Indian Govt allows 100% FDI in Defence, Telecom

In significant move, the Government of India has allowed 100% foreign direct investment (FDI) in defence and telecom services sectors and also raised the FDI limits in 12 sectors. This has been the major economic reform in the country since the depreciation of rupees weighing high on the Indian economy. The government has allowed major foreign direct investments through automatic route.

Considering the recommendations of the Arvind Mayaram committee, the UPA government at centre has increased the FDI limit in 12 sectors. It is noteworthy that that, this time the crucial sectors were also taken into consideration for increasing the FDI cap.

The Commerce and Industry Minister Anand Sharma told media that the decisions were taken on Tuesday night in a meeting chaired by the Prime Minister of India with key ministers in New Delhi.

However, the opposition parties – BJP and Left have opposed the hike in the FDI in crucial sectors like defence and telecom, the move could lead to security threat to India. And some alleged that the Congress-led UPA government did not wait for monsoon session of Parliament to discuss.

The opposition parties might not allow the government to function in the Parliament during the monsoons session opposing its FDI policies.

FDI in telecom services sector was increased to 100% from existing cap of 74%. However, the minister cleared that the foreign direct investment into India could come through automatic route or only after it was approved by the Foreign Investment Promotion Board (FIPB).

The FIPB would approve the FDI in defence production under 26% and above the limit the Cabinet Committee on Security would approve, which is defined by the government as “state-of-the-art” technology.

The government has changed 49% FDI in petroleum, natural gas and refining sectors to automatic route from the FIPB route. Now the investment in commodity exchanges, power exchanges and stock, exchanges could be done through automatic route for 49% FDI in these sectors.

Read the rest of this entry

RBI guidelines on ‘Control of Indian Companies’ in FDI policy

On Thursday, Reserve Bank of India (RBI) released guidelines on total foreign investment in Indian companies, transfer of ownership or control of Indian companies. With the ongoing debate over control of Jet Airways after UAE’s Etihad bought stake, RBI’s new FDI guidelines will certainly solve the dispute.

The guidelines are regarding Indirect or Direct Foreign Investment (FDI), calculating the total foreign investment, transfer of ownership or control of Indian companies and also on downstream investment by Indian company. Here are a few from those -

Ownership or Control – An Indian company will be an Indian company if 50 or more percentage of capital benefits is owned by Indian residents or companies. And the Indian residents or companies should have the power to appoint majority of the company directors.

Non-resident entity/ies can have control over an Indian company, if more than 50% of the capital benefits are owned by non-resident entity/ies and they’ve the power to appoint majority of the directors.

As per the press notification - Indian companies with such investments between February 13, 2009 and the date of publication of FEMA notification, should intimate the same to RBI within 90 days of the publication of this circular. They should report it to the Regional RBI office under whose jurisdiction the Registered Office of the company is located.

Calculating total FDI would sum up all the non-resident investments made in Indian company. Total foreign investment will be the sum of total direct and indirect foreign investment made in a company.

For more details, you can read the press note released by RBI here

Read the rest of this entry

FDI Policy Clarifications on Multi-Brand Retail Trading in India

Yesterday Department of Industrial Policy and Promotion (DIPP) had answered many queries from stakeholders and investors regarding the FDI policy of Multi-Brand Retail Trading. After the FDI in retail has got the green signal, many single brand retailers are showing interest to invest in India. But the multi-brand retail trading is still deeming as most are still unknown to the rules.

To clear the confusion DIPP answered the queries and also published a document regarding this. We’ve compiled some of the major queries and their answers here –

Issue - 30% sourcing from Small and Medium Enterprises  

Question - Can the Foreign Investor purchase the 30% of the total procurement of manufactured or processed goods by the SME but distribute them either through the retail operation and/ or cash & carry operations and/ or export for the Foreign Investor’s International retail & trading operations?

Answer - No. The 30% sourcing will be reckoned only with reference to the front end store. As such a Multi-brand retailing entity cannot engage in any other form of distribution.

Issue - 50% investment in back-end infrastructure

Question - Can the new retail entity to be set up acquire supply chain/back-end assets or stake from an existing company having such assets and will such assets /stake values be counted towards the back-end investment requirement?

Answer - No. Entire investment in back-end infrastructure has to be an additionality. The entity can invest only in greenfield assets and it will not be possible to acquire supply/chain/backend assets or stakes from an existing entity

Question - Whether investment in back-end infrastructure for instance for storage, warehouses, agricultural produce infrastructure in non-FDI approved states will be counted towards investment in back-end infrastructure.

