23 January 2018

FURTHER LIBERALISATION OF FDI NORMS

The Union Cabinet very recently approved certain key amendments to the extant Foreign Direct Investment (FDI) Policy to further liberalizing and simplifying the existing policy, with the objective of attracting greater foreign investment in India.

Following are some of the key amendments approved by the Cabinet:

• 100% FDI in Single Brand Retail Trading (SBRT) now allowed under the automatic route:
  
  The extant FDI policy allows 49% FDI under automatic route, and FDI beyond 49% through the approval route. It has now been decided to permit 100% FDI under automatic route for SBRT. Further the SBRT entity is now permitted to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1 April of the year, when its first store is opened, against the earlier mandatory sourcing requirement of 30% of purchases from India. After completion of this 5 year period, the SBRT entity is required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.
• Investments in Air India:
  
  FDI in Air India by foreign airlines is now allowed, under the Government approval route. However the total FDI in Air India, including that of foreign airlines shall not exceed 49%, either directly or indirectly.
• Investments in real estate brokerage services:
  
  The Government has clarified that that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under the automatic route.
• Issue of shares for non-cash consideration:
  
  As per the extant FDI policy, the issue of equity shares against non-cash considerations was only permitted under Government approval route. It has now been decided that issue of shares against non-cash considerations like pre-incorporation expenses shall be permitted under the automatic route in case of sectors falling under the automatic route.
• FDI in Indian Investment Companies:
  
  FDI in Indian companies, which is engaged solely in investing in the capital of other Indian companies/ LLP’s were allowed upto 100% with prior Government approval in the extant FDI Policy. As per the new amendments, if the above activities are regulated by any financial sector regulator, then FDI upto 100% under automatic route shall be allowed; and, 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 Government approval route, subject to conditions including minimum capitalization requirement, as may be decided by the Government.

MHCO COMMENT:

The amendments have significant liberalized the existing FDI regime and will go a long way in easing the norms of doing business in India. This should attract greater FDI in India and thereby shore up its foreign exchange reserves.

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