Review of FDI Policy 2012

The Government of India in order to boost up the slowing economy has unleashed a series of reforms related to foreign direct investment policy. On one side a bold decision was taken as to opening up of FDI in Multi Brand Retail Chain and on other side a much needed respite has been provided to Aviation Industry by increasing FDI limits.
Though the reform process has been initiated, let’s see how far the Government goes to put the Indian economy back on track.

The necessary details relating to liberalization of FDI policy has been briefed out below:

• FDI up to 100 per cent permitted in Single–Brand Product Retail Trading

Uptil now FDI in single brand product retail trading was permitted upto 100% under Government Approval Route subject to the following conditions.

1. Products to be sold should be of a ‘Single Brand’ only.
2. Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.
3. ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.
4. The foreign investor should be the owner of the brand.
5. In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian ‘small industries/ village and cottage industries, artisans andcraftsmen’. 'Small industries' would be defined as industries which have a totalinvestment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

The above Foreign Direct Investment policy has since been reviewed and it has now been decided to permit FDI up to 100 per cent in Single–Brand Product Retail Trading by only One Non-Resident entity basis, whether owner of the brand or otherwise, under the Government route subject to the following terms and conditions as stipulated in Press Note No. 4 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India:

1. Products to be sold should be of a 'Single Brand' only.
2. Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.
3. 'Single Brand' product-retail trading would cover only products which are branded during manufacturing.
4. Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country, for the specific brand, through a legally tenable agreement, with the brand owner for undertaking single brand product retail trading in respect of the specific brand for which approval is being sought. The onus for ensuring compliance with this condition shall rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing! franchise/sub-licence agreement, specifically indicating compliance with the above condition.
5. In respect of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the goods purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of FDI for the purpose of carrying out single-brand product retail trading.
6. Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of single-brand retail trading.

• FDI up to 51 per cent permitted in Multi–Brand Product Retail Trading

Uptil now FDI in multi-brand product retail trading was not permitted. The Foreign Direct Investment policy has since been reviewed and it has now been decided to permit FDI upto 51 per cent in Multi-Brand Retail Trading under the Government route, subject to the following terms and conditions as stipulated in Press Note No. 5 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India:

1. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.
2. Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.
3. At least 50% of total FDI brought in shall be invested in 'backend infrastructure' within three years of the first tranche of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of back end infrastructure.
4. At least 30% of the value of procurement of manufactured! Processed products purchased shall be sourced from Indian 'small industries' which have a total investment in plant & machinery not exceeding US $ .1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the manufactured! processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.
5. Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv) above, which could be cross checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors.
6. Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.
7. Government will have the first right to procurement of agricultural products.
8. The above policy is an enabling policy only and the State Governments/Union Territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy. The list of States/Union Territories which have conveyed their agreement is annexed. Such agreement, in future, to permit establishment of retail outlets under this policy, would be conveyed to the Government of India through the Department of Industrial Policy & Promotion and additions would be made to the annexed list accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/ Union Territory laws/ regulations, such as the Shops and Establishments Act etc.
9. Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multibrand retail trading.

• Foreign airlines permitted FDI up to 49% in the capital of Indian companies in Civil Aviation Sector

Until now, foreign airlines were allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services, but not in the equity of an air transport undertaking operating scheduled and non-scheduled air transport services. The Foreign Direct Investment policy has since been reviewed and it has now been decided to permit Foreign airlines to invest up to 49% in the paid-up capital of Indian companies in Civil Aviation Sector, operating scheduled and non-scheduled air transport, under the automatic/Government route subject to the following terms and conditions as stipulated in Press Note No. 6 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India:

1. It would be made under the Government approval route.
2. The 49% limit will subsume FDI and FII investment
3. The investments so made would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations.
4. A Scheduled Operator's Permit can be granted only to a company:
1. that is registered and has its principal place of business within India;
2. the Chairman and at least two-thirds of the Directors of which are citizens of India; and
3. the substantial ownership and effective control of which is vested in Indian nationals.
5. All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and
6. All technical equipment that might be imported into India as a result of such investment shall require clearance from the relevant authority in the Ministry of Civil Aviation.

The policy mentioned above is not applicable to M/s Air India Limited.

• Liberalization of the policy on Foreign Investment in Companies Operating in the Information and Broadcasting (I and B) Sector

FDI limits in companies engaged in providing Broadcasting Carriage Services under the automatic/Government route have been reviewed and liberalized subject to the terms and conditions as stipulated in Press Note No. 7 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

Resvised foreign investment limits, in companies engaged in providing broadcasting carriage services is indicated below:

1. Teleports (setting up up-linking HUBsffeleports); Direct to Home (DTH); Cable Networks (Multi System Operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability):
1. Foreign investment up to 49% being permitted under the Automatic Route; and
2. Foreign investment beyond 49% and up to 74% being permitted under the Government Approval Route.
2. Mobile TV: FDI up to 74% has been permitted, subject to the condition(s):
1. Foreign investment up to 49% being permitted under the automatic route; and
2. Foreign investment beyond 49% and up to 74% being permitted under the Government Approval Route.

Other Conditions:

1. The FDI limit, in companies engaged in the aforestated activities of the I&B sector, shall include, in addition to FDI, investment by Foreign Institutional Investors (FIls), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.
2. The terms and conditions relating to security and other conditions, will separately be incorporated in the sectoral guidelines of each broadcasting carriage service.

• FDI up to 49% permitted in Power Exchange

As per extant policy, FDI up to 100%, under the automatic route, is permitted in the power sector (except atomic energy). This includes generation, transmission and distribution of electricity, as well as power trading, subject to the provisions of the Electricity Act, 2003.

The extant policy, however, does not provide any specific dispensation for foreign investment in the Power Exchanges.

The extant Foreign Direct Investment policy has since been reviewed and it has now been decided to permit up to 49% in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010, under the Government route, subject to the following terms and conditions as stipulated in Press Note No. 8 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

1. Such foreign investment would be subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital;
2. FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route;
3. FII purchases shall be restricted to secondary market only;
4. No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies; and
5. The foreign investment would be in compliance with SEBI Regulations; other applicable laws/ regulations; security and other conditionality.