Seems the continuing foreign tours taken up by the Prime Minister of our country is indeed resulting in tremendous international alliances for the country. One of the main focus areas of such international tie-ups and alliances is Foreign Direct Investment (FDI).

The amount of FDI inflows into the country, in recent times, has been remarkable and the same being clubbed with a mission like ‘Make In India’ seems to be a truly promising growth instigator for the country. Simultaneously, in order to facilitate, smoothen and provide flexibility to the FDI flow the Department of Industrial Policy and Promotion (DIPP) has been constantly working up to revamp the existing FDI policy of the country.

The recent Press Note 5 [1](Press Note) issued by DIPP amends the FDI Policy, 2016 (Policy, 2016)[2] opening huge investment opportunity and FDI inflow into sectors like Defence, Civil Aviation, Broadcasting, Air Transport services, Single Brand Retailing etc. and enabling foreign corporates to establish branch, liason, project or any other place of business in the country with ease.

Establishment of place of business: (New para 3.7.2)

The Press Note has inserted a new para enabling the applicants to establish branch, liason, or project office or any other place of business in the country if the principal business of such applicant is Defence, Telecom, Private security or Information or Broadcasting,without the approval of the Reserve Bank of India (RBI) in cases where Foreign Investment Promotion Board (FIPB) or license/permission by the concerned Ministry/Regulator has already been granted.

Agriculture & Animal Husbandry (Para 5.2.1):

The Press Note amends Para 5.2.1 in order to remove Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture business from the requirement of carrying the business under the ‘Controlled conditions’ as provided under the Policy, 2016 and subsequently Para 5.2.1.1 is amended inorder to give effect to the same.

Manufacturing (Para 5.2.5):

Previously, Para 5.2.5 provided for foreign investment in ‘manufacturing’ sector under automatic route and permitted the manufacturer to sell its products manufactured in India through wholesale and/or retail, including through e-commerce without Government approval. The Press Note has amended Para 5.2.5 in order to include 100% FDI under approval route for trading including e-commerce, in respect of food products manufactured and/or produced in India. Further, the applications for FDI in food products retail trading would be processed in DIPP before being considered by the government for approval.

Defence (Para 5.2.6):

The Defence sector sees a major change in the FDI permissibility. The Press Note has amended Para 5.2.6 enabling 100% FDI in the sector wherein upto 49% will be under automatic and beyond 49% will be under approval route. Additionally, 100% FDI under the same criteria has also been permitted in manufacturing of small arms and ammunition under the Arms Act, 1959.

Broadcasting carriage services (Para 5.2.7.1):

Now, 100% FDI under automatic route is permissible in the sector which was only 49% previously. However, infusion of fresh foreign investment beyond 49% in a company not seeking license/permission from sectoral ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to a new foreign investor, will require approval from government.

Civil aviation (Para 5.2.9):

The Press Note has amended Para 5.2.9.1 permitting 100% FDI under automatic route in both Greenfield and existing projects of Airports. Further, Para 5.2.9.2 was amended permitting 100% FDI which was previously 49% in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and Regional Air Transport Service under the condition that only investment upto 49% will be permitted under automatic route (100% automatic for NRIs).

Private Security Agencies (Para 5.2.13):

FDI upto 74% (upto 49% under automatic) in PSAs has been permitted which previously was only 49% under approval route.

Single Brand Retailing (SBR) (Para 5.2.15.3):

In case of FDI in SBR, the sourcing norms have been relaxed finally. The sourcing norms will not be applicable up to three years form commencement of the business I.e. opening of the first store of entities undertaking SBR trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible. Thereafter, the provisions of Para 5.2.15.3 (e) will be applicable.

Pharmaceuticals (Para 5.2.27):

100% FDI(upto 74% under automatic route) is permitted in ‘Brownfield’ which previously was under 100% approval route subject to the detailed conditions imposed vide Para 5.2.27.3.

The sequence of tremendous increase in the FDI inflows is expected to be gaining more pace with the government having a destined focus on making the country one of the best place for business across the globe.

[1] http://taxguru.in/rbi/review-fdi-policy-sectors.html

[2] http://taxguru.in/rbi/consolidated-fdi-policy-circular-2016-wef-june-07-2016.html

(Author Details- Article is Authored by  Vignesh Iyer of M/s Vinod Kothari & Company and can be reached at  vignesh@vinodkothari.com)

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