India – Union Cabinet Approves Amendments In FDI Policy, Sectors Further Liberalized.

 

16 January, 2018

 

 

The government by way of a press release dated January 10, 2018 (“Press Release”) has indicated that the Union Cabinet has given its approval to the following amendments in the FDI Policy. The amendments in the Press Release will have to be notified by the RBI in applicable FEMA regulations. Highlights of the changes introduced in key sectors are as follows:

 

 A     Single Brand Retail Trading:

 

100% FDI in single-brand retail trading (SBRT) via the automatic route is now permitted. The extant FDI policy on SBRT allowed 49% FDI under automatic route, and FDI beyond 49% and up to 100% through Government approval route.

In addition, the sourcing requirements have also been liberalized to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st April of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. After completion of this 5-year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis. The Press Release has also indicated the scope of the term ‘incremental sourcing’. 

 

B    Civil Aviation:

 

Foreign airlines have now been permitted to invest up to 49% under the approval route in Air India subject to (a) FDI in Air India including that of foreign airlines shall not exceed 49% either directly or indirectly, and (b) Substantial ownership and effective control of Air India shall continue to be vested in Indian National.

 

C    Construction Development:

 

The Press Release has clarified that that the real-estate broking service does not amount to real estate business and therefore eligible for 100% FDI under the automatic route.

 

D    Pharmaceuticals:

 

The definition of 'medical device' is amended to exclude the reference to the Drugs and Cosmetics Act. Therefore, entities engaged in the manufacture of medical devices need to merely qualify under the parameters set out in the FDI Policy for receiving foreign investment under the automatic route.

 

E    Power Exchange:

 

Foreign Portfolio Investors /Foreign Institutional invest in secondary as well as primary market. Previously, investment/purchases were restricted to the secondary market.

 

F    FDI in investment companies: 

 

Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian companies/ limited liability partnerships and in ‘Core Investing Companies’ will be aligned with the FDI policy provisions on ‘Other Financial Services’.  (i.e. foreign investment upto 100% under automatic route shall be allowed if the activities are regulated by any of the financial services regulators referenced in the relevant policy provision).

 

G Issue of shares for non-cash consideration:

 

Issue of shares against non-cash considerations for pre-incorporation expenses and import of machinery shall be permitted under automatic route for sectors under automatic route.

 

H    Power Exchange:

 

Any foreign investor who wishes to specify a particular auditor/audit firm having international network for the Indian investee company, then audit of such investee companies should be carried out as joint audit wherein one of the auditors should not be part of the same network.

 

I   Competent Authority for examining FDI proposals from countries of concern:

 

For FDI in automatic route sectors which require approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy & Promotion for Government approval. Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned Administrative Department/Ministry