The Department for Promotion of Industry and Internal Trade (DPIIT) (formerly known as “Department of Industrial Policy & Promotion (DIPP)”) is the nodal Department for formulation of the policy of the Government on Foreign Direct Investment (FDI). It is also responsible for maintenance and management of data on inward FDI into India, based upon the remittances reported by the Reserve Bank of India.

The FDI policy is reviewed on an ongoing basis, with a view to making it more investor-friendly. To attract higher levels of FDI, Government has put in place a liberal policy on FDI, under which FDI up to 100%, is permitted, under the automatic route, in most sectors/activities. Significant changes have been made in the FDI policy regime in recent times, to ensure that India remains an increasingly attractive investment destination. The Department plays an active role in the liberalization and rationalization of the FDI policy. Towards this end, it has been constructively engaged in extensive stakeholder consultations on various aspects of the FDI policy.

The Consolidated FDI Policy Circular of 2020 was released by the DPIIT on October 29, 2020 and was made effective from October 15, 2020.

The Consolidated FDI Policy is a compilation of various decisions and policy pronouncements taken by the government with regard to FDI in different sectors. It is a policy framework on FDI, which is transparent, predictable and comprehensible. This framework can be updated on annual basis, to capture and keep pace with the regulatory changes, effected in the interregnum.

The present consolidation subsumes and supersedes all Press Notes / Press Releases / Clarifications / Circulars issued by the DPIIT, which were in force as on October 15, 2020 and reflects the FDI Policy as on October 15, 2020.

Key changes in Consolidated FDI Policy

The changes in consolidated FDI Policy as listed below are compiled based on the comparison between previously existing Consolidated FDI Policy, 2017 and newly introduced Consolidated FDI Policy, 2020 which may include the amendments made by Press Notes / Press Releases / Clarifications / Circulars issued by the DPIIT in the middle duration of these two policies.

  • Eligible Investors – An entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
  • Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms and conditions specified in Schedule II of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
  • A Foreign Venture Capital Investor (FVCI) may make investments in the manner and subject to the terms and conditions specified in Schedule VII of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
  • Establishment of branch office, liaison office or project office or any other place of business in India shall be governed by the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. Further, acquisition or transfer of immovable property in India by citizens of certain countries shall be regulated as per the relevant provisions under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended from time to time.
  • Foreign Investment in Investing Companies registered as Non-Banking Financial Companies (NBFC) with the RBI, being overall regulated, would be under 100% automatic route.
  • Foreign Investment in Core Investment Companies (CICs) and other investing companies, engaged in the activity of investing in the capital of other Indian company(ies)/LLPs, is permitted under Government approval route.
  • In Defence Sector, FDI up to 74% under automatic route shall be permitted for companies seeking new industrial licenses. (Previously, it was allowed up to 49% under automatic route)
  • Infusion of fresh foreign investment up to 49%, in a company not seeking industrial license or which already has Government approval for FDI in Defence, shall require mandatory submission of a declaration with the Ministry of Defence in case change in equity /shareholding pattern or transfer of stake by existing investor to new foreign investor for FDI up to 49%, within 30 days of such change. Proposal for raising FDI beyond 49% from such companies will require Government approval.
  • Foreign Investments in the Defence Sector shall be subject to scrutiny on grounds of National Security and Government reserves the right to review any foreign investment in the Defence Sector that affects or may affect national security.
  • In Broadcasting Content Services Sector, FDI up to 26% under Government Route shall be permitted for companies which are under Uploading/Streaming of News & Current Affairs through Digital Media.
  • It is clarified that real-estate broking service does not amount to real estate business and 100% foreign investment is allowed in the activity under automatic route.
  • E-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.
  • E-commerce marketplace entity with FDI shall have to obtain and maintain a report of statutory auditor by 30th of September every year for the preceding financial year confirming compliance of the e-commerce guidelines.
  • In Single Brand Product Retail Trading, FDI up to 100% is allowed under Automatic Route. (Previously, it was allowed up to 49% under Automatic Route and beyond 49% under Government Route)
  • In Insurance Sector, FDI up to 100% is allowed under Automatic Route to Intermediaries or Insurance Intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, Surveyors and Loss Assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time. (Previously, FDI up to 49% was allowed under Automatic Route to Insurance Companies and Insurance Intermediaries whereas now 49% cap is only on Insurance companies)
  • The condition of Indian owned and controlled, shall not be applicable to Intermediaries and Insurance Intermediaries and composition of the Board of Directors and key management persons shall be as specified by the concerned regulators from time to time.
  • The foreign direct investment proposals shall be allowed under the automatic route subject to verification by the Authority and the foreign investment in intermediaries or insurance intermediaries shall be governed by the same terms as provided under rules 7 and 8 of the Indian Insurance Companies (Foreign Investment) Rules, 2015, as amended from time to time.
  • The insurance intermediary that has majority shareholding of foreign investors shall undertake the following:

(1) be incorporated as a limited company under the provisions of the Companies Act, 2013;

(2) at least one from among the Chairman of the Board of Directors or the Chief Executive Officer or Principal Officer or Managing Director of the insurance intermediary shall be a resident Indian citizen;

(3) shall take prior permission of the Authority for repatriating dividend; Consolidated FDI Policy 2020 Department for Promotion of Industry and Internal Trade 63

(4) shall bring in the latest technological, managerial and other skills;

(5) shall not make payments to the foreign group or promoter or subsidiary or interconnected or associate entities beyond what is necessary or permitted by the Authority;

(6) shall make disclosures in the formats to be specified by the Authority of all payments made to its group or promoter or subsidiary or interconnected or associate entities;

  • composition of the Board of Directors and key management persons shall be as specified by the concerned regulators;
  • The reporting structure of FDI was changed with effect from September 01, 2018. The Reserve Bank has introduced an online application, FIRMS (Foreign Investment Reporting and Management System), which provides for the SMF. With the implementation of SMF, the reporting of FDI, which was presently a two-step procedure viz., ARF and FC-GPR was merged into a single revised FC-GPR. With effect from September 01, 2018, five forms viz., FC-GPR, FC-TRS, LLPI, LLP-II and CN were being made available for filing in SMF. The other three forms viz., ESOP, DI, and DRR were made available for filing with effect from October 23, 2018. With effect from September 01, 2018, all new filings for the 5 forms and other three forms viz., ESOP, DRR and DI with effect from October 23, 2018 have to be done in SMF only.

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Disclaimer : It is intended to provide helpful information and legal guidance with respect to the subject matter, determining the changes in the consolidated FDI Policy. The entire contents have been prepared based on the relevant policies or circulars existing at the time of preparation of article. The information cited on this article has been verified to the best of the author’s abilities and every effort has been made to keep the information error-free. Suggestions or feedback to improve the contents of the article are welcomed. The contents and information contained in the article is merely for educational and informational purposes and does not constitute a professional advice or a legal opinion. The contents of the article have been prepared based on the personal views of the author and may vary according to one’s interpretation of law. The author assumes no responsibility for the consequences of the use of such information. In no event the author shall be liable to anyone for the damage resulting from, arising out of or in connection with the use of such content or information.

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