Centre relaxes FDI norms in 15 sectors
The Centre on Tuesday announced 'big bang' foreign direct investment (FDI) reforms, easing conditions across 15 sectors, including defence, banking, construction, retail, broadcasting and civil aviation.
For facilitating faster approvals on most of the proposals, the government has decided that the inter-ministerial Foreign Investment Promotion Board (FIPB) can from now onwards give approvals to proposals above Rs 5000 crore, up from the earlier threshold of Rs 3,000 crore.
A senior Industry Ministry official said "by far, these (set of reforms) are the biggest path-breaking and the most radical changes in the FDI regime ever undertaken by the Centre. With the Prime Minister's approval and after several rounds of inter-ministerial consultations, we have brought out about 35 changes in the FDI policy cutting across 15 sectors. We have expedited these changes over the last couple of weeks. This exercise could have other wise taken over a year and would have needed over 16 cabinet notes."
Crux of the reforms
According to an official release, the crux of these reforms is to further ease, rationalise and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of government route where time and energy of the investors is wasted.
Significantly, undeterred by the debacle in Bihar polls, the BJP-led NDA government stated that: "With this round of reforms, the government has demonstrated that India is unstoppable on the path of economic development... It is also clear that India is a country, which is more than ready to integrate with the global economy."
For the sake of ease of doing business, the Industry Ministry will soon consolidate all FDI-related instructions contained in various notifications and press notes and prepare a booklet so that the investors do not have to refer to several documents of different time-frames.
The release said refining of foreign investment norms in construction is to facilitate the construction of 50 million houses for poor. It added that opening up of the manufacturing sector for wholesale, retail and e-commerce is aimed at motivating industries to ‘Make in India’ and sell it to the customers here instead of importing from other countries.
Higher FDI
According to Industry Ministry data, India received FDI of $19.39 billion during January-June 2015, an increase of 30% over the same period last year. The Modi government in the last few months has introduced many FDI policy reforms in sectors such as defence, rail infrastructure, construction development, insurance, pension, medical devices, white label ATM operations, investments by NRIs on non-repatriation basis and has introduced composite cap for foreign investment.
Main sectoral changes in the FDI regime
Construction sector: Conditions of area restriction of floor area of 20,000 sq. metres in construction development projects and minimum capitalisation of US$ 5 million to be brought in within the period of six months of the commencement of business have been removed.
Defence: Foreign investment up to 49% will be under automatic route. Proposals for foreign investment in excess of 49% will be considered by FIPB. Earlier, foreign investment up to 49% is permitted under government approval route. Foreign investment above 49% was also permitted, subject to approval of Cabinet Committee on Security on case-to-case basis, wherever the investment is likely to result in access to ‘state-of-art’ technology in the country.
Also, portfolio investment and investment by foreign venture capital investors (FVCIs) will be allowed up to permitted automatic route level of 49%. (So far, portfolio investment and investment by FVCIs was restricted to 24% only).
However, government approval will be required in case of infusion of fresh foreign investment within the permitted automatic route level, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor.
Broadcasting: In terrestrial broadcasting FM (FM Radio), and in up-linking of ‘news & government route current affairs TV channels FDI upto 49% is allowed through the FIPB route, while 100% FDI is allowed through the automatic route in up-linking of non-‘news & current affairs TV channels.
Banking: In private sector banking, the government has allowed full fungibility of foreign investment in private sector banking. Accordingly, FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74%, provided that there is no change of control and management of the investee company.
Plantation: The government also decided to plantation activities namely; coffee, rubber, cardamom, palm oil tree and olive oil tree plantations also for 100% foreign investment under automatic route. As of now, only tea plantation was open to foreign investment.
NRIs: Investment by companies/trusts/partnerships owned and controlled by NRIs on non-repatriation basis will now be treated as domestic investment.
E-Commerce: Manufacturers have been allowed to sell their product through wholesale and/or retail, including through e-commerce without government approval.
Retail: The government has eased FDI policy conditionalities for single-brand retail trading, besides permitting 100% FDI in duty-free shops.
Also, a single entity will be permitted to undertake both the activities of single-brand retail trading (SBRT) and wholesale with the condition that conditions of FDI policy on wholesale/ cash and carry and SBRT have to be complied by both the business arms separately. Currently, wholesale/cash and carry trader cannot open retail shops to sell to the consumer directly.
LLP: 100% FDI in limited liability partnerships (LLPs) has been permitted under automatic route.
Aviation: Regional air transport service will be eligible for foreign investment up to 49% under automatic route. Under the present FDI policy, foreign investment up to 49% is allowed only in scheduled air transport service/ domestic scheduled passenger airline.
Foreign equity caps of certain sectors - non-scheduled air transport service, ground handling services, satellites establishment and operation and credit information companies have now been increased from 74% to 100%. Further, sectors other than satellites establishment and operation have been placed under the automatic route.
