A brief note on Significant changes in FDI recently introduced by
the Government of India 7th JUNE 2016:
Defence Sector:
Earlier, FDI beyond 49% was permissible only through the government approval
route in cases of access to modern or ‘state of the art’ technology in the
country. But now, this
condition of ‘state of the art’ technology has been removed. Government approval is
required for investments beyond 49%, in cases wherever it is likely to
result in access to modern technology in the country or other exceptional reasons,
which are to be recorded.
Further, this FDI limit for the defence
sector has also been made applicable to Manufacturing of Small Arms and
Ammunitions covered under Arms Act 1959, which was until recently reserved
exclusively for Government Agencies.
However, foreign investment in this
sector is subject to the clearance of the Ministry of Defence. Further
the investee company should be self-sufficient in areas of product design and
development. The investee/joint venture company, along with a manufacturing
facility should also have maintenance and life cycle support facility of the
product being manufactured in India.
Civil aviation: 100%
FDI has now been allowed in Greenfield projects and existing projects in the
civil aviation sector. Earlier the policy on airports permitted 100% FDI under
automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under
automatic route. Now 100%
FDI is permitted in both Greenfield and Brownfield projects under the automatic
route.
Earlier, in the case
of domestic airlines, FDI of up to only 49% (under automatic route) was
permitted. Now FDI up to
49% has been allowed under the automatic route and up to 100% after government
approval. However, 100% automatic FDI has
been allowed for non-resident Indians (NRIs) in case of domestic airlines.
100% FDI has now been allowed in non-scheduled air
transport services and helicopter services/ seaplane
services requiring approval of the Director General of Civil Aviation.
Single Brand Retail Trading (SBRT):
Earlier, FDI above 49% in SBRT was permitted under the government route.
However, if the FDI exceeded 51%, additional conditions, including the
condition on sourcing 30% of the value of goods from India, was imposed. This
sourcing requirement now has to be met in the first instance as an average of
five years total value of the goods purchased beginning on the financial year
where the first store was opened. Thereafter it has to be met on an annual
basis.
Pharmaceuticals: 74% FDI is now permitted under
automatic route in brownfield pharmaceutical sector and the government
approval route will continue beyond 74%. Earlier, 100% FDI in brownfield pharma was allowed only through the
government approval route. A non-compete clause would not be allowed
under the government or automatic approval route except with the approval of
the Foreign Investment Promotion Board (FIPB). The Press Note also lays down
additional conditions for investment in brownfield pharma projects.
100% FDI is under the automatic route is permitted for
manufacturing of medical devices. Hence the aforesaid
conditions are not applicable to Greenfield and brownfield projects in this
industry.
Food Products Manufactured in India:
100% FDI is now permitted
under the government approval route for trading in respect of food
products manufactured or produced in India. This also includes trading through
e-commerce. Earlier, the sectoral limit on the trading of the aforesaid food
products depended on the nature of trade (whether it was single brand, multi
brand or wholesale cash and carry). Applications for FDI in food products retail
trading would be processed by the DIPP before being considered by the
Government for approval.
Entry routes in Broadcasting Carriage Services:
Earlier 100% FDI was permitted with up to 49% being under automatic route and
above 49% was under the government route in Teleports (setting up of up-linking
HUBs/Teleports); Direct to Home; Cable Networks; Mobile TV; Headend-in-the Sky
Broadcasting Service (‘Broadcasting Carriage Services’). Broadcasting Carriage Services can now
avail of 100% FDI under automatic route. However, infusion of
fresh FDI beyond 49% in a company, which has not sought license/permission from
sectoral Ministry, resulting in a change in the ownership pattern or transfer
of stake by existing investor to new foreign investor, will require FIPB
approval.
Private Security Agencies: FDI 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. Earlier, only up to 49% FDI was permitted
under the government route.
A Private Security Agency
has been defined to mean a person or body of persons other than a government
agency, department or organization engaged in the business of providing private
security services including training to private security guards or their supervisor
or providing private security guards to any industrial or business undertaking
or any person or property.
Establishment of branch office,
liaison office or project office: For
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.
Animal Husbandry: Earlier, 100% FDI in
Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and
Apiculture was allowed under Automatic Route under controlled conditions. It
has now been decided to do away with this requirement
of ‘controlled conditions’ for FDI in these activities.
Courtesy : Mr Bhavin Metha
