Monday morning June 20, 2016, people woke up to the news of Mr.
Raghuram Rajan returning to academia after his term as the RBI
Governor ends. Before the Indian markets could react to this news,
by mid-day, the scenario changed as the Indian Government announced
its decision to bring about sweeping changes to the Foreign Direct
Investment ("FDI") Policy.
The FDI Policy has been further liberalized thereby providing an
extremely favourable environment for a further impetus to increased
foreign direct investment into the country. This will result in the
creation of more job opportunities and increasing overall
competitiveness in the economy ultimately leading to tremendous
growth opportunities. As stated in the Press Release of June 20,
2016 by which the said liberalisations have been issued, India now
stands as the most liberalized country for foreign investment in
the world. A number of sectors have been thrown open for foreign
investment either under the 100% automatic route or few sensitive
sectors thrown open partially under the automatic route. This is
second major overhaul after the last set of liberalisations of
November 2015 which witnessed reforms in a number of sectors such
as tea sector, coffee plantations, Limited Liability Partnership,
Defence, Cable networks, Broadcasting, Air transport service,
Construction development projects, Single Brand Product Retail
Trading, Duty Free Shops, etc.
The Press Release of June 20, 2016 has paved way for the
following changes which have been set out in brief:
manufactured/produced in India
100% FDI permitted under Government approval route for trading,
including through e-commerce, in food products manufactured or
produced in India.
FDI up to 100% permitted;
FDI beyond 49% permitted through approval route, in cases
resulting in access to 'modern technology' in the
country or for other reasons to be recorded.
Entry Routes have changed to permit 100% FDI in the
Direct to Home;
Head end-in-the-Sky Broadcasting Services; and
However, infusion of fresh foreign investment, beyond 49% in a
company not seeking license/permission from sectoral Ministry which
results in change in the ownership pattern or transfer of stake by
existing investor to new foreign investor, would require FIPB
FDI up to 74% permitted under automatic route in brown field
FDI beyond 74% will continue to be under the approval
100% FDI permitted under the automatic route in brown field
For Scheduled Air Transport Service/ Domestic Scheduled
Passenger Airline and regional Air Transport Service :
100% FDI permitted with FDI upto 49% permitted under the
automatic route and FDI beyond 49% through the Government approval
NRIs will continue to be allowed to invest 100% under the
automatic route; and
Foreign airlines would continue to be allowed to invest 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 and subject to the laid down conditions in the existing
FDI up to 74% permitted with:
49% FDI permitted under automatic route; and
FDI beyond 49% and up to 74% under Government approval
Establishment of branch
office, liaison office or project office
RBI approval or separate security clearance is done away with,
where FIPB approval or license/permission of the concerned
Ministry/Regulator has already been obtained in the event the
principal business of the applicant is Defence, Telecom, Private
Security or Information and Broadcasting.
The requirement of 'controlled conditions' has
been done away with.
Single Brand Retail
Relaxed local sourcing norms for upto 3years and relaxed
sourcing regime for another five years for entities undertaking
Single Brand Retail Trading of products having
'state-of-art' and 'cutting edge' technology.
As can be seen from the Press Release, the FDI policy has been
further progressively overhauled and a new wave of reforms have
been ushered in. While the fine print of these relaxations which
will be set out in the Press Note, will have to be awaited, these
liberalisations are expected to have a significant impact on the
sectors so liberalised including pharmaceuticals which may see
heightened levels of M&A activity as also the recognition of a
new sector of food manufacturing and food production.
Please look out for our next "Intra Legem" which will
be providing an over-arching view of FDI in the pharma sector.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).