On 10 January 2018, the Union Cabinet chaired by Prime Minister Modi approved a number of amendments to India’s FDI policy. While the amendments remove some red tape by making more FDI subject to the automatic approval route, they also remain true to the “Make in India” philosophy.
The key points of interest (for both retail and other industries) from the government’s announcement are:
- FDI in single brand retail is now permitted up to 100% under the automatic route. Previously, FDI above 49% required government approval.
- Where an overseas business establishes or invests in a single brand retail business, that business can satisfy its obligation to source 30% of its purchases from India for the first 5 years through additional purchases made by its group outside India. So long as the purchases are incremental to the group (ie they are not existing supplies), they will satisfy the requirement for India sourced purchases.
- In order to qualify, the trading does not need to be carried out by the owner of the brand - it may be carried out by a third party so long as the trading is only of one brand and not multiple brands.
- Businesses may issue equity shares for non-cash consideration without requiring government approval if the investment qualifies under the automatic FDI route.
- In light of Air India’s planned privatisation, foreign airlines are permitted to invest up to 49% under the government approval route.
- Real estate broking businesses are not real estate businesses and so are eligible for 100% FDI under the automatic route.
- However, in a more restrictive provision, the government has also provided that if a foreign investor requires its Indian investee company to be audited by a firm which is a member of an international accounting network, the Indian investee company will also need to be jointly audited by a firm which is not a member of that network.