Government Policies and Business Regulatory Environment

Recent changes in the in FDI Policy

The DPIIT recently released the Consolidated Foreign Direct Investment Policy (FDI Policy) for FY 15 October 2020 on 15 October 2020.

The key changes between the previous Consolidated FDI Policy 2017 and the current Consolidated FDI Policy 2020 are listed below:

Financial Institutions

As per an amendment in 2018, foreign investment in investing companies registered as Non-Banking Financial Companies (NBFC) with the RBI, being overall regulated, would be available up to 100% under the automatic route. Additionally, foreign investments in Core Investment Companies (CIC) and other investment companies are permitted under the government approval route. However, these CICs must comply with RBI's regulatory framework for such investments.

Real Estate Broking Services

The Union Cabinet has clarified that 'Real-estate broking services' does not amount to 'Real estate businesses,' and hence, the FDI policy has now been amended to allow 100% foreign investment through automatic routing for companies functioning under the ambit of 'Real-estate broking services'.

Mining Activities

The new FDI Policy allows 100% FDI via the automatic route for 'Coal and lignite mining' for captive consumption, setting up of coal processing plants, and the sale of coal and coal mining activities, including associated processing infrastructure as permitted under and subject to the provisions of Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957.

Contract Manufacturing

100% FDI is permitted under the automatic route for manufacturing by both the investee entity and contract manufacturing entity in India through a legally tenable contract, whether on a Principal-toPrincipal or Principal-to-Agent basis.

Insurance

100% FDI is allowed through the automatic route for insurance intermediaries, including insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors, etc. as notified by the Insurance Regulatory and Development Authority of India (IRDAI). Earlier, the FDI limit was capped at 49% under the automatic route.

Civil Aviation

As per the present FDI Policy and conditions within, 100% FDI is permitted in scheduled Air Transport Services/Domestic Scheduled Passenger Airlines (upto 49% through the automatic route while investments beyond 49% would go through the government route). For NRIs, 100% FDI is permitted under the automatic route in Scheduled Air Transport Services/Domestic Scheduled Passenger Airlines subject to a few exceptions.

Digital Media

26% FDI is allowed through the government route for uploading or streaming activities of news and current affairs through digital media.

Addressing opportunistic takeovers during the COVID19 pandemic:

Special measures were put in place to curb the possibility of opportunistic takeovers of Indian entities resulting from the economic turmoil during the COVID19 pandemic through a recent amendment. Currently, any entity of a country that shares a land border with India can invest in India only under the government route. This will also be applicable for any transfer of ownership of any existing or future FDI in an entity in India.

Single Brand Product Retail

100% FDI through the automatic route is allowed in e-commerce activities working via a marketplace model between buyers and sellers (with less than 25% of the inventory held by the marketplace entity of the e-commerce company). 30% local sourcing norms are applicable for foreign investments beyond 51%.

In order to meet the 30% local sourcing norm, all procurements made from India by a Single Brand Retail Trading (SBRT) entity for their single brand shall now be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. SBRT entities are also permitted to set off sourcing of goods from India for global operations against the mandatory sourcing requirement of 30%.

The new amendment also states that an SBRT entity operating through brick and mortar stores can also undertake retail trading through e-commerce, even prior to the opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within two years from the start date of online retail.

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Rajiv Rajendran
Executive Director
Corporate Services

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