The Government of India (GOI) has, with the objective of providing major impetus to the growth of investment and employment creation in India, further liberalized the Foreign Direct Investment (FDI) regime on 20 June 2016 pursuant to a high-level meeting chaired by the Prime Minister.
The liberalization includes increasing sectoral caps, bringing more activities under the automatic route and easing conditions for foreign investment. The key highlights of the updated FDI policy are:
(i) FDI upto 100% has been permitted under the government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.
(ii) FDI beyond 49% has been permitted under the government approval route in the defence sector, in cases resulting in access to modern technology in India or for such other reasons to be recorded. The earlier requirement of government approval where the FDI above 49% was likely to result in access to ‘state of the art’ technology in India has been done away with. Also, the FDI limit for the defence sector has also been made applicable to manufacturing of small arms and ammunitions covered under the Arms Act, 1959.
(iii) Subject to certain ownership and transfer restrictions, FDI upto 100% has been permitted under the automatic route in teleports, direct to home (DTH), mobile television, headend-in-the sky broadcasting services and cable networks.
(iv) FDI upto 74% has been permitted under the automatic route in brownfield pharmaceuticals with government approval for FDI beyond 74% (earlier, FDI upto 100% was allowed in brownfield pharmaceuticals under the government approval route).
(v) FDI upto 100% has been permitted under the automatic route in brownfield airport projects.
(vi) The GOI has raised the sectoral limits applicable to scheduled air transport service/ domestic scheduled passenger airlines and regional air transport services to 100%, with FDI up to 49% permitted under the automatic route and FDI beyond 49% through government approval. However, foreign airlines can continue to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the existing conditions in the extant FDI policy.
(vii) FDI up to 49% has been permitted under the automatic route in the private security agency sector and FDI beyond 49% and up to 74% has been permitted under the government approval route.
(viii) The requirement of ‘controlled conditions’ (which includes conformity with the prescribed minimum standards and practices) for FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture, has been done away with.
(ix) For entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology, the GOI has relaxed the local sourcing norms up to 3 years and sourcing regime for another 5 years.
(x) 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, the approval of the Reserve Bank of India or separate security clearance would not be required in cases where the approval of the Foreign Investment Promotion Board or license/permission by the concerned Ministry/Regulator has already been granted.
The report published by the Press Information Bureau, GOI on June 20, 2016 may be accessed at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=146338 and the consolidated FDI Policy 2016 may be accessed at http://dipp.nic.in/English/Policies/FDI_Circular_2016.pdf.