By Ruma Dubey
A new FDI policy was ushered in, effective since Monday, 28th August. This is an annual exercise undertaken by the Department of Industrial Policy and Promotion (DIPP). And this time around, it is a consolidated policy, which is a compilation of the various decisions taken by the government in the past one year.
The best part, it has been put into a single document to make it simple and easy for investors to understand. Have a look at: http://dipp.nic.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf
The cumulative amount of FDI inflows in Q1FY18 was at US$ 14,550 Million v/s US$ 12,194 million in Q4FT17 (QoQ). Mauritius remained the top investing countries, followed by Singapore, Japan, UK and Netherlands.
And the sector which continues to attract the maximum FDI – Services which includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis. In terms of states in India, Mumbai received 30% of the cumulative FDI inflows into the country.
Based on the new policy, what we discern is that most of Apple’s and Tesla’s problems will get resolved and they will now be able to set shop in India with much ease. The Govt has very conveniently relaxed the norms for single brand retailers – the main bone of contention till date. So on one hand, the FM announced some months ago that no rules will be relaxed but then through the DIPP all glitches for Apple are removed. Under the new policy now Apple will not have to source 30% locally for up to three years from the opening of the first store for all those selling products having state-of-the-art and cutting technology, and also where local sourcing policy is not possible.
Another very surprising clause is that the FDI policy continues to say that foreign airlines will be allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to a ceiling of 49%. Once again, it has clarified that this part of the policy is not applicable to Air India. So how does it expect to attract buyers for the proposed sale? Doesn’t it clearly mean that the Govt wants to retain its ownership status even post divestment?
A few highlights of the new FDI Policy:
- A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.
- An NRI can subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.
- Indian companies can issue capital against FDI.
- An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.
- FDI is not permitted in Trusts other than in ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle.’
- Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation.
- Startups can issue convertible notes to person resident outside India subject to a few conditions.
- Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy
- 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, approval of Reserve Bank of India is not required in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.
- Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian company/ies/ LLP, will require prior Government approval, regardless of the amount or extent of foreign investment.
- Core Investment Companies (CICs), will have to additionally follow RBI’s Regulatory Framework for CICs.
- For companies engaged in activities under the automatic route, an Indian company which does not have any operations and also does not have any downstream investments, will be permitted to have infusion of foreign investment.
- 'Strategic downstream investment' by a banking company , incorporated in India and owned by NRIs is allowed – this means investment by these banking companies in their subsidiaries, joint ventures and associates.
- FDI is prohibited in – lottery, gambling betting, chit funds, nidhi companies, TDRs, realty business or construction of farm houses; Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes; Atomic Energy and some parts of Railway operations.
- 100% FDI is allowed in Floriculture, Horticulture, and Cultivation of Vegetables & Mushrooms under controlled conditions; Development and Production of seeds and planting material; Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, Apiculture; and Services related to agro and allied sectors.
- 100% FDI is also allowed in plantations of tea, coffee, rubber, cardamom, palm oil, olive oil tree. It is also allowed in Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores. Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units also gets 100% FDI. Exploration activities of oil and natural gas fields, Petroleum refining by PSUs without any disinvestment or dilution of domestic equity; Manufacturing of small arms and ammunition under the Arms Act, 1959; in teleports, DTH, mobile TV, Headend-in-the Sky Broadcasting Service, cable networks.
- 26% FDI is allowed in publishing of newspaper and periodicals dealing with news and current affairs; Publication of Indian editions of foreign magazines dealing with news and current affairs.
- 100% FDI in making greenfield as well as existing airport projects. Also allowed in domestic passenger airlines, helicopter services, ground handling and maintenance, flying training schools.
- In construction, 100% to be allowed in realty, townships, education, resorts, hospitals; in industrial parks.
- 74% FDI allowed in private security services. Telecom too has 100% FDI; cash and carry wholesale trading, e-commerce activities in B2B and not B2C.
- 100% FDI in single brand product retailing and 51% in multi brand retailing. Here the rules remain stringent - Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million; at least 50% of total FDI brought in the first tranche of US $ 100 million, shall be invested in 'back-end infrastructure' within three years; at least 30% of the value of procurement of manufactured/processed products purchased to be sourced from Indian micro, small and medium industries; Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census; Government will have the first right to procurement of agricultural products.
- Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading
- 100% FDI in asset reconstruction companies.
- 74% FDI in private sector banking sector, with 49% in automatic route and Government route beyond 49% and up to 74%.
- 20% FDI in PSU banks – even SBI and its associates subject to the same ceiling.
- 49% FDI in stock exchanges, commodity exchanges, depositories and clearing corporations, in compliance with SEBI Regulations.
- 49% FDI in Insurance Company, Insurance Brokers, Third Party Administrators and Surveyors and Loss Assessors, pension sector, power exchanges.
- 100% FDI in White Label ATM Operations, financial services activities; brown and greenfield pharma companies where ‘Non-compete’ clause would not be allowed in automatic or government approval route.
- An Indian company can also sponsor an issue of ADR/GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs/GDRs can be issued abroad.