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Radical changes in FDI Policy Regime

The NDA government on Monday, 20 June 2016 announced, what it termed, a “radical liberalisation” of the Foreign Direct Investment (FDI) regime by easing norms for a host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership. The focus being employment and job creation in India and a push to the Make in India initiative.

This is the second major reform after the changes announced in November 2015. A summary of such changes is given as under:
I. Increase in sectoral caps and easing of conditionalities
Sr. No Sector/Business Activity Old Provision Revised Provision
1 Defence Sector Upto 49% - Automatic route

Above 49% - Approval route
(on case to case basis, wherever it is likely to result in access to modern and ‘state of the art’ technology in the country) The provision remains the same. However, the condition of access to ‘state of the art’ technology in the country has been done away with.

Further, the FDI limit for defence has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act, 1959.

2 Broadcasting Carriage Services consisting of:
a. Teleports
b. Direct to Home (DTH)
c. Cable Networks
d. Mobile TV
e. Headend in the Sky Broadcasting Service (HITS) Upto 49% - Automatic route

Beyond 49% - Approval route 100% - Automatic Route.
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 new foreign investor, will require FIPB approval
3 Pharmaceutical Greenfield projects -
100% Automatic Route

Brownfield projects - 100% Approval Route Greenfield projects -
100% Automatic Route

Brownfield projects
74% - Automatic route
Beyond 74% - Approval route
4 Civil Aviation

- Airports Greenfield projects -
100% Automatic Route

Brownfield projects
Upto 74% - Automatic Route
Beyond 74% - Approval route 100% Automatic Route for both greenfield and brownfield projects
5 Civil Aviation

- Scheduled Air Transport Service
- Domestic scheduled Passenger Airline
- Regional Air Transport Service 49% - Automatic Route (100% for NRIs)

Upto 49% - Automatic Route (100% for NRIs)
Beyond 49% - Approval Route
Foreign airlines allowed to invest upto 49% in capital of Indian companies operating scheduled and non-scheduled air-transport services
6 Private Security Agencies 49% - Approval Route Upto 49% - Automatic Route
Between 49% and 74% - Approval Route
7 Animal Husbandry 100% - Automatic Route subject to compliance of defined ‘controlled conditions’ Provision remains the same. However, the condition of meeting with the controlled conditions has been done away with.

II. Establishment of BO / LO / PO

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is (i) Defence, (ii) Telecom (iii) Private Security or (iv) Information and Broadcasting, it has been decided that approval of RBI or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.

III. Single Brand Retail Trading (SBRT)

In the case of Single Brand Retail Trading, foreign investment beyond 51% requires sourcing of 30% of the value of goods purchased, to be done from India, preferably from Medium, Small & Micro Enterprises, village and cottage industries, artisans and craftsmen, in all sectors. This procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning 1st April of the year of the commencement of the business i.e. opening of the first store. Thereafter, it would have to be met on an annual basis.

However, it has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology.

IV. Food products manufactured / produced in India

In respect of food products manufactured / produced in India, it has now been decided to permit 100% FDI under approval route for trading activity, including e-commerce.

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