India approves further liberalization of Foreign Direct Investment Policy

The Union Cabinet has approved amendments to the Foreign Direct Investment (FDI) Policy with an aim to further liberalise the FDI regime in India. The steps have been undertaken as a continuing efforts of Indian Government in ease of doing business and in order to stimulate a more investor-friendly environment for the foreign players which will boost economic growth and create jobs.

Key highlights of the amendments are:

FDI Policy in Single Brand Retail Trading

100% FDI under the automatic route in Single Brand Retail Trading (SBRT) has now been permitted. Previously, 49% FDI was permitted under the automatic route for the SBRT. SBRT entity has also been permitted 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 existing mandatory sourcing requirement of 30% of purchases from India. A non-resident entity, whether owner of the brand or otherwise, is also permitted to undertake ‘single brand’ product retail trading in India for a specific brand, either directly by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking SBRT and the brand owner.

  • FDI Policy in relation to Air India

Foreign airlines are now permitted to invest up to 49% under approval route in Air India subject to the conditions that: (a) the foreign investments in Air India including that of foreign airlines shall not exceed 49% either directly or indirectly; (b) and substantial ownership and effective control of Air India shall continue to be vested in Indian National.

  • FDI in Construction Development

The Government has now clarified that real estate broking business does not amount to real estate business and accordingly 100% FDI under the automatic route will be permitted.

  • Foreign Institutional Investors (FII) and Foreign Portfolio Investors (FPI) to invest in Power Exchanges through primary market

FII and FPI are now permitted to invest through primary market in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010 under the automatic route. The FDI Policy provides for 49% FDI under the automatic route in Power Exchanges and the purchases earlier by FII and FPI were restricted to secondary market only.

  • Miscellaneous
  • The issue of shares against non-cash considerations has now been permitted under the automatic route in case of sectors under the automatic route.
  • Previously, 100% FDI with prior Government approval was permitted in an Indian company which was engaged only in the activity of investing in the capital of other Indian company/ies/ Limited Liability Partnerships and in the Core Investing Companies. The FDI Policy on these sectors shall now be aligned with ‘Other Financial Services’ under the FDI Policy and accordingly if the activities stated above are regulated by any Financial Sector Regulator then foreign investment up to 100% under the automatic route shall be permitted and if it’s not regulated by a Financial Sector Regulator or where only part is regulated or where there is doubt regarding the regulatory oversight, foreign investment up to 100% will be allowed under the Government approval route subject to various conditions.
  • The FDI Policy shall now state the specification of auditors that can be appointed by the Indian Investee companies receiving foreign investments that wherever the foreign investor 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.

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