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Govt. Eases FDI Norms in 15 Sectors
Nov 27, 2015

The government further opened up several key sectors including defence, construction, civil aviation and media to foreign investment, eased norms for businesses such as single-brand retail and private banking and allowed the Foreign Investment Promotion Board (FIPB) to clear proposals up to Rs 5,000 crore from Rs 3,000 crore earlier.

In defence, the government has allowed foreign investment up to 49 per cent under the automatic route, earlier under the government approval route. Investments over 49 per cent will now be cleared by the FIPB instead of the Cabinet Committee on Security. Portfolio investors and foreign venture capital firms can also invest up to 49 per cent as against 24 per cent earlier.

Key Changes

Construction sector: Construction sector will be a major beneficiary. Several conditions have been removed including the area restriction of floor area of 20,000 sq.m. in construction development projects and minimum capitalisation of $5 million which needed to be brought in within six months of the commencement of business.

Foreign investors have been allowed to exit and repatriate their investment under automatic route before the completion of the project provided they complete a lock-in period of three years.

Defence: Foreign investment up to 49% has been allowed under automatic route from the earlier government approved route. Proposals for foreign investment in excess of 49% will be considered by FIPB.

Portfolio investment and Foreign Venture Capital Investment: These were restricted to 24%, have now been hiked to 49% and that too through the automatic route. To ensure that ownership and control remain in Indian hands, the 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 (from the earlier 26%), while 100% FDI is allowed through the automatic route in up-linking of Non-‘News & Current Affairs’ TV Channels. 100% FDI is also allowed (upto 49% automatic route and beyond that through government route) in teleports, direct to home, cable networks, mobile TV, headend in the sky broadcasting service and cable networks.

Banking: In private sector banking, the government has brought in a composite cap by removing the sub-limits for FDI and FII, thereby allowing FIIs/FPIs/QFIs to invest upto the sectoral limit of 74% provided there is no change of control and management of the investee company. The existing foreign portfolio limit of 49% was coming in the way of fund raising plans of private sector banks such as Yes Bank, Kotak Mahindra Bank and Axis Bank. The new rule will give the banks and investors considerable flexibility in raising funds and investing respectively.

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 & 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 announced easing of several conditionalities for single brand retail trade (SBRT) and e-commerce. It has now been decided that in case of state of art and cutting edge technology, sourcing norms (that 30% of value of goods will have to be purchased from India) can be relaxed subject to Government approval. The government also permitted entities who have been granted permission to undertake SBRT, to do e-commerce. The government has eased FDI policy conditionalities for Single Brand Retail Trading, besides permitting 100% FDI in duty free shops.

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 & carry and SBRT have to be complied by both the business arms separately. Currently, wholesale/cash & carry trader cannot open retail shops to sell to the consumer directly.

LLP: 100% FDI in 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.

Other Changes in Rules: No government approval is required for investment in automatic route by way of swap of shares.

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 World Bank had recently improved India's ranking by 12 places (to 130th rank from 142nd rank last year) in the 2016 Study of Ease of Doing Business. Besides, many global institutions have projected India as the leading destination for FDI in the World. IMF has branded India as the brightest spot in the global economy whereas the World Bank has retained the growth forecast for India at 7.5% for FY16.
 


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