100% FDI in Single Brand Product
Retail trading
Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident outside India) (Amendment) Regulations, 2018
has introduced many changes such as simplification of foreign investment
reporting process, permissibility of 100% FDI in Single Brand Product Retail
Trading and Real estate broking services, and certain other amendments on
sectoral caps in the sector of civil aviation and pharmaceuticals brought in by
the Reserve Bank of India [RBI]
This can be construed as major changes brought
by the Regulators in the year 2018. In this article we’ll be discussing about
such changes;
I.
Master Direction – Foreign Investment in India issued on 4th January, 2018 and
updated up to 6th April, 2018 read with the *Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations,
2017 amended up to 24th September, 2018 [FEMA 20(R)]
Note:
* The FEMA 20(R) Regulations referred above
includes the amendments brought in by FEMA 20(R) (1) dated 26th March, 2018,
FEMA 20(R) (2) dated 1st June, 2018, FEMA 20(R) (3) dated 30th August, 2018.
The major highlights of the aforementioned Master
Direction and FEMA 20(R) on Foreign Investments include the
following:
1)
Real estate broking services which prior to amendment was included
in the definition of Real estate is post
amendment excluded from the definition of “real estate business” and as
a result now 100% foreign investment is
allowed in real estate broking services under automatic route.
2)
Foreign Investment in investing
companies not registered as Non-Banking Financial Companies with the Reserve
Bank and in core investment companies (CICs), both engaged in the activity of
investing in the capital of other Indian entities, will require prior
Government approval.
Prior
to insertion it read as “Foreign investment into an Indian company, engaged
only in the activity of investing in the capital of other Indian company/ies,
will require prior approval of the Government. A core investment company (CIC)
will have to additionally follow the Reserve Bank’s regulatory framework for
CICs
3)
The core investment companies should
additionally comply with the regulatory framework prescribed for such entities
as NBFCs under the Reserve Bank of India Act, 1934 and regulations framed
thereunder.
4)
Foreign investment in investing
companies registered as Non-Banking Financial Companies (NBFCs) with the
Reserve Bank, will be under 100% automatic route
5)
If person(s) who are resident
outside India, have made foreign investment; and they specify a particular
auditor/ audit firm in their international network for the audit of the Indian
investee company, then audit of such investee company should be carried out
as joint audit wherein one of the auditors is not part of the same
network.
6)
Govt approval is mandatorily required
if Indian investee company is engaged in a sector under Government route for
issue of capital instruments to a person resident outside India against:
·
Swap of capital instruments; or
·
Import of capital goods/ machinery/
equipment (excluding second-hand machinery); or
·
Pre-operative/ pre-incorporation
expenses (including payments of rent etc.).
7)
For FDI under civil aviation sector,
additional conditions are introduced for foreign investment in M/s Air India
Limited which are as under:
ü Investment regime as specified at 9.5(c) of
the FEMA 20(R) under Regulation 16 (B) on Sectoral Caps, are made applicable to M/s Air India Limited.
ü Foreign investment in M/s Air India Ltd.,
including that of foreign airline(s), shall not exceed 49% either directly or
indirectly.
ü Substantial ownership and effective control of
M/s Air India Ltd. shall continue to be vested in Indian Nationals.
Prior
amendment, sectoral cap was 49% for other than NRI’s and OCI’s for whom it was
100%, but now limit of 49% has been removed, moreover now, only 49% is under
automatic route and beyond 49% is covered under govt route (Automatic up to
100% for NRIs/ OCIs), earlier route was automatic only.
8) Proviso (ii) to sub regulation 1 and proviso
(ii) to sub-regulation 2 of regulation 10 of FEMA 20 (R), relating to breach of
limits / sectoral caps by Foreign Portfolio Investor [FPI] and by a
Non-Resident Indian [NRI] or an Overseas Citizen of India [OCI] respectively
have come into effect from 1st June, 2018:
9) FDI in Single Brand Product Retail Trading is
allowed up to 100% under automatic route with certain amendments on the
conditions and souring norms.(earlier this
was Automatic up to 49%; Government route beyond 49%)
10) A person resident outside India, whether owner
of the brand or otherwise, shall be permitted to undertake ‘single brand’
product retail trading in the country for the specific brand, either directly
by the brand owner or through a legally tenable agreement executed between the
Indian entity undertaking single brand retail trading and the brand owner.
The
onus for ensuring compliance with this condition which was imposed on Indian
Entity has been omitted
Moreover
the application that was required to be filled with DIPP for taking approval
for foreign investment exceeding 49 percent in a company which proposes to
undertake single brand retail trading in India has been omitted.
11) New clause has been inserted for Single brand
retail trading entity, where they are allowed to set off their
incremental sourcing of goods from India for global operations during initial 5
years, beginning 1st April of the year of the opening of first store,
12)
Clause where an Indian manufacturer who was
allowed to sell its own branded products in any manner i.e. wholesale, retail,
including through e-commerce platforms has been deleted.
