Giving further impetus to the economy, the Government on Tuesday relaxed Foreign Direct Investment (FDI) rules in as many as 15 sectors such as civil aviation, banking, Defence, retail and news broadcasting and also eased the process for approval of FDI. The biggest reforms in the FDI regime come days after the NDA was trounced in the Bihar Assembly elections.
Finance Minister Arun Jaitley said, “Reform is always an ongoing process, there is no finishing line as far as reforms are concerned.” When asked whether the FDI reforms will also include multi-brand retail, he said that there is no change in the existing policy for the sector.
Soon after the Government made the announcement, Prime Minister Narendra Modi tweeted, “Today’s FDI related reforms will touch 15 sectors & benefit youth. Govt’s commitment to development & reforms is unequivocal & unwavering.”
While 100 per cent FDI has been allowed in DTH, cable network and plantation crop; overseas investment limit in uplinking of news and current affairs TV channels has been raised to 49 per cent from 26 per cent.
The Government relaxed conditions for FDI in single-brand retail and allowed 100 per cent FDI under automatic route in duty-free shops and limited liability Partnerships (llP) and eased foreign investment norms in the defence sector. It has also raised the FIPB’s monetary limit to Rs 5,000 crore from Rs 3,000 crore for approving FDI proposals.
“The Government’s decision on liberalising FDI policy is a welcome step and is part of improving ease of doing business. These decisions come into force with immediate effect,” Economic Affairs Secretary Shaktikanta Das said.
DIPP Secretary Amitabh Kant said, “This is Diwali gift for investors. This is the biggest bang reform of the Government.”
In the construction sector, minimum capitalisation norms and floor area restrictions have been removed. The Government has also eased exit norms for foreign players in the sector. “Hundred per cent FDI under automatic route has been allowed in completed projects for operation and management of townships, malls/shopping complexes and business centres,” the Commerce and Industry Ministry said in a statement.
Welcoming the Government’s decision on FDI, India Inc said the reforms agenda is on track and it will send a positive signal to global investors. “Simplification of procedures for foreign investments, putting more sectors on the automatic route, introducing fungibility between FDI and FII and having a single reference document for all FDI related guidelines are steps that would boost investor confidence,” said Ficci president Jyotsna Suri.
“liberalisation of FDI in a host of key sectors like Defence, civil aviation, retail, banking and e-commerce couple of days before Prime Minister Narendra Modi’s visit to the UK will send a huge positive signal to global investors about the focus returning to the economic agenda after Bihar elections,” said Assocham secretary general DS Rawat.
In the Defence sector, 49 per cent foreign investment has been allowed under the automatic route and anything beyond through the Foreign Investment Promotion Board (FIPB) nod. Earlier, the investors were required to take approval of Cabinet Committee on Security for foreign investment above 49 per cent.
“Portfolio investment and investment by Foreign Venture Capital Investor (FVCIs) will be allowed up to permitted automatic route level of 49 per cent,” it clarified. In case of infusion of fresh foreign investment within the permitted automatic route level, resulting in a change in
the ownership pattern or transfer of stake by existing investor to new foreign investor, Government approval will be required.”
In the broadcasting sector, 100 per cent FDI has been allowed in DTH, teleports, mobile TV and cable networks. Of this, 49 per cent will be allowed under automatic route and beyond that will need FIPB nod. In the case of (FM radio and uplinking of news and current affairs’ TV channels, the FDI limit has been raised from 26 per cent to 49 per cent.
As for the up-linking of non-news and current affairs’ TV channels, 100 per cent FDI has been permitted under the automatic route. Earlier, it was allowed under the Government approval route.
In the private banking sector, the Government has introduced full fungibility of foreign investment and accordingly, “FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74 per cent, provided there is no change of control and management of the investee company.”
Earlier, portfolio investment was permitted up to 49 per cent.
The Government has also opened up key plantation sectors --- coffee, rubber, cardamom, palm oil tree and olive oil tree --- for 100 per cent foreign investment under automatic route.
Investments by companies, trusts and partnership firms which are owned and controlled by NRIs will be treated on a par with domestic investments, the Ministry said. Earlier, this facility was available to NRIs for non-repatriable investments.
In the retail sector, the Ministry said, it has permitted manufacturers to sell their products through wholesale and/or retail, including e-commerce without Government approval.
In single-brand retail trading, it said the current FDI policy mandates that sourcing of 30 per cent 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. Furthermore, 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 the case of ‘state-of-the-art’ and ‘cutting-edge technology’ sourcing norms can be relaxed subject to Government approval,” the commerce and industry ministry said.
Furthermore, it said an entity which has been granted permission to undertake single brand retail trading (SBRT) will be permitted to undertake e-commerce activities. It has also been clarified that Indian brands are equally eligible for undertaking SBRT.
It has been decided that certain conditions of the FDI policy applicable to the sector will not be made applicable in case of FDI in Indian brands. It also said an Indian manufacturer is permitted to sell its own branded product in any manner --- wholesale, retail, including e-commerce platforms.
“For the purpose of the FDI policy, Indian manufacturer would be the investee company, which is the owner of the Indian brand and manufactures in India in terms of value at least 70 per cent of its products in house and sources at most 30 per cent from Indian manufacturers,” it said.
“Indian brands should be owned and controlled by resident Indian citizens and/or companies, which are owned and controlled by resident Indian citizens.”
The Government has also permitted a single entity to undertake both single-brand retail and wholesale trading with a rider that norms of FDI policy on wholesale/cash-and-carry and SBRT have to be complied with by both business arms separately.
Currently, in wholesale cash-and-carry activity, 100 per cent foreign investment is permitted under the automatic route. A wholesale/cash-and-carry trader was not allowed to open retail shops to sell to the consumer directly.
In the limited liability Partnerships (llPs), 100 per cent automatic FDI is now permitted for those operating in sectors where 100 per cent foreign investment 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,” it said.
The foreign investment norms have also been eased in the scheduled air transport service/domestic scheduled passenger airline by permitting 49 per cent FDI under the automatic approval route.
It also said foreign equity caps of certain sectors --- non-scheduled air transport service, ground-handling services, satellites-establishment and operation and credit information companies have now been increased to 100 per cent from 74 per cent.
Sectors other than satellites --- establishment and operation --- have been placed under the automatic route. Further approval requirements in respect of companies under operation have also been eased.
It has now been decided that for infusion of foreign investment into an Indian company which does not have any operations and any downstream investments, Government approval will not be required for undertaking activities that are under automatic route and without FDI-linked performance conditions, regardless of the amount or extent of foreign investment.
The statement said no approval will be required for transfer of ownership and control of Indian companies to foreign entities if the domestic company is engaged in sectors where foreign investment is allowed under the automatic route.
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 also been simplified.