FDI Alert | Liberalisation of FDI Policy


Corporate & Commercial

The Union Cabinet has liberalised the foreign direct investment (FDI) policy (press release available here).

Some of the key amendments are as follows:

  • Single-Brand Retail Trading

100% FDI in single-brand retail trading (“SBRT”) via the automatic route is now permitted.

Sourcing requirements have been liberalised as follows:

  1. after the SBRT entity opens its first store in India, it has the option to set-off its “incremental sourcing” of goods from India for global operations, against the mandatory requirement to source 30% of purchases from India. This option is available for the initial 5 years of the SBRT entity;
  2. incremental sourcing means the increase in value of global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking SBRT, either directly or through their group companies; and
  3. after completion of this 5 year period, the Indian operations of the SBRT entity shall be required to meet the 30% sourcing norms on an annual basis.

Further, non-resident entities may carry out SBRT, either by themselves or through an Indian entity.

  • Civil Aviation

Foreign airlines have now been permitted to invest up to 49% in Air India through the approval route, to permit divestment, subject to substantial ownership and control vesting in an Indian national.

  • Real Estate Broking Services

100% FDI under the automatic route has now been permitted in ‘real estate broking services’.

  • Power Exchanges

Foreign Institutional Investors/ Foreign Portfolio Investors have now been permitted to invest in ‘Power Exchanges’ through the primary market as well as the secondary market.

  • Pharmaceuticals

The definition of the term ‘medical devices’ is no longer subject to the definition under the Drugs and Cosmetics Act, 1940. The press release also mentions that the definition of the term “medical devices” would be amended, however, details of the proposed amendment have not been provided.

  • FDI in investment/ holding companies

Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian companies/ limited liability partnerships and in ‘Core Investing Companies’ has been liberalised as follows

  1. if the companies are regulated by any financial sector regulator, then foreign investment upto 100% under automatic route shall be allowed; and
  2. if they are not regulated by any financial sector regulator or where only part is regulated or where there is doubt regarding the regulatory oversight, foreign investment up to 100% will be allowed under the approval route, subject to conditions including minimum capitalization requirement, as may be decided by the Government.
  • Issue of shares for non-cash consideration

Issue of shares has now been permitted under the automatic route against non-cash consideration such as pre-incorporation expenses, import of machinery, etc. in sectors allowing FDI under the automatic route.

  • Competent Authority for examining FDI proposals from Countries of Concern

Investment from a  ‘Country of Concern’:

  1. in sectors via the automatic route, FDI applications would be processed by the Department of Industrial & Promotion (DIPP); and
  2. in sectors via the government approval route requiring security clearance will continue to be processed by the concerned Administrative Department/ Ministry.
  • Prohibition of restrictive conditions regarding audit firms

If a foreign investor wishes to specify a particular auditor/ audit firm having international network for an Indian investee company, then a joint audit should be carried out of the Indian investee company along with an auditor who is not part of the same network.

We await the press note in this regard.