The Centre on Tuesday announced 'big bang' foreign direct investment (FDI) reforms, easing conditions across 15 sectors, including defence, banking, construction, retail, broadcasting and civil aviation.
For facilitating faster approvals on most of the proposals, the government has decided that the inter-ministerial Foreign Investment Promotion Board (FIPB) can from now onwards give approvals to proposals above Rs 5000 crore, up from the earlier threshold of Rs 3,000 crore.
A senior Industry Ministry official said "by far, these (set of reforms) are the biggest path-breaking and the most radical changes in the FDI regime ever undertaken by the Centre. With the Prime Minister's approval and after several rounds of inter-ministerial consultations, we have brought out about 35 changes in the FDI policy cutting across 15 sectors. We have expedited these changes over the last couple of weeks. This exercise could have other wise taken over a year and would have needed over 16 cabinet notes."
Crux of the reforms
According to an official release, the crux of these reforms is to further ease, rationalise and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of government route where time and energy of the investors is wasted.
Significantly, undeterred by the debacle in Bihar polls, the BJP-led NDA government stated that: "With this round of reforms, the government has demonstrated that India is unstoppable on the path of economic development... It is also clear that India is a country, which is more than ready to integrate with the global economy."
For the sake of ease of doing business, the Industry Ministry will soon consolidate all FDI-related instructions contained in various notifications and press notes and prepare a booklet so that the investors do not have to refer to several documents of different time-frames.
The release said refining of foreign investment norms in construction is to facilitate the construction of 50 million houses for poor. It added that opening up of the manufacturing sector for wholesale, retail and e-commerce is aimed at motivating industries to ‘Make in India’ and sell it to the customers here instead of importing from other countries.
Higher FDI
According to Industry Ministry data, India received FDI of $19.39 billion during January-June 2015, an increase of 30% over the same period last year. The Modi government in the last few months has introduced many FDI policy reforms in sectors such as defence, rail infrastructure, construction development, insurance, pension, medical devices, white label ATM operations, investments by NRIs on non-repatriation basis and has introduced composite cap for foreign investment.
Main sectoral changes in the FDI regime
Construction sector: Conditions of area restriction of floor area of 20,000 sq. metres in construction development projects and minimum capitalisation of US$ 5 million to be brought in within the period of six months of the commencement of business have been removed.
Defence: Foreign investment up to 49% will be under automatic route. Proposals for foreign investment in excess of 49% will be considered by FIPB. Earlier, foreign investment up to 49% is permitted under government approval route. Foreign investment above 49% was also permitted, subject to approval of Cabinet Committee on Security on case-to-case basis, wherever the investment is likely to result in access to ‘state-of-art’ technology in the country.
Also, portfolio investment and investment by foreign venture capital investors (FVCIs) will be allowed up to permitted automatic route level of 49%. (So far, portfolio investment and investment by FVCIs was restricted to 24% only).
However, government approval will be required in case of infusion of fresh foreign investment within the permitted automatic route level, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor.
Broadcasting: In terrestrial broadcasting FM (FM Radio), and in up-linking of ‘news & government route current affairs TV channels FDI upto 49% is allowed through the FIPB route, while 100% FDI is allowed through the automatic route in up-linking of non-‘news & current affairs TV channels.
Banking: In private sector banking, the government has allowed full fungibility of foreign investment in private sector banking. Accordingly, FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74%, provided that there is no change of control and management of the investee company.
Plantation: The government also decided to plantation activities namely; coffee, rubber, cardamom, palm oil tree and olive oil tree plantations also for 100% foreign investment under automatic route. As of now, only tea plantation was open to foreign investment.
NRIs: Investment by companies/trusts/partnerships owned and controlled by NRIs on non-repatriation basis will now be treated as domestic investment.
E-Commerce: Manufacturers have been allowed to sell their product through wholesale and/or retail, including through e-commerce without government approval.
Retail: The government has eased FDI policy conditionalities for single-brand retail trading, besides permitting 100% FDI in duty-free shops.
Also, a single entity will be permitted to undertake both the activities of single-brand retail trading (SBRT) and wholesale with the condition that conditions of FDI policy on wholesale/ cash and carry and SBRT have to be complied by both the business arms separately. Currently, wholesale/cash and carry trader cannot open retail shops to sell to the consumer directly.
LLP: 100% FDI in limited liability partnerships (LLPs) has been permitted under automatic route.
Aviation: Regional air transport service will be eligible for foreign investment up to 49% under automatic route. Under the present FDI policy, foreign investment up to 49% is allowed only in scheduled air transport service/ domestic scheduled passenger airline.
Foreign equity caps of certain sectors - non-scheduled air transport service, ground handling services, satellites establishment and operation and credit information companies have now been increased from 74% to 100%. Further, sectors other than satellites establishment and operation have been placed under the automatic route.
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