Government Of India Announces Major Changes In Foreign Direct Investment (FDI) Policy

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The Government of India has notified changes in the Foreign Direct Investment (FDI) policy in sectors including pharmaceuticals, defence and single-brand retail. These decisions were announced on 24th June, 2016 by the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry to make India more investor friendly and an attractive FDI destination. FDI into the country grew by 29 per cent to $40 billion in 2015-16.

The changes notified are as under:

RBI approval is not required 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 defence, telecom, private security or information and broadcasting, where approval of the Foreign Investment and Promotion Board (FIPB) or license/permission by the concerned ministry/regulator has already been obtained.

100% FDI under Government approval route is allowed for trading, including through e-commerce, in respect of food products manufactured and/or produced in India. Application for FDI in food products retail trading will be processed in DIPP before being considered by the Government for approval.

In single-brand retail trading, the mandatory local sourcing norm for foreign firms "will not be applicable up to three years from commencement of the business i.e opening of the first store for entities undertaking single brand retail trading of products have "state of art" and "cutting edge" technology and where local souring is not possible". After completion of the exemption period, the foreign company in the next five years will have to meet the domestic sourcing norm at an annualised average rate of 30 per cent. Thereafter, they have to comply with the norm on an annual basis.

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The government has removed the condition of "state-of-art" technology, besides permitting foreign investment in manufacturing of small arms and ammunitions. It has now been provided that the Government may allow FDI in defence beyond 49% wherever it is likely to result in access to modern technology or for other reasons to be recorded.

The government has also permitted 100 per cent FDI through automatic route in broadcasting carriage services like teleports, direct-to-home, mobile TV, headend-in-the sky broadcasting service and cable networks, as against 49% till now.

100% FDI in existing airport projects is to be allowed without government permission, from 74% permitted till now.

100% FDI is now permitted in scheduled air transport service/ domestic scheduled passenger airline and regional air transport service. 49% FDI is permitted under automatic route (automatic upto 100% for non-resident Indians), and Government approval will be required for receipt of beyond 49%. 74% FDI is now permitted in private security agencies, 49% under automatic route, and Government approval will be required to be sought for receipt of FDI beyond 49% and upto 74%.

74% FDI have now been permitted, subject to prescribed condition, under automatic route in existing pharmaceutical ventures i.e. for brownfield investments. For receipt of FDI beyond 74% Government approval will be required.

For receipt of 100% FDI under automatic route in the animal husbandry (including breeding of dogs), pisciculture and aquaculture, the prescribed controlled conditions will not be applicable. In addition, the controlled conditions have been revised for receipt of 100% FDI under automatic route in floriculture, horticulture, apiculture and cultivation of vegetables & mushrooms, development and production of seeds and planting material and services related to agro and allied sectors. A manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including e-commerce without government approval.