Liberalization of the FDI Regime

The Union Government has introduced a number of amendments in the FDI Policy which include increase in sectoral caps, bringing more activities under the ‘automatic route’ and easing of conditionalities for FDI to improve the ease of doing business in India. Some of the changes are detailed below:

  • Single Brand Retail Trading

    Earlier, companies undertaking Single Brand Retail Trading (“SBRT”) were required to comply with the local sourcing norms of 30% of the value of goods purchased within five (5) years from the opening of its first store. The  aforesaid local sourcing norms have been waived for a period of three (3) years for entities undertaking SBRT of products having ‘state-of-art’ and ‘cutting edge’ technology. Such waiver can subsequently be further extended by another five (5) years.

  • Asset Reconstruction Companies

    FDI in Asset Reconstruction Companies ("ARCs") under the 'automatic route' has been increased from 49% to 100% subject to the following conditions:

    • Investment limit of a Sponsor and institutional / non-institutional investors in an ARC is subject to the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”);
    • The total shareholding of an individual Foreign Institutional Investor (“FII”) / Foreign Portfolio Investor (”FPI”) in an ARC is restricted to 10% of its total paid-up capital; and
    • FIIs / FPIs can invest in the Security Receipts (“SRs”) issued by ARCs subject to RBI guidelines in this regard.
  • Civil Aviation

    The new norms have increased the FDI limit to 100% FDI under the ‘automatic route’ in Brownfield airport projects. Earlier, only up to 74% FDI was permitted in Brownfield projects under the ‘automatic route’.

    Further, at present, FDI up to 49% is allowed under the ‘automatic route’ for Scheduled Air Transport Service / Domestic Scheduled Passenger Airline and Regional Air Transport Service. This limit has now been enhanced to 100%, with FDI up to 49% under the ‘automatic route’ and FDI beyond such limit  through the ‘Government route’.

  • Pharmaceutical Sector

    The extant FDI policy provides for 100% FDI under ‘automatic route’ in Greenfield pharmaceutical projects and up to 100% under the ‘Government route’ in Brownfield projects. Now, the Government has permitted up to 74% FDI under the ‘automatic route’ in Brownfield pharmaceutical projects and proposals beyond 74% will be approved under the ‘Government route’.

  • Broadcasting Carriage Services

    Presently, FDI up to 49% under the ‘automatic route’ was allowed for direct-to-home, cable networks, mobile TV and Headend-in-the-Sky Broadcasting Services and FDI beyond 49% required prior Government approval. The new norms now permit 100% FDI under the ‘automatic route’ for the aforesaid sectors.

    It has been further provided that fresh foreign investment beyond 49% in any company engaged in any of the aforesaid activities which is not seeking licence or permission from the sectoral ministry will require prior approval of Foreign Investment and Promotion Board (“FIPB”) if there is a change in the ownership pattern or a transfer of stake from existing investors to new foreign investors.

  • Defence Sector

    Presently, FDI up to 49% is allowed in the Defence sector under the ‘automatic route’’. FDI beyond 49% and up to 100% is permitted through the ‘Government route’ provided the foreign investor(s) provide access to modern and 'state-of-the-art' technology. In this regard, the following changes have been introduced for this sector:

    • The condition of access to ‘state-of-art’ technology has been done away with. Now, FDI beyond 49% is permitted through the ‘Government route’, provided access to modern technology is made available in the country or for other reasons to be recorded.
    • FDI limit for defence sector has also been made applicable to manufacturing of ‘small arms and ammunitions’ covered under the Arms Act, 1959.
  • Food Processing

    The new norms now permit 100% FDI under the ‘Government route’ for trading, including through e-commerce, of food products manufactured or produced in India.

  • Establishment of Branch, Liaison or Project office

    For establishment of branch office, liaison office, project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, no security clearance or approval of Reserve Bank of India (“RBI”) will henceforth be required in cases where FIPB or any applicable Ministry has already given an approval in the past.