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Changes in FDI policy regime

Tuesday, 21 Jun 2016
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The Union Government has liberalised the FDI policy regime on 20 June, 2016 with the objective of providing major impetus to employment and job creation in the country. The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi. Now, most of the sectors will be under automatic approval route, except a small negative list.

The government has decided to introduce a number of amendments in the FDI policy. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route, and easing of conditionalities for foreign investment. Details of these changes are given in the following paragraphs:

1.Food Products manufactured/produced in India

It has been decided to permit 100 percent FDI under the government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

2.Defence sector

Present FDI regime permits 49 percent FDI participation in the equity of a company under automatic route. FDI above 49 percent is permitted through government approval on case-to-case basis, wherever it is likely to result in access to modern and ‘state-of-the-art’ technology in the country. In this regard, the following changes have inter-alia been brought in the FDI policy in this sector:

i.Foreign investment beyond 49 percent has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-the-art’ technology in the country has been done away with.

ii.The FDI limit for the defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.
 
3.Review of entry routes in Broadcasting Carriage Services

The FDI policy on broadcasting carriage services has also been amended. Hundred percent FDI in teleports (setting up of up-linking HUBs/teleports), Direct to Home (DTH), cable networks (multi-system operators (MSOs) operating at national or state or district level, and undertaking upgradation of networks towards digitalization and addressability), mobile TV, headend-in-the-sky broadcasting service (HITS), and cable networks (other MSOs not undertaking upgradation of networks towards digitalization and addressability and local cable operators (LCOs)) is allowed under automatic route.

Infusion of fresh foreign investment beyond 49 percent in a company not seeking license/permission from sectoral ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval.

4.Pharmaceutical

The extant FDI policy on the pharmaceutical sector provides for 100 percent FDI under automatic route in greenfield pharma, and FDI upto 100 percent under government approval in brownfield pharma. With the objective of promoting the development of this sector, it has been decided to permit upto 74 percent FDI under automatic route in brownfield pharmaceuticals, and government approval route beyond 74 percent will continue.
 
5.Civil Aviation sector

The extant FDI policy on airports permits 100 percent FDI under automatic route in greenfield projects and 74 percent FDI in brownfield projects under automatic route. FDI beyond 74 percent for brownfield projects is under government route. With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 percent FDI under automatic route in brownfield airport projects.

As per the present FDI policy, foreign investment upto 49 percent is allowed under automatic route in scheduled air transport service/domestic scheduled passenger airline, and regional air transport service. It has now been decided to raise this limit to 100 percent, with FDI upto 49 percent permitted under automatic route, and FDI beyond 49 percent through government approval. For NRIs, 100 percent FDI will continue to be allowed under automatic route. However, foreign airlines will continue to be allowed to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services upto the limit of 49 percent of their paid up capital and subject to the laid down conditions in the existing policy.
 
6.Private Security Agencies

The extant policy permits 49 percent FDI under government approval route in private security agencies. FDI upto 49 percent is now permitted under automatic route in this sector and FDI beyond 49 percent and upto 74 percent will be permitted with government approval route.

7.Establishment of branch office, liaison office or project office

For establishment of branch office, liaison office or project office or any other place of business in India, if the principal business of the applicant is defence, telecom, private security or information and broadcasting, it has been decided that approval of the Reserve Bank of India or separate security clearance will not be required in cases where FIPB approval or license/permission by the concerned ministry/regulator has already been granted.

8.Animal Husbandry

As per FDI Policy 2016, FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture is allowed 100 percent under automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

9.Single Brand Retail Trading

It has been decided to relax local sourcing norms upto three years and a relaxed sourcing regime for another five years for entities undertaking single brand retail trading of products having ‘state-of-the-art’ and ‘cutting edge’ technology.

 
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