Change in FDI policy viz. Press Note 4 of 2019

Introduction

Global foreign direct investment (FDI) inflows have been facing headwinds since last few years. As per the UNCTAD's World Investment Report 2019, global FDI slipped by 13% in 2018, to US $1.3 trillion from US $1.5 trillion the previous year, a third consecutive annual decline. However, India continues to attract the foreign investment viz FDI. Hence, the department for the promotion of industry and internal trade ("DPIIT") has issued Press Note 4 of 2019 dated 18th September 2019 ("Press Note 4") notifying the changes to the foreign direct investment policy of the government approved by the Union Cabinet of the Government of India. The changes have come into effect from August 28, 2019.

The changes introduced by the Press Note 4 to the foreign direct investment policy circular 2017 ("FDI Policy") are as follows:

Comparison

S No. Sector Extant FDI Policy
(Prior to Press Note 4)		 FDI Policy after Press Note 4
1. Coal

100% FDI under the automatic route is currently permitted in entities that are engaged in the following activities:
(a) coal and lignite mining for captive consumption purposes( for power projects, iron & steel, cement units and other eligible activities); and

(b) for setting up coal processing plants like washeries, the company will not:
(i) conduct coal mining; and
(ii) sell washed coal or sized coal from its coal processing plants in the open market
further, the entity will supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing



(a) 100% FDI is allowed under the automatic route in entities that are engaged in sale of coal and in coal mining activities ; and

(b) 100% FDI is also permitted in activities such as washery, crushing, coal handling, and separation

the aforesaid changes will be subject to the provisions of Coal Mines (Special Provisions) Act, 2015, the Mines and Minerals (Development and Regulation) Act, 1957, and other relevant legislations governing such entities
2. Single Brand Retail Trading(“SBRT”)

The Government very recently permitted 100% FDI in SBRT subject to certain conditions:

(a) 30% of the value of goods has to be procured from India preferably from preferably from MSMEs, village and cottage industries, artisans and craftsmen i.e. their 'local sourcing requirement' (if the SBRT entity has FDI of more than 51%).;


 ((b) the applicable local sourcing requirement can be met as an average during the first 5 years, and, thereafter, annually towards the India operations;


(c) only such part of the global sourcing is counted towards the local sourcing requirement, which is over and above the previous year's value; and




(d) SBRT entities are required to operate through brick and mortar stores before starting retail trading of that brand through e-commerce


(a) All procurements made from India by the SBRT entity for the 'single brand' will be counted towards the local sourcing requirement, irrespective of whether the goods procured are sold in India or exported;


(b) the current cap of considering exports for 5 years is proposed has been removed;



(c) the entire sourcing from India for global operations will be considered towards the local sourcing requirement and not only the value through incremental sourcing ( incremental sourcing is the value of such sourcing in a financial year which is over and above that of the preceding financial year); and

(d) retail trading through online trade can now be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from the date of commencement of online retail
3. Digital Media

(a) 49% FDI under the approval route in Up-linking of 'News & Current Affairs' TV channels; and
(b) 26% FDI under the approval route is currently permitted in entities engaged in the 'print media' sector

26% FDI is permitted under the approval route in entities that are engaged in uploading / streaming of news & current affairs through digital media

 

Analysis of the proposed changes

Although the Government has proposed liberalized norms in various sectors through the Press Note 4, keen interest remains with the SBRT sector. The proposal to further ease local sourcing norms regarding FDI in SBRT was announced in Union Budget speech by Finance Minister. The idea is to provide greater flexibility and ease of operations for SBRT entities, besides creating a level playing field for companies with higher exports in a base year. Further, the permission for online sales prior to opening of brick and mortar stores may generate jobs in logistics, digital payments, customer care, training and product skill activities.

Furthermore, as per the Press Note 4 another sector, viz the contract manufacturing sector has been liberalized. The Press Release states that 100% FDI will be permitted in the aforesaid sector. This move has been seen as a boost to manufacturing objective of "Make in India" and the Government has also briefly provided the contours of contract manufacturing as being akin to manufacturing.

This update is by Rohitaashv Sinha, Advocate & Associate Partner at Agarwal Jetley & Co., Advocates & Solicitors . Contact: Email: rohitaashv.sinha@agarwaljetley.com or Mob: (+91) - 9999565393