Cable
Networks (Multi System operators (MSOs)
operating at National or State
or District level and
undertaking
upgradation of networks towards digitalization and addressability);
|
100%
(Up
to 49% -Automatic route
Beyond
49% - under Government route)
|
(4)Mobile
TV;
|
|
(5)Headend-in-the Sky
|
|
Broadcasting
Service(HITS)
|
|
6.2.7.1.2
Cable Networks (Other MSOs not undertaking
upgradation of networks towards digitalization and addressability and Local
Cable Operators (LCOs))
|
|
6.2.7.2 Broadcasting Content Services
|
|
6.2.7.2.1 Terrestrial Broadcasting FM (FM
Radio),
|
49%
Government route
|
6.2.7.2.2 Up-linking of 'News & Current
Affairs' TV Channels
|
|
6.2.7.2.3 Up-linking of Non-'News &
Current Affairs' TV Channels
|
100% Automatic route
|
Down-linking of TV Channels
|
4. Full Fungibility of Foreign
Investment Permitted in Banking- Private Sector
Government
has decided to introduce full fungibility of foreign investment in
Banking-Private sector. Accordingly, FIIs/FPIs/QFIs, following due procedure,
can now invest up to sectoral limit of 74%, provided that there is no change of
control and management of the investee company.
5. 100% Foreign Investment Permitted
in Coffee/Rubber/Cardamom/Palm Oil &
Olive Oil Plantations
Olive Oil Plantations
As
per the present FDI policy on the Plantation sector, only tea plantation is
open to foreign investment. In line with this sector, the government has
decided to open certain other plantation activities namely; coffee, rubber,
cardamom , palm oil tree and olive oil tree plantations also for 100% foreign
investment. Foreign investment in the plantation sector would henceforth be
under automatic route.
6. Investment by
Companies/Trusts/Partnerships Owned & Controlled by NRIs on
Non-Repatriation Basis to be Treated as Domestic Investment
Non-Repatriation Basis to be Treated as Domestic Investment
Non-Resident
Indians (NRIs) have special dispensation for investment in construction
development and civil aviation sector. Further, investment made by Non-Resident
Indians
under schedule 4 of FEMA (Transfer or issue of Security by Persons Resident
Outside India) Regulations is deemed to be domestic investment at par with the
investment made by residents. In order to attract larger investments, which are
possible through incorporated entities only, the special dispensation of NRIs
has now been also extended to companies, trusts and partnership firms, which
are incorporated outside India and are owned and controlled by NRIs.
Henceforth, such entities owned and controlled by NRIs will be treated at par
with NRIs for investment in India.
7. Permitting
Manufacturers to Undertake Wholesale and/or Retail, Including
Through E-Commerce Without Government Approval
Through E-Commerce Without Government Approval
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.
8. Review of FDI
Policy Conditionalities for Single Brand Retail Trading and
Permitting 100% FDI in Duty Free Shops
Permitting 100% FDI in Duty Free Shops
(i)
Extant FDI policy on SBRT mandates that sourcing of 30% of the value of goods
purchased would be reckoned from the date of receipt of FDI. It has now been
decided that sourcing requirement has to be reckoned from the opening of first
store. Further, it is seen that in certain high technology segments, it is not
possible for retail entity to comply with the sourcing norms. To provide
opportunity to such single brand entities, it has been decided that in case of
'state-of-art' and 'cutting-edge technology' sourcing norms can be relaxed
subject to Government approval.
(ii)FDI
policy on the SBRT provides that, retail trading, in any form, by means of
e-commerce, would not be permissible. It has been decided that an entity which
has been granted permission to undertake SBRT will be permitted to undertake
e-commerce activities.
(iii) It has been clarified that
Indian brands are equally eligible for undertaking SBRT. It
has been decided that certain conditions of the FDI policy on the sector namely; products to be sold under the same brand internationally and investment by non-resident entity/ entities as the brand owner or under legally tenable agreement with the brand owner, will not be made applicable in case of FDI in Indian brands.
has been decided that certain conditions of the FDI policy on the sector namely; products to be sold under the same brand internationally and investment by non-resident entity/ entities as the brand owner or under legally tenable agreement with the brand owner, will not be made applicable in case of FDI in Indian brands.
(iv) An Indian manufacturer is
permitted to sell its own branded products in any manner i.e. wholesale,
retail, including through e-commerce platforms. For the purposes of FDI Policy
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.
Further Indian brands should be owned and controlled by resident Indian
citizens and/or companies, which are owned and controlled by resident Indian
citizens.
Opening of Duty
Free Shops for 100% FDI under Automatic Route
100%
FDI is now permitted under automatic route in Duty Free Shops located and
operated in the Customs bonded areas.
9. Permitting Same Entity to Carry Out
Both Wholesale and Single Brand Retail Trading
As
per the FDI policy, in wholesale cash & carry activities, 100% foreign
investment is permitted under the automatic route. FDI policy on this sector
further provides that a wholesale/cash & carry trader cannot open retail
shops to sell to the consumer directly. It has now been decided that a single
entity will be permitted to undertake both the activities of single brand
retail trading (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.
10. 100% FDI in LLPs Permitted Under
Automatic Route
FDI
policy on Limited Liability Partnerships (LLP) has been amended to provide that
investments in LLPs will not require Government approval. 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, the terms 'ownership and 'control'
with reference to LLPs have also been defined.
Downstream
Investment
It
has been decided that in line with companies, 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. Further, for the purposes of FDI policy, the
term 'internal accruals' has also been defined.
11. Opening up of
FDI in Regional Air Transport Service
As
per the present FDI policy, foreign investment up to 49% is allowed in
Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (SOP). It
has now been decided that Regional Air Transport Service (RSOP) is will also be
eligible for foreign investment up to 49% under automatic route.
12. Enhancing
Foreign Equity Caps in Non-Scheduled Air Transport, Ground Handling Services,
Satellites- establishment and operation and Credit Information Companies
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.
13. Companies
without Operations Not to Require Government Approval for FDI
for Undertaking Automatic Route Sector Activities
for Undertaking Automatic Route Sector Activities
Approval
requirements in respect of companies under operation have also been relaxed. It
has now been decided that for 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.
14. Establishment and Transfer of
Ownership and Control of Indian Companies
As
per the FDI policy establishment and ownership or control of the Indian company
in sectors/activities with caps requires Government approval. This provision
has now been amended to provide that approval of the Government will be
required if the company concerned is operating in sectors/ activities which are
under Government approval route rather than capped sectors. Further no approval
of the Government is required for investment in automatic route sectors by way
of swap of shares.
15. Simplification of Conditionalities
Certain
conditions of FDI policy on Agriculture and Animal Husbandry, and Mining and
mineral separation of titanium bearing minerals and ores, its value addition
and integrated activities have been simplified.
16. Raising the Threshold Limit for Approval by
Foreign Investment Promotion Board
As
per the FDI policy Foreign Investment Promotion Board (FIPB) considers
proposals having total foreign equity inflow up to Rs. 3000 crore and proposals
above Rs. 3000 crore are placed for consideration of Cabinet Committee on
Economic Affairs (CCEA). In order to achieve faster approvals on most of the
proposals, it has been decided that the threshold limit for FIPB approval may
be increased to 5000 crore.
Above
amendments to the FDI Policy are meant to liberalise and simplify the FDI
policy so as to provide ease of doing business in the country leading to larger
FDI inflows contributing to growth of investment, incomes and employment.
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