FDI Policy 2016 – Step towards Make in India
Vivek Sadhale (Co-Founder, LegaLogic Consulting)
Vikas Agarwal (Co-Founder)
Consolidated FDI Policy Circular is a policy framework on Foreign Direct Investment in India.
The first Circular was issued in March, 2010, which has been updated periodically. DIPP releases consolidated FDI policy annually which is primarily intended towards
- consolidating press releases / press notes issued by the DIPP and amendments to RBI regulations during the period between 2 consolidated FDI policies; and
- providing clarifications to align the latest FDI policy with existing laws and regulations.
The Government of India has issued Consolidated FDI Policy Circular of 2016[1] (“FDI Policy Circular”) on June 7, 2016 which subsumes all press notes/clarifications/press release in relation to foreign direct investment (“FDI”) issued by Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India (“DIPP”), which were in force as on June 7, 2016 and reflects the FDI policy as on date. The FDI Policy Circular consolidates press notes issued by the DIPP upto June 6, 2016.
FDI Policy Circular will remain in force until superseded in totality or in part thereof.
KEY CHANGES AND CLARIFICATIONS BY FDI POLICY CIRCULAR
- National Pension System: A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.
- FDI Liberalisation: FDI is permitted from person resident outside India (other than an individual who is citizen of or any other entity which is registered / incorporated in Pakistan or Bangladesh) in an entity being ‘investment vehicle’ registered and regulated under the following regulations
- Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014,
- Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014,
- Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012
This amendment is in line with the RBI Notification[2] which had enabled/facilitated foreign investment in Real Estate Investment Trusts (REITs) registered under SEBI (REITs) Regulation, 2014, Infrastructure Investment Trust (InvITs) registered and regulated under SEBI (InvITs) Regulation 2014 and Alternative Investment Fund (AIF) registered under SEBI (AIF) Regulations, 2012.
- CCEA limit increased: Increase in the pecuniary limit for consideration of Cabinet Committee on Economic Affairs ('CCEA'). Erstwhile, proposals with total foreign equity inflow of more than INR 2000 crores are placed for consideration and approval of Cabinet Committee on Economic Affairs (CCEA). It has been decided to increase the said pecuniary limit of INR 2000 crores to INR 5,000 crores.
- Changes in Sectoral Caps
SN | Activity/Sector | FDI Policy 2015 | FDI Policy 2016 |
1 | Broadcasting Carriage Services | 74% | 100% |
2 | Broadcasting Content Services | 26% | 49% |
3 | Non-Scheduled Air Transport Service | 74% (100% for NRIs) | 100% |
4 | Other services under Civil Aviation sector - Ground Handling Services subject to sectoral regulations and security clearance | 74% (100% for NRIs) | 100% |
5 | Duty Free Shops | NA | 100% |
6 | Credit Information Companies (CIC) | 74% (FDI+FII/ FPI) | 100% |
7 | Pension Sector | NA | 49% |
- Approval in respect of additional foreign investment: FIPB approval will not be required in respect of the additional foreign investment beyond the approved investment limits subject to the condition that the approved foreign equity percentage is maintained.
- No approval for M&A: FIPB approval would not be required in case of mergers and acquisitions taking place in sectors under automatic route.
- Issue of Employees Stock Option Scheme (ESOPs) / Sweat Equity: An Indian company (including Listed and Unlisted) may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India. The FDI Policy Circular introduced the definitions of ESOP and sweat equity shares. The erstwhile requirement of face value of the shares being issued not exceeding 5% (Five per cent) of the paid up capital of the company was done away with.
- swap of shares:The requirement of obtaining government approval for investment in automatic route sectors by way of swap of shares is done away with.
- FDI in LLP: 100% (One hundred per cent) FDI in LLPs is permitted under the automatic route and LLPs are permitted to make downstream investments in other companies or LLPs, subject to such companies / LLPs (as the case may be) operating in sectors where 100% (One hundred per cent) FDI is allowed under the automatic route and there being no FDI linked performance conditions prescribed;
- FDI in the manufacturing sector: The FDI Policy Circular clarifies that FDI in the manufacturing sector is permitted under the automatic route. Further, manufacturers are now permitted to sell products through wholesale and/or retail, including through e-commerce, without any government approval;
Conclusion
The latest FDI Policy Circular has introduced some key changes as highlighted above and has clarified several critical issues. This is a welcome step towards achieving the desired objectives of Make in India and Ease of Doing Business in India.