Jurisdiction - India
Reports and Analysis
India – Foreign Investment & Trade September Review.

23 October, 2013


  • The Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India (‘DIPP’), by its Press Note No. 5 (2013 Series) dated August 22, 2013, has amended the conditions in the existing foreign direct investment (‘FDI’) policy with respect to FDI multi-brand retail trading as follows:

i. At least 50% of the total FDI brought in the first tranche of US$100 million must be invested in backend infrastructure within three years;

ii. At least 30% of the value of procurement of manufactured/processed products purchased, must be sourced from Indian micro, small and medium industries (i.e. those having a total investment in plant and machinery not exceeding US$2 million. Howv ever, an entity will continue to qualify as a small industry even if the above mentioned investment outgrows US$2 million, following the initial engagement with the entity;


iii. Retail sales outlets may be set up in cities with a population of more than one million or any other city, as per the decision of the respective State Government.


Further, DIPP, by its Press Note No. 6 (2013 Series) dated August 22, 2013 has amended the existing policy on FDI, by liberalising FDI caps/ approval requirements in the following sectors, as under:


Sector Cap Route
Tea Sector including tea plantations 100% Approval
Petroleum and Natural Gas 49% Automatic
Courier Services 100% Automatic
Telecom Services Up to 49%49% to 100% AutomaticApproval
Test Marketing 100% Automatic
Single Brand Product Retail Up to 49%49% to 100% AutomaticApproval
Asset Reconstruction Companies Up to 49%49% to 100% AutomaticApproval
Commodity Exchanges 49% Automatic
Credit Information Companies 74% Automatic
Infrastructure Company in the Securities Market 49% Automatic
Power Exchanges 49% Automatic
Defense Cabinet Committee on Security (‘CCS’) may approve proposals on case to case basis beyond 26% which are likely to result in access to state of the art technology in the country.


Further, certain specific conditions/restrictions have been imposed, as mentioned sector wise below:

i. Tea sector: The requirement of 26% compulsory divestment in favor of an Indian partner/ Indian public within a period of five years has been deleted.

ii. Defense: Applications for FDI above 26% will be considered in cases that are likely to result in the access to modern and state of the art technology. These will be examined by the Department of the Defense Production (‘DoDP’) in addition to the Foreign Investment Promotion Board (‘FIPB’). Based on the recommendations of FIPB and the DoDP, approval of CCS will be sought.

iii. Single Brand Retailing: A non resident entity or entities who are owners of the brand or otherwise is permitted to undertake single brand product retailing. This may be undertaken either directly or through an agreement with the brand owner.

iv. Credit Information Companies: A registered foreign institutional investor (‘FII’) under the Portfolio Investment Scheme (‘PIS’) will be permitted to invest upto 24% only in listed credit information companies within the overall limit of 74% of the permitted foreign investment.


  • The RBI has, by a circular dated August 14, 2013, reduced the limit applicable for overseas direct investments (‘ODI’) of an Indian party, under the automatic route. The existing ODI limit for all fresh transactions under the automatic route has been reduced from 400% of the net worth of an Indian party to 100% of its net worth, as on the date of the last audited balance sheet. The reduced limit will also apply to remittances made under the ODI scheme by Indian companies for setting up unincorporated entities outside India in the energy and natural resources sectors. This reduced limit is, however, not applicable to ODIs by Navaratna Public Sector Undertakings, ONGC Videsh Limited and Oil India Ltd. in overseas unincorporated entities and incorporated entities in the oil sector. RBI subsequently issued a clarification on September 4, 2013 clarifying that the new 100% limit will not apply to financial commitments funded out of exchange earners’ foreign currency account, or out of funds raised by way of American Depository Receipts and Global Depository Receipts by the Indian party. Also, the limit of 400% of the net worth of the Indian party has been retained for financial commitments funded by way of eligible external commercial borrowings. A carve out has also been provided for existing financial commitments exceeding the revised limit.


  • RBI has, by its circular dated August 14, 2013, reduced the limit of remittances that may be made by resident individuals under the liberalised remittance scheme (‘LRS’) from US$200,000 to US$75,000 per financial year. Further, the LRS is no longer permitted to be used for acquisition of immovable property outside India. Resident individuals are now allowed to set up joint ventures/wholly owned subsidiaries outside India under the ODI route within the revised LRS limit. RBI has, by a notification dated August 14, 2013, amended the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 to give effect to the revised LRS limit.


  • RBI has, by a circular dated August 19, 2013 increased the limit for FDI in asset reconstruction companies (‘ARCs’) from 49% to 74%, subject to the condition that no sponsor is permitted to hold more than 50% of the shareholding in an ARC, under the FDI or FII route. Since this 74% cap is applicable to foreign investment under both FDI and FII routes, the earlier prohibition on investment by FIIs in ARCs will no longer be applicable. Additionally, the total shareholding of a single FII is not permitted to exceed 10% of the total paid up capital of an ARC. Further, the limit of FII investment in security receipts has been enhanced from 49% to 74% of the paid up value of each tranche of scheme of security receipts issued by ARC, and the individual investment limit of 10% of a single FII in each tranche of security receipts issued by ARCs has been dispensed with.


  • RBI has, by its circular dated August 20, 2013, made amendments to Schedule 3 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, thereby liberalising the manner in which NRIs may invest under the PIS on a repatriation and/or non-repatriation basis in shares and convertible debentures, and/or may purchase and sell shares or convertible debentures under the PIS through an Authorised Dealer (‘AD’). Such investment by NRIs under the PIS is subject to prescribed conditions including inter alia:

i. An NRI intending to buy and sell shares/convertible debentures of an Indian company must apply in the prescribed form to the designated AD, while submitting all true relevant information;

ii. An NRI is not permitted to hold more than 5% of the paid up capital/ paid up value of each series of convertible debentures of any Indian company;

iii. The AD will have to open a separated sub account of NRE/NRO account for the exclusive purpose of routing the PIS transactions for such NRI, for which a classification must be made between permissible credits and debits in the account;

iv. The purchase of equity shares or series convertible debentures in an Indian company by NRIs must not exceed 5% of the paid up capital of the company, subject to an overall ceiling of 10% of the total paid up capital of the company;

v. Such purchased shares or convertible debentures will be held and registered in the name of the NRI and may be sold on Indian stock exchanges without any lock-in period; and

vi. Prescribed transfer restrictions as well as certain other reporting and monitoring requirements for the AD.





For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 

[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 

[email protected]


Aditya Bhat, AZB & Partners 
[email protected]


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