The Department of Industrial Policy and Promotion (DIPP) has issued Press Note 1 of 2015 notifying the mapping of the sectoral policy of the Consolidated FDI Policy, 2014 (FDI Policy) with the National Industrial Classification 2008 (NIC 2008). Prior to issuing this notification, the DIPP had, in December 2014, issued a draft version of the mapping for comments from the public.

The DIPP had in June 2014 issued Press Note 4 of 2014 mandating the switch over from NIC 1987 to NIC 2008 for the purpose of classification of activities in order to provide a more contemporary industrial classification system and allow Indian businesses to undertake globally recognised and accepted classification.

Some Notable Observations

Real estate business, which previously was not defined, has now been mapped against the entry for real estate activities on a fee or contract basis, such as activities of real estate agents and brokers or intermediation in buying, selling and renting of real estate on a fee or contract basis. Interestingly, this classification does not mention the actual buying and selling of real estate.

With respect to the pharmaceutical sector the mapping provided is against specified manufacturing activities. Further, the class under the NIC 2008 notably excludes activities such as wholesale trading and research and development.  This gives rise to the question as to whether wholesale trading and R&D are excluded from the purview of the brownfield acquisition approval requirement and the restriction on non-compete clauses.

The NBFC sector has been mapped against the provision for other financial service activities, which does not include insurance and pension funding activities. The description of this class under the NIC 2008 mentions that it relates to financial services activities primarily concerned with distributing funds other than by way of making loans. This begs the question whether FDI in plain vanilla lending / financing activities would require prior FIPB approval.

Khaitan Comments

This effort demonstrates the Government’s intention to implement measures to provide more clarity for doing business in India. This exercise will, without doubt, bring colour to interpretation of the sectoral policy for FDI and serve as a useful tool for stakeholders.

If requirements for prior FIPB approval are indeed done away with in certain activities as appears from a plain reading, it is likely to result in significantly reduced timelines and costs to parties. This, in turn, may also incentivise more participation in these activities from foreign investors. Conversely, sectors that are brought under the fold of prior approval requirements due to this may see a change in investor attitude and foreign investment environment.