Review of FDI Policy for Certain Sectors

The Ministry of Commerce and Industry (Department of Promotion of Industry and Internal Trade) has issued a press note on September 18, 2019 (Press Note 4 of 2019) amending the Foreign Direct Investment (‘FDI’) Policy (‘FDI Policy’) to reflect the changes approved by the Union Cabinet on August 28, 2019 in relation to FDI in coal mining, contract manufacturing, single brand retail trading and digital media. The changes will take effect once the Reserve Bank of India issues notifications to amend the Foreign Exchange Management (Transfer or Issue of Securities by a Person Resident Outside India) Regulations, 2017. A summary of the key changes is set out below:

i.       Coal Mining: 100% FDI has now been allowed under the automatic route in entities that are engaged in the sale of coal and in coal mining activities including ‘associated processing infrastructure’[1] 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.

ii.      Contract Manufacturing: 100% FDI under the automatic route has been permitted in contract manufacturing. Manufacturing activities may now be conducted by the investee entities themselves, or through contract manufacturing under a lawful contract, either on principal-to-principal or principal -to-agent basis.

iii.      Single Brand Retail Trading (‘SBRT’):

•        All procurements made from India by the SBRT entity for the ‘single brand’ will be counted towards the local sourcing requirement, whether the goods procured are sold in India or exported. Further, the current 5 years cap for exports has been removed.

•        ‘Sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly through a third party under a legally tenable agreement.

•        Entire sourcing from India for global operations will be considered towards the local sourcing requirement (and not only the incremental value).

•        Online retail trading may also be undertaken prior to opening of brick and mortar stores, provided that the entity opens brick and mortar stores within 2 years from the date of commencement of online retail.

iv.      Digital Media: 26% FDI has now been allowed under the approval route in entities that are engaged in uploading / streaming of news & current affairs through digital media.

[1] “Associated Processing Infrastructure” in this context would include coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).

Published In:Inter Alia - Quarterly Edition - September 2019 [ English
Date: September 30, 2019