Amendments in FDI Policy

Government of India is under a process of making Indian laws and rules at their best and for the benefit of people; the government has in its tenure amended various act and has introduced many scheme and rules for the purpose of better corporate governance.

Our finance minister has recently issued a press release proposing some significant changes to FDI (i.e. Foreign Direct Investment) policy on 28^th August, 2019, for the growth of our economy as a whole; highlights of which are tabled below:

Government announces FDI Reforms in various sectors to boost Economy	GeM & SIDBI sign MoU to enable growth of MSMEs, Start-ups and Women Entrepreneurs
Government approves Rs 6,268 crore subsidy to promote sugar exports	Commerce Minister reviewed the status of Special Economic Zone (SEZ) of Maharashtra
Homemade agarbattis to create jobs: Government curbs import of incense sticks	Commerce Minister stresses importance of circular economy

 

1.    Initially under the existing policy for Single Brand Retail Trading, 100 % FDI was allowed under the automatic route, for which one person was required to comply with condition that 30% of the value of goods has to be procured from India, if SBRT entity has FDI of more than 51%. Now with new reforms the government proposed to remove few conditions stated below:

·         Single Brand Retail Trading entity is now allowed to commence its Online Retail Sales without opening its physical store. But the physical stores needs to be opened within 2 years from date of start of online trading. The government expects to create more jobs with online trading and has given a support wall to SBRT entities to undertake online sales prior to having a physical presence in India.

·         In order to boost up the exports it is now proposed that the goods sourced could be sold in India or be exported. This has further clarified the end use of the sourced goods that was missing in extant policy.

·         One of the major hurdles for Single Brand Retail Trading entity was Local Sourcing, wherein it has been proposed to remove the time limit of 5 years for meeting this requirement. Further it has been clarified that all procurements that will be made by Single Brand Retail Trading entities from India, shall be counted towards “Local Sourcing”

·         The amendment will introduce further flexibility by allowing the entire sourcing of goods from India for global operations that will be directly undertaken by the Single Brand Retail Trading entity or its group companies both resident and non-resident or even indirectly through third party under a legally enforceable agreement (which will be accounted towards local sourcing)

·         It has been further proposed that entire sourcing from India for global operations (and not just for the incremental value) will be counted towards local sourcing requirement. This move will eliminate discrimination which was faced by companies with lower exports as against companies with consistently high exports

·         Benefit is that Single Brand Retail Trading entities will invest more in India by reduction of such strict regulations.

 

2.    Digital Media: Under existing legal framework 26% FDI under approval route was allowed for uploading/ streaming of "news and current affairs" through print media like publishing of newspaper and periodicals dealing with news and current affairs;

In respect of up-linking of 'news and current affairs' through television channels, 49% FDI under approval route was allowed.

Now In order to achieve level under media and bringing at par both Print and Digital Media limit of 26% FDI under government approval route for digital media is proposed.

 

3.    Under the Coal Mining existing regime , 100% FDI was allowed under automatic route for only coal and lignite mining which was used for consumption by power plants, Iron and Steel and Cement units etc.,

100% FDI is also permitted for setting up coal processing plants subject to condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its plants in open market.

Further in the extant version, they are required to supply such coal to such parties who supply raw coal to coal processing plants for washing or sizing.

Now it has been proposed that, 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure, subject to applicable regulations. Associated processing infrastructure would include coal washery, crushing, coal handling and separate (magnetic and non-magnetic).

Impact and benefit: Global Mining companies can own coal mines, and carry out processing and sales including exports. This will make companies to bring in state of art technology in the sector.

 

4.    Contract Manufacturing: As there was no restriction under automatic route in the manufacturing sector and 100% FDI was allowed without government approval, but no specific provision was there for contract manufacturing.

Now it has been clarified that 100% FDI is allowed under automatic route for contract manufacturing. With this the idea of “Make in India” will be pushed to heights. Foreign Investors can invest and operated via entities engaged in the business of contract manufacturing.

 

Conclusion:

ü  The above proposed changes will allow to attract more foreign investment in India and will take up the economy to fast pace development.

ü  The idea of “Make in India” and Online trading will simultaneously improve the employment opportunities.

ü  The approval of Rs 6,268 crore subsidies to will promote sugar exports and increased the overall GDP of economy, and also the employment opportunities in this sector.

ü  Curbing import of incense stick and motivating homemade agarbattis will again boost up the job vacancy.