Answer - FDI in these activities is already allowed throughout the country. As far as MBRT is concerned FDI in non-FDI approved States in back-end infrastructure will be counted provided it is additionality.

Question - Will the new retail entity include back-end facilities that have the capacity to supply its own businesses and other businesses? It should be free to supply back-end services (e.g. logistic supply, goods) to related or third party companies, including but not limited to the company’s existing wholesale entity and the retail franchisee operated by its partners.

Answer - As per the conditions for wholesale cash & carry trading, such an entity is not permitted to undertake retailing of any form. Therefore, both the businesses have to be kept separate through different entities. As regards supplies by MBRT company to franchisees run by its partners, it is clarified that the policy envisages multi-brand trading in retail. The MBRT entity is not envisaged to undertake wholesale activity i.e. B2B. The front-end stores set up by MBRT entity will have to be ‘company owned and company operated’ only.

Question - Would a company operating in wholesale trading/ cash & carry trading be considered as a company providing back-end infrastructure in efficiently distributing the goods to the small retailers and professional/ business users?

Answer - No. The wholesale trading/ cash & carry trading cannot be considered to be providing back-end infrastructure. FDI in MBRT will require fresh investment in back-end infrastructure.

Investment in Front-end / back-end infrastructure

Question - If the same foreign investor is an investor in various companies for logistics, services etc., will the back-end investment made by such investor be aggregated?

Answer - No. Investments in multiple infrastructure companies would not be counted towards fulfillment of condition of investing 50% in the back end infrastructure.

Policy on E-commerce

Question - Allowing online sales will enable the Company to better serve Indian customers through enhanced convenience and assortment as well as improve the site customer experience. This will allow the company to make significant investments in Logistics.

Answer - Multi-brand retail trading by way of e-commerce is not permitted.

Investment in greenfield or brownfield front-end entities

Question - Can the minimum investment of US$ 100 Million be used to acquire existing retail stores or setting up new retail stores or a combination of both?

Answer - 50% of the investments brought in, must be invested in back-end infrastructure, and any amount spent in acquiring front end retail stores would not be counted towards back-end infrastructure. The front-end retail stores must also be set up as additionality and not through acquisition of existing stores.

As per the reports, there are some other issues which are still under consideration by DIPP and soon will be notified to the investors or stakeholders. For more information, download the full document from DIPP site here .

Image Courtesy - TheHinduBusinessOnline.com

Read the rest of this entry

Indian Govt. Clears 17 FDI Proposals

In a significant development in the Foreign Direct Investment Arena, the government of India has given green signal to 17 foreign direct investment (FDI) proposals worth Rs.262.52 crore considering the recommendations of the Foreign Investment Promotion Board (FIPB) on Tuesday.

The move will boost the market sentiments in India, which has been green this month. The stock markets were advanced due the rate cut by the Reserve Bank of India (RBI) and right market conditions in May.

However, the political issues might affect the trading but the with the UPA government continuing its economic reforms to bring back the economy from the clutches of the slowdown, are certainly to gain the confidence of the investors both domestic and foreign investors.

According to media reports, the investments have been pouring into India, in the first week of May as the FIIs have pumped around Rs.26000 crores in Indian equity markets. That shows that the foreign investors have faith on the stock market and ultimately the economy is on the back to track of good growth rate.

The growth rate of five percent is however low, but in the conditions of the slowdown; the rate could be justified since in 2008 recession Indian economy had sustained the growth rate, whereas other economies in the world have tumbled to recession.

The more and more inflow of fund will give boost the liquidity in the market as well as in the economy.

Read the rest of this entry

Government Considering to Rise FDI Cap

The Finance minister told that the government has been planning to rise the limit cap on the Foreign Direct Investment (FDI) in sectors including defense and insurance sector. 

A committee has already been set up by the government to review the FDI sectoral caps, Chidambaram, said "Let the report (of the FDI committee) come and I feel many caps deserve to be either relaxed or removed.

On raising FDI cap in the defense sector he said "I am sympathetic to it and the committee will have to decide if the cap needs to be reviewed, There were many caps imposed at different points in time. We have set up a committee to go into the nature of each cap and ask a question: Has the cap served a purpose? Does it continue to serve a purpose? If it does, let the cap continue. If it does not, then the cap should either be relaxed or removed" he added.

Read the rest of this entry