Date November 30, 2015
India relaxes Foreign Direct Investment Norms and Promotes Ease of Doing Business

The Government of India has vide Press Note No. 12 dated 24 November 2015 introduced a number of amendments to the Foreign Direct Investment (FDI) Policy across various sectors, which include enhancing sectoral caps, opening sectors for foreign investment, bringing additional activities under the automatic investment route and generally easing conditions for foreign investment and doing business in India.

Set out below in brief, are some of the reforms introduced by the aforesaid Press Note:

  • Construction development sector
  1. Conditions on restriction of floor area and minimum capitalization have been removed.
  2. Each phase of a construction development project would be considered as a separate project for the purposes of the FDI Policy.
  3. Foreign investors are permitted to exit and repatriate foreign investment before the completion of a project under the automatic route provided that a lock-in-period of three years with reference to each tranche of foreign investment has been completed.
  • Defence sector
  1. Foreign Investment up to 49% has been permitted under the automatic route.
  2. Portfolio investments and investments by foreign venture capital investors will be permitted up to 49%.
  3. Proposals for foreign investment in excess of 49% will be considered under the Government route on a case to case basis, whenever investment is likely to result in access to modern and ‘state-of-art’ technology in the country.
  • Banking private sector: The Government has decided to introduce full fungibility of foreign investment in private sector banking. Accordingly, foreign portfolio investors can now invest up to the sectoral limit of 74%, provided there is no change of control and management of the investee company.
  • Plantation sector: Other than the tea plantation sector which was already open to foreign investment, up to 100% foreign investment has been permitted in coffee, rubber, cardamom, palm oil tree and olive oil tree plantations.
  • NRI investments: Investment by companies, trusts and, or partnerships owned & controlled by NRIs on a non-repatriation basis will be treated as domestic investment.
  • Broadcasting sector: Government has relaxed the sectoral caps and entry routes under various heads of this sector.
  • Manufacturing sector: Manufacturers are now permitted to sell their products through wholesale and/or retail, including through e-commerce without Government approval.
  • Single Brand Retail Trading: Certain conditions including sourcing norms applicable to the single brand retail trading sector have been partially relaxed and 100% FDI is now permitted under the automatic route in duty free shops located and operated in customs bonded areas.
  • Single legal entity for wholesale and single brand retail: A single legal entity is now permitted to carry out both wholesale and single brand retail trading activities provided that conditions applicable to both wholesale/ cash and carry and single brand retail trading under the FDI Policy are complied with separately by both the business verticals.
  • FDI in Limited Liability Partnerships (LLP): 100% FDI is now permitted under the automatic route in LLPs operating in sectors or activities where 100% FDI is allowed and there are no FDI-linked performance conditions. Further, the terms ‘ownership’ and ‘control’ with reference to LLPs have also been defined.
  • FDI in Regional Air Transport Service: FDI up to 49% under the automatic route is now permitted in the regional air transport service sector.
  • Establishment and transfer of ownership and control of Indian companies: Government approval will be required only if the concerned company is operating in sectors or activities which fall within the approval route.
  • Enhanced foreign equity caps: FDI up to 100% is permitted in non-scheduled air transport, ground handling services, satellites-establishment (through Government route) and operation and credit information companies.
  • The threshold limit for foreign investment promotion board approval has been increased from INR 3000 crores to INR 5000 crore.