13)
A Committee under the Chairmanship of Secretary,
DIPP, with representatives from NITI Aayog, concerned Administrative Ministry
and independent technical expert(s) has been formed to examine the claim of
applicants on the issue of the products being in the nature of ‘state-of-art’
and ‘cutting-edge’ technology where local sourcing is not possible and give
recommendations for such relaxation.
14) The definition of medical device for the
purpose of FDI in Pharmaceuticals sector has been amended;
15)
Condition of investment by FPIs under power
exchange that was restricted to secondary market only has been omitted
II.
A.P. (DIR Series) Circular No. 27 [(1)/20(R)] dated 3rd May, 2018 on Monitoring
of foreign investment limits in listed Indian companies:
RBI in consultation with SEBI, has introduced
a new system for monitoring foreign investment limits, for which the necessary
infrastructure and systems for operationalizing the monitoring mechanism, shall
be made available by the depositories;
This will enable listed Indian companies to
ensure compliance with the various foreign investment limits,
III.
Master Direction – Reporting under Foreign Exchange Management Act, 1999
updated as on November 20, 2018:
Keeping abeyance with the FEMA 20(R), the revised manner of receipt of funds, pricing
guidelines and reporting of the investments is as under.
i
All the reporting except specifically
stated otherwise, is required to be done through the Single Master Form
(SMF) available on the FIRMS platform at https://firms.rbi.org.in. In fact with effect from September 01, 2018
all new filings for the following shall be in SMF only
ii
Form ARF i.e. Advance remittance Form, which was used to report about
remittance received by the Indian Company has now been discontinued and
has been merged with Form FC-GPR
with effect from 1st September, 2018; With this we have following forms left
via SMF
v Form
FC GPR: For reporting by an Indian Company,
towards issue of capital instruments to a person resident outside India within
30 days from the date of allotment;
v FC-TRS: For reporting of transfer of capital
instruments of an Indian Company between a resident and a person resident
outside India [holding shares on repatriation basis];
v Form
FDI LLP-I: For reporting by a Limited Liability
Partnership (LLPs) receiving amount of consideration for capital contribution
and acquisition of profit shares;
v Form
FDI LLP-II: For reporting by a LLP towards
disinvestment/ transfer of capital contribution or profit share between a
resident and a non-resident (or vice versa);
v Form
CN: For reporting of issue of
Convertible Notes by Start -up Companies and reporting of transfer of
Convertible Notes of a start-up company by way of sale between a person
resident in India and a person resident outside India;
v Form
InVi: An
Investment vehicle which has issued its units to a person resident outside
India shall file Form InVi with the Reserve Bank within 30 days
from the date of issue of units
v ESOP: Reporting for an Indian company issuing
employees’ stock option (ESOP) to persons resident outside India who are its
employees/ directors or employees/ directors of its holding company/ joint
venture/ wholly owned overseas subsidiary/ subsidiaries shall file Form ESOP;
v Form
DI: For reporting by an Indian entity or
an investment vehicle making downstream investment in another Indian entity
which is considered as indirect foreign investment for the investee company in
terms of Regulation 14 of FEMA 20 (R) read with Para 9 of Master Direction on
Foreign Investment. This has to be filled within 30 days from the date
of allotment of capital instruments
v Form
DRR: For reporting by a domestic
custodian, the issue/ transfer of sponsored/ unsponsored depository receipts as
per DR Scheme 2014.
IV.
Press Note 2 of 2018: Review of policy on Foreign Direct Investment (FDI) in
e-commerce:
This amendment in FDI on e-commerce sector, will take effect from 1st February, 2019.
The additional conditions that are provided for
FDI in e-commerce sector are:
I.
The entity which has ‘equity
participation’ or ‘control on its inventory’ by the e-commerce market place
entity or its group companies, cannot sell its products on the platform run by
such market place entity;
II.
The level playing field norms have
been enhanced with the following insertions:
·
e-commerce marketplace entity or other
entities in which e-commerce market place entity has direct or indirect equity
participation or common control, should provide services to the vendors on the
platform at arm’s length and in a fair and non-discriminatory manner;
·
Cash back provided by the group
companies of market place entity to buyers shall be fair and non-
discriminatory;
·
Provision of services to any vendor on
such terms which are not made available to other vendors in similar
circumstances will be deemed unfair and discriminatory for the purpose of this
clause 5.2.15.2.4. (ix) ;
III.
E-commerce market place entity will be
required to furnish a certificate along with a report of statutory auditor to
Reserve Bank of India, confirming compliance of above guidelines, by 30th of
September every year for the preceding financial year.
SOURCE:
·
https://dipp.gov.in/sites/default/files/pn2_2018.pdf
