FDI Regime – Press Note 5 of 2016

The Government of India (“Government”) has reviewed the foreign direct investment norms, and sectoral caps prescribed in relation to various sectors under the Consolidated FDI Policy Circular, 2016 dated June 7, 2015 (“FDI Policy”), and subsequently notified the Press Note 5 of 2016 dated 24th June 2016 (“Press Note 5”).

Press Note 5 eases entry level barriers and FDI norms in a number of sectors such including strategic sectors such as defence, pharmaceuticals, and aviation.

Defence

FDI in the Defence is permitted: (a) upto 49% under automatic route; and (b) above 49% through government approval (wherever it is likely to result in access to modern technology in the country, or for other reasons to be recorded). This FDI sectoral cap has also been made applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959.

Pharma

In the pharmaceutical sector: (a) 100% FDI in Greenfield pharma vide the automatic route has been permitted; and (b) 74% is automatic and government approval is required beyond 74% in Brownfield pharma. Further, FDI up to 100% under the automatic route is permitted for manufacturing of medical devices.

Agriculture and Animal Husbandry

100% FDI is allowed under automatic route in: (a) Floriculture, Horticulture, and Cultivation of Vegetables and Mushrooms under controlled conditions (i.e., where the rainfall, temperature etc. is artificially controlled); (b) development and production of seeds and planting material; (c) Animal Husbandry, Pisciculture, Aquaculture, and Apiculture; and (d) services related to agro and allied sectors. FDI is not allowed in any other agricultural sector/activity.

Airports

In case of both existing and greenfield projects 100% FDI is permitted under automatic route. 

Air Transport

For Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and Regional Air Transport Services, up to 49% FDI is permitted under automatic route. Any FDI beyond 49% can be made subject to government approval. 

For Non Scheduled Air Transport 100% FDI will be allowed under automatic route.

However, there is no change in so far as investment that can be made by a foreign airline in case of Indian companies, operating scheduled and non-scheduled air transport services. Such foreign airlines (subject to other conditions as specified under the FDI Policy) are permitted to invest, up to the limit of 49% of their paid-up capital in the said Indian companies.

FDI upto 100% shall continue to be permitted in relation to ground handling services; and maintenance and repair organisations, flying training and technical institutions. 

Single Brand Retail

In case of single brand retailing 49% FDI is allowed through automatic route. Any FDI beyond 49% is allowed subject to government approval.

In case of investment beyond 51%, it is mandatory that 30% of the value of the goods will be sourced locally (i.e. from MSME’s, village and cottage industry, etc.). This local procurement requirement has to be met at the first instance as an average of five years’ total value of the goods purchased, and subsequently on an annual basis. However, an exemption for a period of three years (from the date of commencement of business) from this local sourcing requirement is granted to entities using ‘state of art’ and ‘cutting edge’ technologies.

Broadcasting

Teleports, Direct to Home (DTH), Cable Networks, Mobile TV and Headend-in-the Sky Broadcasting Service (HITS) have all been opened up to 100% FDI through the automatic route. 

For infusion of fresh foreign investment 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, approval from the Foreign Investment Promotion Board (“FIPB”) will be needed. 

Private Security 

FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% is permitted subject to government approval.

Branch office / Liaison Office 

Another significant change that has been introduced vide the Press Note 5 is that the establishment of branch office, liaison office or project office for certain industries has been made easier. It has been provided that in case of the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, and if an approval from FIPB or license/permission by the concerned Ministry/Regulator has already been granted then for the purposes of establishing a branch office, liaison office or project office or any other place of business in India no separate permission from the Reserve Bank of India or security clearance is required.

 

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