With a view to further liberalised and simplify FDI Policy and attract more foreign investment in India and also in order to provide greater flexibility and ease of operations for foreign entities, the Union Cabinet of Government of India has approved proposal for review of Foreign Direct Investment on following sectors.
According to the current regulations 100% FDI is permitted under automatic route in manufacturing sector. However, there is no provision or clarity as regards 'contract manufacturing' in the policy.
- It has now been decided to allow 100% FDI under automatic route for contract manufacturing activities as well.
- It is further clarified that the manufacturing activity may be conducted by the Indian FDI Company or through contract manufacturing in India under a legally tenable contract, either or principal to principal or Principal to Agent basis.
This Is expected to give a huge fillip to Foreign companies to get the manufacturing activity done from Indian contract manufacturer. They need not set up their entire infrastructure of factory, plant & machinery etc., employing people etc. in India. They have option to use their patented processes, knowhow, secret formula etc and under a legally tenable agreement, get the entire manufacturing done from Indian manufacturer.
Single Brand Retail Trading (SBRT)
According to current regulations, when foreign company has more than 51% ownership into FDI Company, 30% of the value of the goods has to be procured from India. Further, this local sourcing requirement can be fulfilled by calculating average of first 5 years and thereafter annual.
- It has now been decided that all the procurement made from India by the SBRT entity for that single brand shall be counted towards local sourcing irrespective of the fact whether the goods procured are sold within India or are exported.
- It is further decided that 'sourcing of goods from India for global operations' can be done directly by the SBRT entity or its group company or by a third party under a legally tenable agreement with them.
- Moreover, as far as global sourcing towards local sourcing is concerned, as against only incremental increase in value, it is liberalised that entire value of sourcing from India for global operations shall be considered towards local sourcing requirements.
- Further, most generous modification is made towards e-commerce trading. While the current regulations require that before a foreign entity can undertake retail trading of that brand through e-commerce, it is required to operate through brick and mortar stores. It is now liberalised that retail trading through online trade can be started even before operating through brick and mortar stores subject to the condition that the entity provides an undertaking that it will open brick and mortar stores within 2 years from the start of online trading.
There has been substantial relaxation given on what will be considered as 'local sourcing of goods from India'. The change in policy towards e-commerce is also a huge flexibility to Foreign companies to start online trading activity and set up stores within 2 years.
Currently, 100% FDI under automatic route is allowed for coal and lignite mining for captive consumption by power plants, iron & steel and cement units. It is also permitted to set up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market. It shall supply washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
- It is now decided that 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure (API). API would include coal washery, crushing, coal handling and separation both magnetic and non-magnetic.
As per existing regulations, 49% FDI under approval route is permitted in Up-linking of "News & Current affairs" TV channels.
- It is now provided to permit 26% FDI under approval route for uploading/streaming of News & Current affairs through Digital Media, on the lines of print media.
Overall, it can be concluded that the Indian Government has continued to liberalised and simplified FDI Policy to provide 'ease of doing business in India'. Foreign companies can now take advantage of these relaxation in the above sectors and explore setting up a company in India in the renewed scenario to expand their business operations and growth.
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.