With India moving up by 12 ranks from 142 to 130 on the World Bank's ease of doing business rankings, the Indian Government has taken a giant leap to change its image as an attractive investment destination by undertaking certain structural reforms, including by revising limits for foreign investment in various sectors. These changes are being viewed as some of the most significant reforms since the Indian economy first opened up in 1991.
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has amended the Consolidated Foreign Direct Investment (FDI) Policy on 24 November 2015 through its Press Note No. 12 (2015) Series (Press Note). Much recently, the Reserve Bank of India has also issued a notification on 16 November 2015 (Notification) for opening up of foreign participation into Alternative Investment Funds, Real Estate Investment Trusts and Infrastructure Investment Trusts.
- NRI Investments on Non-Repatriation Basis
All investments by Non Resident Indians (NRI), including through companies, trusts and partnership firms incorporated outside India which are owned and controlled by NRIs, on non-repatriation basis are now deemed to be a domestic investments at par with the investment made by Indian residents.
- CCEA Threshold Limit increased to INR 5,000 Crores
The threshold limit for approval by Foreign Investment Promotion Board (FIPB), for investment in sectors that are under government approval route, has been increased from INR 3,000 crore to INR 5,000 crore, beyond which proposals will be placed for consideration before the Cabinet Committee on Economic Affairs (CCEA).
- Investment by way of Swap of Shares
No government approval is required for investment in automatic route sectors by way of swap of shares.
Sector Specific Reforms
Following is a brief round-up of the clarifications and changes introduced in some key sectors:
|PARTICULARS / SECTORS||EARLIER POSITION||AMENDED POSITION|
|Alternate Investment Funds (AIFs)||No FDI permitted||Foreign investment in AIFs, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITS) can now be made without any specific approval from RBI or FIPB, by any person outside India (including Foreign Portfolio Investors (FPIs) and non-resident Indians (NRIs), subject to prescribed conditions|
|Manufacturing||FDI in manufacturing by Micro, Small and Medium Enterprises (MSMEs) was permitted under the approval route||
|Limited Liability Partnerships (LLPs)||Earlier, FDI in LLPs was permitted under approval route, subject to conditions||
|Downstream Investment by LLPs||Permission for downstream investment was only limited to companies||Akin to companies, an LLP with FDI will be permitted to make downstream investments in another company or LLPs operating in sectors in which 100% FDI is allowed under the automatic route, and there are no FDI-linked performance conditions|
|Cash and Carry Wholesale Trading / Wholesale Trading (including sourcing from MSMEs)||A wholesale / cash and carry trader was restricted from opening retail shops to sell to the consumer directly||A single entity can now undertake both Single Brand Retail Trading (SBRT) and wholesale trading activities, subject to compliance with conditions on wholesale / cash and carry, and SBRT by both the business arms|
|Duty free shops||No existing provisions||100% FDI is now permitted under automatic route in duty free shops located and operated in the customs bonded areas|
|Construction and Development||
|Banking –Private Sector||
|Miscellaneous||Sectoral caps have been increased with easier compliance norms in various other sectors such as plantation, civil aviation, satellites, agriculture and animal husbandry and mining and minerals|
By no measure are these reforms inconsequential. Cutting across variety of sectors and dealing with several broader investment issues, the latest changes will go a long way in further easing foreign investments in India.
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