Foreign Direct Investment (FDI) has been further liberalized in key sectors including Single Brand Retail Trading (SBRT) and Construction Development, as the Union Cabinet chaired by the Prime Minister Shri Narendra Modi on Wednesday January 10, 2018 approved amendments intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. It has been felt that the country has potential to attract far more foreign investment which can be achieved by further liberalizing and simplifying the FDI regime. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment. The Cabinet approved:
Earlier foreign airlines were allowed to invest under Government approval route 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. This provision was not applicable to Air India, thereby implying that foreign airlines could not invest in Air India.
Foreign Direct Investment is a major driver of economic growth and a source of non-debt finance for the economic development of the country. Government has put in place an investor friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. Government in the recent past has brought FDI policy reforms in a number of sectors that include Defence, Insurance, Pension, Other Financial Services, Asset Reconstruction Companies, Broadcasting, Civil Aviation, Pharmaceuticals, and Trading etc.
Measures undertaken by the Government have resulted in increased FDI inflows in to the country. An all-time high FDI of US $ 60.08 billion has been received in the financial year 2016-17 and there has been incremental growth in FDI as compared to previous years as under:
Government approval no longer required for FDI in Single Brand Retail Trading (SBRT)
As per the extant policy, foreign airlines are allowed to invest under Government approval route 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. However, this provision was presently not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that:
Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate Broking Services
It has been decided to clarify that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route.
Extant policy provides for 49% FDI under automatic route in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision, thereby allowing FIIs/FPIs to invest in Power Exchanges through primary market as well.
Other Approval Requirements under FDI Policy:
Competent Authority for examining FDI proposals from countries of concern
As per the existing procedures, FDI applications involving investments from Countries of Concern, requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, amended from time to time, are to be processed by the Ministry of Home Affairs (MHA) for investments falling under automatic route sectors/activities, while cases pertaining to government approval route sectors/activities requiring security clearance are to be processed by the respective Administrative Ministries/Departments, as the case may be. It has now been decided that for investments in automatic route sectors, requiring approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy & Promotion (DIPP) for Government approval. Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned Administrative Department/Ministry.
FDI policy on Pharmaceuticals sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.
Prohibition of restrictive conditions regarding audit firms:
The extant FDI policy does not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments. It has been decided to provide in the FDI policy 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.
Centre opens arms to single brand retail FDI
Sourcing norms eased, 100% FDI put on ‘automatic’ route
The Union government on Wednesday liberalised and simplified the Foreign Direct Investment (FDI) regime in a host of sectors, including Single Brand Retail Trading (SBRT) and construction development.
The Union Cabinet, chaired by Prime Minister Narendra Modi, gave its approval to a proposal permitting 100% FDI under the automatic route for SBRT.
The Centre also eased ‘sourcing norms’ in SBRT by permitting companies to set off their incremental sourcing of goods from India for global operations in the initial five years — beginning April 1 of the year of the opening of the firm’s first store — against the mandatory sourcing requirement of 30% of purchases from India.
After the completion of the five-year period, SBRT entities would be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis, the government said in an official statement.
The relaxation in sourcing norms could help companies like Apple, which had been seeking exemption from the 30% local sourcing norm, according to Pankaj Mohindroo, national president, Indian Cellular Association (ICA). However, the ICA is keen that companies should source entirely from India, he said.
Apple is learnt to have sought the waiver on the ground that it manufactures ‘cutting-edge technology’ products for which it is not possible to source as much from India due to the absence of or low capacity of the requisite supply-chain items.
‘Make in India’ gets fillip
“The move will not only attract additional foreign capital into the country, but will also provide an impetus to the retail industry growth, at a time when organised retail is already seeing strong growth over the last 12 months,” Rajat Wahi, Partner, Deloitte Touche Tohmatsu India, said in a statement.
He added, “Global brands across different categories, from apparel to electronics to accessories will be aided through this, providing further options to Indian consumers and improving India’s ranking in ease of doing business.”
The relaxation in local sourcing norms would allow the SBRT entity adequate time to set up their supply chain for local souring in India, Mr. Wahi said, adding that it would also provide an impetus to the government’s “Make In India” initiative.
On its impact on consumers, Mr. Wahi said the move would open up the Indian retail markets, leading to greater number of brands entering the Indian retail space and thus increasing competition.
“This would provide more options to the consumers as well as competitive pricing,” he said, adding that the move would also indirectly support omni-channel approach for companies who wish to enter both online and offline trade.
Goldie Dhama, Partner – Regulatory, PwC India, said the easier sourcing norms “will provide the single brand retail trading companies the flexibility and time to align their retail and sourcing business.”
Break for broking
In construction development, the Centre said that real estate broking service did not amount to ‘real estate business’ and was, therefore, eligible for 100% FDI under the automatic route.
Bhairav Dalal, partner, Real Estate Tax, PwC India, said that the clarification on real estate broking services was a welcome move “given the number of start-ups in this space offering innovative broking products.”
Cabinet okays 100% FDI in single brand retail via automatic route
Foreign airlines allowed to invest up to 49% under approval route in Air India
NEW DELHI, JAN 10:
The Union Cabinet on Wednesday allowed foreign airlines to invest upto 49 per cent under approval route in Air India. However, this nod comes with two conditions – foreign investment including that of foreign Airlines should not exceed 49 per cent either directly or indirectly and substantial ownership and effective control of Air India would continue to be vested in Indian national.
The other amendments in FDI Policy include 100 per cent FDI under automatic route for single brand retail trading. Also, 100 per cent FDI under automatic route in construction development has been allowed.
Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs) have been allowed to invest in power exchanges through primary market. The definition of ‘medical devices’ has been amended in the FDI policy, an official release said.
The existing FDI policy on Single Brand Retail Trading (SBRT) allows 49 per cent FDI under automatic route, and FDI beyond 49 per cent and up to 100 per cent through Government approval route.
It has now been decided to permit 100 per cent FDI under automatic route for SBRT, the release added.
It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India.
For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies.
After completion of this 5 year period, the SBRT entity shall be required to meet the 30 per cent sourcing norms directly towards its India operation, on an annual basis, the release added.
The Union Cabinet has clarified that real-estate broking service does not amount to real estate business and is therefore eligible for 100 per cent FDI under automatic route.
The FDI policy has been amended to stipulate joint audits in investee companies (receiving foreign investments) in situations where the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company. One of the auditors should not be part of the same network, according to the amended FDI policy.
Prior to this change, the FDI policy did not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments.
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi, has given its approval to a number of amendments in the FDI Policy. These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.
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