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The Department of Industrial Policy and Promotion (DIPP), under
the Ministry of Commerce and Industry, has released the
Consolidated Foreign Direct Investment Policy (FDI Policy) for the
year 2017-18. The Policy incorporates the changes made over the
past year and will be effective from 28 August 2017
according to a press release by the Ministry.
The DIPP deals with matters relating to FDI in India and issues
the FDI Policy which is a compilation of various policy-related
decisions taken by the government since the release of the previous
policy on 7 June 2016, thus providing a consolidated policy for
readers.
During the last year, the government introduced various changes
in foreign investment related issues and liberalised investment in
several sectors. The key changes in the FDI Policy are:
Abolition of the FIPB
In line with the previous budget announcement, the Foreign
Investment Promotion Board (FIPB), which was responsible for
processing FDI proposals and sanctioning approvals, has been
abolished by the government. In place of the FIPB, the new
administrative ministry/department would process proposals which
fall under the approval route. Furthermore, the work of granting
government approvals for foreign investments under the existing FDI
Policy and Foreign Exchange Management Act (FEMA) regulations shall
be entrusted to the concerned administrative ministries/departments
(Competent Authorities). The Competent Authorities will examine
proposals as per the Standard Operating Procedure laid down by the
DIPP.
FDI in start-ups
The FDI Policy, for the first time, lists start-ups as a separate
section and permits 100% investment in start-ups. It allows
start-ups to issue equity or equity-linked instruments or debt
instruments to foreign venture capital investors. Additionally, it
also allows start-ups to issue convertible notes to a person who is
a resident outside India, subject to certain terms and
conditions.
Liberalised FDI in certain sectors
The government, over the past year, has liberalised foreign
investment in various sectors. The sectoral changes under the FDI
Policy are listed below:
Sector
Changes
introduced
Agriculture & Animal
Husbandry
Apiculture has been included under the 100%
automatic route.
Controlled conditions for animal husbandry,
pisciculture, aquaculture and apiculture seem relaxed by the
omission of conditions from the FDI Policy.
Manufacturing Sector
Now, 100% FDI under the government approval
route is allowed for retail trading, including e-commerce, for food
products manufactured or produced in India.
Defence Industry
100% FDI is permitted in the defence sector
against 49% as permitted earlier.
Investment up to 49% is permitted under the
automatic route. Any investment beyond that would fall under the
government route 'wherever it is likely to result in access to
modern technology or for other reasons to be
recorded' as against 'wherever it is
likely to result in access to modern and state-of-art technology in
the country'.
Broadcasting Carriage
Services
Presently, 100% investment is allowed under
the automatic route.
An additional condition has been prescribed
under the Consolidated FDI Policy, 2017 that states that an
infusion of fresh foreign investment beyond 49% in a company not
seeking license/permission from the sectoral ministry, that results
in a change in the ownership pattern or transfer of stake by an
existing investor to new foreign investor(s), will require approval
from the government.
Airports - Existing
Projects
Presently, 100% FDI is allowed in existing
airport projects under the automatic route as compared to 74% under
the previous sectoral cap.
Transport Services
Scheduled Air Transport Service/ Domestic
Scheduled Passenger Airline
Regional Air Transport
Service
Presently, 100% FDI is allowed as against
the prior 49%. Under the automatic entry route, FDI is permitted up
to 49% (100% for NRIs) and under the government route, beyond 49%
is permitted.
Private Agency Securities
49% is allowed through automatic route,
which was earlier under the government approval route. Beyond 49%
and up to 74% is allowed via the government approval
route.
Single Brand Product Retail
Trading
Sourcing norms are relaxed since it will not
be applicable for up to three years from the commencement of the
business (i.e. opening of the first store for entities undertaking
single brand retail trading of products having
'state-of-the-art' and 'cutting-edge' technology
and where local sourcing is not possible). Thereafter, provisions
of sourcing norms will be applicable.
Pharmaceuticals - Brown
Field
Up to 74% FDI is allowed under the automatic
route in brown field projects and any amount beyond that shall fall
under the government approval route. Earlier, 100% investment was
allowed under the approval route.
Furthermore, such investment is subject to
additional conditions given in the FDI
Policy.
Other Financial Services
The investment cap of 100% and entry under
automatic route remains the same.
This sector was earlier called
'Non-Banking Finance Companies'. Besides this, the change
in sector name has widened its scope by providing financial service
activities regulated by financial sector regulators, viz. Reserve
Bank of India (RBI), Securities Exchange Bureau of India (SEBI),
Insurance Regulatory and Development Authority (IRDA), Pension Fund
Regulatory and Development Authority (PFRDA), National Housing Bank
(NHB) or any other financial sector regulator as may be notified by
the Government of India.
Minimum capitalisation norms under the FDI
Policy have been removed but subject to certain conditions
including minimum capitalisation norms, etc. would be applicable as
specified by the concerned regulator/government
agency.
It is also provided that other financial
services activities need to be regulated by one of the financial
sector regulators.
FDI in all such financial service activities
which are not or partially regulated by any financial sector
regulator shall be allowed via the government approval
route.
Infrastructure Company in Securities
Market
There has been a change in the conditions of
investment in this sector which states that the conditions of FDI
shall be as per SEBI laws.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.