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Big Bang Foreign Direct Investment Reforms in India

Published: 12 Jan 2018

The Indian government announced, what it termed a “radical liberalization” of the Foreign Direct Investment (FDI) regime by easing norms for a host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership.

Key changes include the following:

Upto 100% FDI in defence sector.

Upto 74% FDI in brownfield pharmaceuticals under automatic route.

100% FDI in brownfield airport projects under automatic route.

100% FDI in civil aviation: FDI upto 49% in civil aviation under automatic route, beyond 49% through Govt. approval.

100% FDI under automatic route for cable networks, DTH and mobile tv.

100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

Defence Sector:

The present FDI regime permits 49 per cent FDI participation in the equity of a company under automatic route. FDI above 49 per cent is permitted through government approval on case to case basis, wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country. In this regard, the following changes have inter-alia been brought in the FDI policy on this sector:

Foreign investment beyond 49 per cent has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with.

FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

Pharmaceutical Sector:

The current FDI policy on pharmaceutical sector provides for 100 per cent FDI under automatic route in Greenfield Projects and FDI up to 100 per cent under government approval in Brownfield Projects.

With the objective of promoting the development of this sector, it has been decided to permit up to 74 per cent FDI under automatic route in brownfield pharmaceuticals and government approval route beyond 74 per cent will continue.

 Civil Aviation Sector

The extant FDI policy on Airports permits 100 per cent FDI under automatic route in Greenfield Projects and 74 per cent FDI in Brownfield Projects under automatic route. FDI beyond 74 per cent for Brownfield Projects is under government route.

With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 per cent FDI under automatic route in Brownfield Airport projects.

As per the present FDI policy, foreign investment up to 49 per cent is allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service.

It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent permitted under automatic route and FDI beyond 49 per cent through Government approval.

For NRIs, 100 per cent FDI will continue to be allowed under automatic route. However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49 per cent of their paid up capital and subject to the laid down conditions in the existing policy.

Broadcasting Carriage Services

FDI policy on broadcasting carriage services has also been amended by the government. New sectoral caps and entry routes are as follows:

Teleports (setting up of up-linking HUBs/Teleports); Direct to Home (DTH); Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalisation and addressability); Mobile TV; Headend-in-the Sky Broadcasting Service (HITS) have all been opened up to 100 per cent FDI.

For infusion of fresh foreign investment in cable betworks beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, FIPB approval will be needed.

Animal Husbandry:

FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture was allowed 100% under Automatic Route under controlled conditions.

It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

 Hope these changes usher in a new era for FDI in the sectors needing massive investments and bring about more employment generation, giving impetus to the Developing India story. 

Author is an international senior corporate lawyer and can be contacted at bhumesh.verma@corpcommlegal.com

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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