India: Review Of FDI Policy For Certain Sectors

Last Updated: 12 September 2019
Article by AZB & Partners
Most Read Contributor in India, September 2019

On August 28, 2019, the Union Cabinet approved major proposals for relaxation of the extant Foreign Direct Investment Policy ("FDI Policy") in the following sectors:

1. Coal Mining

100% foreign direct investment ("FDI") under the automatic route is currently permitted in entities that are engaged in the following activities:

(a) coal and lignite mining for captive consumption purposes by power projects, iron & steel and cement units and other eligible activities permitted under and subject to the provisions of Coal Mines (Nationalization) Act, 1973;

(b) setting up coal processing plants like washeries, subject to the condition that the company will not conduct coal mining and will not sell washed coal or sized coal from its coal processing plants in the open market and will supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

100% FDI is now proposed to be allowed under the automatic route in entities that are engaged in sale of coal and in coal mining activities including 'associated processing infrastructure'[1] subject to the provisions of Coal Mines (Special Provisions) Act, 2015, the Mines and Minerals (Development and Regulation) Act, 1957, and other relevant legislations governing such entities.

2. Contract Manufacturing

100% FDI under automatic route is currently permitted in entities that are engaged in manufacturing activities.

Considering the lack of clarity on whether FDI is permitted in entities to which manufacturing activities are outsourced (i.e. entities engaged in contract manufacturing), the FDI Policy is proposing to allow 100% FDI under the automatic route in entities that are engaged in 'contract manufacturing'. Once the proposed change is notified, 100% FDI will be permitted in entities that are themselves engaged in manufacturing activities and/or to which manufacturing activities are outsourced by others.

3. Single Brand Retail Trading ("SBRT")

(a) The current FDI Policy provides that 30% of the value of goods has to be procured from India if the SBRT entity has FDI of more than 51%. Further, the applicable local sourcing requirement can be met as an average during the first 5 years, and, thereafter, annually towards the India operations.

It has now been decided that all procurements made from India by the SBRT entity for the 'single brand' will be counted towards the local sourcing requirement, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed.

(b) Under the current FDI Policy, as regards the local sourcing requirement, incremental sourcing for global operations by the non-resident entities undertaking SBRT, either directly or through their group companies, is also counted towards local sourcing requirement for the first 5 years.

It has now been decided that 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.

(c) Under the current FDI Policy, only such part of the global sourcing is counted towards the local sourcing requirement, which is over and above the previous year's value.

It has now been decided that the entire sourcing from India for global operations will be considered towards the local sourcing requirement (and not only the incremental value).

(d) Under the current FDI Policy, SBRT entities are required to operate through brick and mortar stores before starting retail trading of that brand through e-commerce.

It has now been decided that retail trading through online trade may also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from the date of commencement of online retail.

4. Digital Media

The current FDI Policy permits 49% FDI under the approval route in Up-linking of 'News & Current Affairs' TV Channels. Further, 26% FDI under the approval route is currently permitted in entities engaged in the 'print media' sector.

It has now been decided to permit 26% FDI under the approval route in entities that are engaged in uploading / streaming of news & current affairs through digital media.

[1] "Associated Processing Infrastructure" in this context would include coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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