Jurisdiction - India
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India – Government Approves Amendments To The Foreign Direct Investment Policy.
10 August, 2013

 

Pursuant to a review of the foreign direct investment (“FDI”) regime, the Government, on August 1, 2013, approved the proposals for relaxing the FDI caps and amending certain conditions in various sectors, summarized herein below. The decisions taken by the Government shall come into force only once they are officially notified by way of a formal Press Note being issued by the Ministry of Commerce and Industry. The formal Press Note shall also lay down the complete revised policy.

 

The Union Cabinet has approved the following amendments to the Consolidated FDI policy of 2013 (the “FDI Policy”):

 

Single-Brand product retail trading:

 

It has been decided to allow up to 49% FDI in the ‘Single-Brand Product Retail Trading’ sector under the Automatic Route. For proposals involving FDI beyond 49% and up to 100%, approval of the Government (i.e. the Foreign Investment Promotion Board or the “FIPB”) will continue to be required. The Government also approved the following proposed amendments:

 

  • The FDI Policy proposes to allow more than one non-resident entity to undertake single brand product retail trade in India with respect to the specific brand sought to be sold.
  • For cases involving FDI up to 49% where no Government approval is required, certain filings will have to be made with the Reserve Bank of India, such as requisite evidence of compliance with the brand ownership norm and submission of the list of products/ product categories (except food products) proposed to be sold in India.

 

Multi-brand retail trading:

 

While the limit of 51% FDI under the Government Route has been unchanged, proposals to relax certain conditions in the FDI Policy for multi brand retail trade have been approved which include: 

 

  • Proposed revision states that at least 50% of the total FDI brought in the first tranche of USD 100 million must be invested in ‘backend infrastructure’ within three years. Further, any subsequent investment in backend infrastructure can be made by the foreign entity as needed, depending on the business requirements.
  • In relation to the mandatory sourcing requirements, it is proposed that the foreign retailers be allowed to source from ‘micro, small and medium industries’ having total investment in plant and machinery up to USD 2 million as well as from agricultural co-operatives and farmers co-operatives, as against the earlier requirement of sourcing from ‘small industry’ having total investment of USD 1 million. Moreover, the small industry status would be reckoned from the time it is first engaged by the retailer and would continue to qualify as small industry even if it outgrows its investment limit during the course of its engagement with the said retailer.
  • Another proposed policy change, also grants the State Government the discretion to allow retailers to set up stores even in cities having population lesser than the prescribed limits under the FDI Policy. 

 

Other sectors: The FDI caps are proposed to be liberalized in certain other sectors as mentioned below

 

 No / S Sector Existing provision under FDI 
policy
Proposed amendment to FDI 
policy
1 Telecom 74% 
– Upto 49% Automatic Route 
– 49% to 74% Government Route
100% 
– Upto 49% Automatic Route
– 49% to 100% Government 
Route
2 Petroleum refining by 
public sector undertakings 
(PSU) without any 
disinvestment or dilution 
of domestic equity in the 
existing (PSU)
49% Government Route 49% Automatic Route
3 Commodity Exchanges 49% Government Route 49% Automatic Route
(Subject to guidelines issued 
by Department of Consumer 
Affairs/ Forward Markets 
Commission)
4 Power exchanges 49% Government Route 49% Automatic Route
5 Stock exchanges, 
depositories and clearing 
corporations
49% Government Route 49% Automatic Route
6 Asset Reconstruction 
Company
74% Government Route 100%
– Up to 49% Automatic Route 
– 49% to 100% Government 
Route
7 Credit Information 
Company
49% Government Route 74% 
Automatic Route
  Courier Services 74%
– Up to 49% Automatic Route
– 49% to 74% Government Route
100% 
– Up to 49% Automatic Route 
– 49% to 100% Government 
Route
8 Defence 26% Government Route Up to 26%, no change i.e., 
through FIPB and CCEA if 
FDI exceeds Rs. 1200 crore. 
Above 26% to Cabinet 
Committee on Security on case 
to case basis, which ensure 
access to modern and ‘state-ofart’ technology in the country

 

Change in the definition of ‘control’:

The new definition of ‘control’ as has been approved by the Cabinet Committee on Economic Affairs (“CCEA”) extends its meaning and scope to align it with the definition of ‘control’ under the Substantial Acquisition of Shares and Takeovers Regulations, 2011 and in the proposed Companies Bill, 2012.

 

The revised definition reads as under:

 

“ ‘Control’ shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.”

 

This article was supplied by Clasis Law

 

 For further information, please contact:

 

Vineet Aneja, Partner, Clasis Law
 
Sakate Khaitan, Partner, Clasis Law
 

International Trade Law Firms in India 

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