With a view to boost growth in a slumping economy, norms for FDI in India were further eased in different sectors of the economy. In this article here we aim to highlight the changes in FDI policy and its impact on the Indian economy.
Coal and Lignite Mining
Indian companies engaged in coal and lignite mining is now permitted to seek 100% foreign direct investment through the automatic route for captive power consumption needs. Iron and steel, cement, and few other sectors are also eligible for 100% FDI in India. Coal processing companies are also included in the automatic route provided they do not engage in coal mining activities or sell finished product in the open market. They have to supply the finished product back to the company which provided the raw coal for processing. Also, 100% FDI under automatic route is permitted for companies engaged in sale of coal, for coal mining activities and associated processing infrastructure provided they fulfil the provisions of the various Acts governing them.
100% foreign direct investment was already in place under the automatic route for the manufacturing sector. However, there was no particular mention about contract manufacturing in the existing policy. In order to give more clarity, the new policy has decided to permit 100% FDI under the automatic route in contract manufacturing as well.
Manufacturing can be done the company who is the investor or it can be outsourced to another company in India on contract. The contract should be legally defensible either on a principal to principal basis or principal to agent basis.
Single Brand Retail Trade
Though 100% investment was permitted in single brand retail trade under the previous FFDI policy, it was not under the automatic route, that is, investment above 49% required government permission. In the new policy it has been proposed to allow 100% investment through the automatic route which doesn’t require government approval.
Also, the new policy has made the sourcing norms much lenient. The current policy requires SBRT companies with more than 51% stake to source 30% of the total value of goods locally. This requirement could be met as an average for the first 5years, thereafter it was to be calculated annually. It has now been decided that all procurement made from India shall be counted towards local sourcing norm. Whether the goods are sold in India or exported will not matter.
In order to cater to the prevalent business practices which involve sourcing of goods from India for global operations by an entity or its group companies (resident or non-resident) or indirectly by them through a 3rd party underneath a wrongfully well-founded agreement. This facility has been extended to SRBT as well.
Further, the earlier policy required single brand trading entities to open a brick and mortar store first before starting online operations. This policy was creating artificial restriction for the SRBT companies. This anomaly has been removed and SRBT entities are allowed to start online operations straight away. The only condition is that they have to open a physical store within 2 years of starting online operations.
The FDI policy on digital media is a bit confusing. As is the case with print media it has been decided to permit 26% FDI under government route for uploading/ streaming of News & Current Affairs through Digital Media. However, whether up-linking/down-linking norms that apply to non-news and current affairs TV channels will also be applicable for their uploading/ streaming through digital media is not too clear.
The government needs to issue a clarification on the applicability of FDI policy on digital media. The digital media is growing fast and need huge investment which can only come through foreign investment.
Impact of changes made in the FDI policy in India.
The changes made in FDI policy will certainly make a huge impact on the state of the Indian economy. It will build Asian country a additional engaging investment destination. Though globally FDI growth has been dismal, India has managed to maintain a steady flow. With the new changes coming into effect more and more companies will be able to bring in FDI in India. The will create a lot of employment opportunities. GDP growth which has been declining over the last few quarters will get back on the positive track.
Amy Jones is an expert legal advisor working at Ahlawat & Associates, top law firms in Delhi. She is one of the top lawyers in India who loves to help people in all aspects of the practice area.