The Union Cabinet approved certain amendments to the Foreign Direct Investment (“FDI”) policy, by way of a press release dated August 28, 2019 (“PR”). Thereafter the department for the promotion of Industry and Internal Trade (DPIIT) has issued Press Note No. 4 of 2019 dated 18th of September 2019 notifying the changes to the foreign direct investment policy. The changes are to come into effect retrospectively from 28th of August 2019.
Amendments have been proposed in the conditions governing FDI in the following sectors:
Single Brand Retail Trading (SBRT).
Under the earlier law Foreign Direct Investment of upto 100% was permitted however investment exceeding 49% had to go through government approval first. A policy change has been brought by the present amendments by way of which the Government has now approved 100% FDI into SBRT through automatic route.
Changes to the Sourcing norms: Under the earlier FDI policy on SBRT entities with more than 51% FDI must source more than 30% of their goods from India and sell such goods in India. This 30% requirement must be met as an average of first five years. Goods which were purchased in India, but exported were counted towards the abovementioned 30% requirement only for the first five years. Post the above mentioned five years the 30% requirement was required to be met annually. SBRT entities required to establish physical stores for the purpose of retail trading before commencing e- commerce activities.
After coming into effect of the present amendments, for the purpose of meeting 30% local sourcing requirements, all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing requirement, irrespective of whether the goods procured are sold in India or exported. Retail trading through e-commerce portals can also be undertaken prior to opening of physical stores, subject to the condition that the SBRT entity opens physical stores within 2 years from date of commencing online retail trading.
The policy further states that Sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of first store or start of online retail, whichever is earlier for entities undertaking single brand retain trading of products having ‘state of art’ and cutting edge technology and where local sourcing is not possible. This is subject to approval by the Committee under DPIIT approving the applicant’s claim of state of art technology where local sourcing is not possible.
Contract Manufacturing: The earlier law on FDI in contract manufacturing did not categorically prohibit FDI in contract manufacturing both on a principal to principal basis and on an agency basis. After amendments it has been clarified that 100% FDI is allowed in the contract manufacturing via the automatic route, thus bringing to an end certain ambiguities which were prevalent in the sector as regards the permissibility of whether contract manufacturing was a sufficient to constitute manufacturing. The note further states that the manufacturer (self manufacturing entity or contract manufacturing in India) permitted to sell its products manufactured in India through wholesale and/ or retain, including through e-commerce, without Government approval.
Coal Mining: As per the amended policy on Foreign Direct Investment 100% FDI has been approved in
Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under and subject to the provisions of the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulations) Act, 1957.
100% FDI through automatic route has also been approved for setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
For sale of coal, coal mines activities including associated processing infrastructure (including coal washery, crushing, coal handling, and separation (magnetic and non- magnetic)), subject to the provisions of Coal Mines (Specific Provisions) Act, 215 and the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time and other relevant Acts on the subject.
Media: Press Note 4 introduces a new entry of digital media and permits 26% FDI under the government approval route in entities that are engaged in uploading / streaming of news & current affairs through digital media. At present FDI policy approves of 49% FDI under Government route for up-linking of “News and Current Affairs” TV Channels. There are no specific provisions for uploading/ streaming of such content through digital media and hence such digital media were earlier freely receiving FDI. The amendment thus means that a number of digital platforms which provide news and current affairs content may need to re- structure their investment structured in order to comply with the revised FDI policy. This entry appears to be a little ambiguous as it is not clear whether uploading / streaming of non- news & current affairs through digital media would fall under the automatic route. Further the limit of 26% FDI for digital media is unclear.