On November 10, 2015, the eve of Diwali - the festival of lights, the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion (“DIPP”) issued a Press Note to introduce Foreign Direct Investment (“FDI”) reforms and liberalisation in regards to 15 (fifteen) major sectors of the economy (“Press Note”). The Press Note looks to further rationalise and simplify the FDI Policy 2015 (“FDI Policy”) so as to provide ease of doing business in the country leading to larger FDI inflows contributing to growth of investment, incomes and employment. The salient features of the Press Note are summarised below:

  1. Construction development: Restrictions on minimum floor area of 20,000 (twenty thousand) square meters and minimum capitalisation requirement of US$ 5,000,000 (United States Dollars Five million) have been removed. Transfer of stakes from one Non- Resident (“NR”) to another will not be subject to a lock-in period or Government approval if there is no repatriation of funds. A transfer of NR investment prior to completion of the project would be under automatic route provided the lock-in period with respect to each tranche have been completed. 100% (hundred percent) FDI under automatic route is now permitted even in completed projects for operation and management of townships, malls/ shopping complexes and business centres. Consequent to an FDI, transfer of ownership and/or control of the investee company from an Indian resident to an NR will be permitted, subject to a lock in period of 3 (three) years. Clarity has been provided on definition of “Real Estate business” and “Transfer”;
  2. Defence: FDI up to 49% (forty-nine percent) will be permitted in the defence sector including portfolio investments and investments by Foreign Venture Capital Investor (“FVCI”). Investments in excess of 49% (forty-nine percent) will be under the approval route. Further, any change in ownership/transfer of stake from Indian resident to NR will require Government approval;
  3. Broadcasting: In terms of broadcasting carriage services, FDI limit of 74% (seventy- four percent) has been removed. Until 49% (forty-nine percent) FDI is under automatic route and beyond that is under approval route. While in case of broadcasting content services, FDI up to 49% (forty-nine percent) is allowed under approval route for terrestrial broadcasting like FM radio and up-linking of news and current affairs television channels;
  4. Coffee/Rubber/Cardamom/Palm Oil & Olive Oil Plantations: Apart from tea plantation, 100% (hundred percent) FDI in coffee, cardamom , palm oil tree and olive oil tree plantations, all which are under automatic route;
  5. Banking: Full fungibility of foreign investments in the private banking sector has been introduced. Foreign Institutional Investors (“FII”) / Foreign Portfolio Investors (“FPI”) / Qualified Foreign Investors (“QFI”) can invest up to 74% (seventy-four percent) in the private banking sector provided there is no change in control and management of the investee company;
  6. Manufacturers to undertake trading and e- commerce: No approval will be required for foreign manufacturers to sell their products through  wholesale  and/or  retail,  including through e-commerce;
  7. Single Brand Retailing (“SBRT”) and Duty Free Shops: Sourcing recruitment will now be reckoned from the opening of the first store in relation to SBRT rather than from the date of receipt of FDI. In certain cases, local sourcing norms may be relaxed subject to Government approval. Entities that have been granted permission to undertake SBRT can also undertake e-commerce activities. Conditions relating to FDI in SBRT in relation to international brands will not be made applicable to FDI in Indian brands. A single entity will now be permitted to undertake SBRT activities as well as wholesale/cash and carry trading activities, provided that both arms of business comply with relevant conditions under the FDI Policy separately. Duty free shops located in customs bonded areas can avail of 100% (hundred percent) FDI under automatic route;
  8. Air Transport Services: In addition to scheduled air transport services and domestic scheduled passenger services, FDI up to 49% (forty-nine percent) will now be permitted in regional air transport services under the automatic route. FDI in non-scheduled air transport, ground handling services, satellites-  establishment  and  operation  and  credit information companies has been increased to 100% (hundred percent) under the automatic route except  for FDI in satellites - establishment  and  operation, where Government approval will still be required;
  9. Simplification of conditions for certain sectors: Conditions relating to agriculture and animal husbandry, mining and mineral separation of titanium bearing minerals and ores have been simplified;
  10. Downstream investments: FDI in companies that do not have any operations or downstream investments, will not require Government approval, for undertaking activities which are under the automatic route and are not linked to FDI related performance conditions;
  11. Investment Vehicles: Foreign investments made by companies, trusts and partnership firms incorporated outside India, that are owned and controlled by Non-Resident Indians (“NRI”) will be treated at par with NRI investments;
  12. Investment in Limited Liability Partnerships (“LLPs”): LLPs can now have FDI up to 100% (hundred percent) under the automatic route, provided they operate in sectors/activities where there is no cap on FDI and there are no FDI linked performance conditions. Further, LLPs having foreign investment will be permitted to make downstream investments in other companies or LLPs in sectors in which 100% (hundred percent) FDI is permitted;
  13. Ownership and control of Indian companies: Government approval will only be required for establishment, transfer of control and/or ownership of an Indian company in sectors/activities which are under Government route compared to extant policy requirement of approval where FDI in sectors/activities was capped; and
  14. Swap of shares: No Government approval is required for investment in automatic route sectors by way of swap of shares.

The Press Note enhances the threshold limit for Foreign Investment Promotion Board (“FIPB”) approvals from the current `30,000,000,000 (Indian Rupees Thirty billion) to `50,000,000,000 (Indian Rupees Fifty billion). The Press Note has given an estimated time of a year for the reforms to be fully integrated into the economy.

According to Government data, India received FDI of US$ 19,390,000,000 (United States Dollars Nineteen billion three hundred and ninety million) in the April and June period this year which was above 29% (twenty-nine percent) over last year. The changes brought in will have far and wide reaching effects on the Indian economy and hopefully will usher in larger foreign investments into India.