Defence

Revisions to FDI Policy

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

The Department of Industrial Policy and Promotion (‘DIPP’) has, by way of Press Note No. 5 dated June 24, 2016 (‘Press Note 5’), introduced the following notable amendments to the FDI Policy:

i. 100% foreign direct investment (‘FDI’) is permitted under the approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India;

ii. In the defence sector, FDI beyond 49% is permitted through the approval route, where the investment results in Indian access to modern technology or for other reasons. The erstwhile condition for such FDI, requiring such investment to result in access to ‘state-of-art’ technology, has been dispensed with;

iii. Foreign investment in the civil aviation sector has been liberalised, whereby: (a) 100% FDI is permitted under the automatic route in brownfield and greenfield airport projects; and (b) FDI has been raised to 100% (with up to 49% under the automatic route and 100% through the automatic route for non-resident Indians (‘NRIs’)) for scheduled air transport services, domestic scheduled passenger airlines and regional air transport services. Foreign airlines continue to be allowed to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services up to 49%;

iv. FDI in brownfield pharmaceutical projects has been permitted up to 100%, with 74% under the automatic route. However, a non-compete clause is not permitted in transactions, except in certain special circumstances with the prior approval of the Foreign Investment Promotion Board;

v. Local sourcing norms have been relaxed for three years for entities engaged in single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology, and where local sourcing is not possible;

vi. FDI in private security agencies has been raised to 74%, with 49% permitted under automatic route. It is clarified that the terms ‘private security agencies’, ‘private security’, and ‘armoured car service’ will have the same meaning as ascribed to such terms under the Private Security Agencies (Regulation) Act, 2005. Accordingly, private security agencies would include any person (other than any governmental agency) providing private security services including training of private security guards and deployment of armoured cars;

vii. FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture was permitted up to 100% under the automatic route under controlled conditions. The requirement of ‘controlled conditions’ for FDI in these activities has now been removed; and

viii. 100% FDI in broadcasting carriage services, including teleports, direct to home, cable networks, mobile TV and headend-in-the-sky broadcasting services, has been permitted under the automatic route.

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Defence Procurement Procedure, 2016

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Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

The Ministry of Defence, GoI (‘MOD’), has with effect from April 1, 2016 notified the new Defence Procurement Procedure, 2016 (‘DPP 2016’) for capital acquisitions in the Indian defence sector, to, inter alia, evolve a policy framework to facilitate the ‘Make in India’ initiative in defence manufacturing. Key changes to the defence procurement procedure include replacement of ‘Buy (Indian)’ category with the newly introduced ‘Buy (Indian – IDDM)’ category as the most preferred category for capital acquisitions, which places highest importance on indigenous design, development and manufacture. ‘Make’ category programs have been classified into sub-categories of ‘Make-I (Government funded)’, where 90% of the project is funded by the MOD and ‘Make-II (Industry funded)’ where the entire project is funded by the vendor.

DPP 2016 defines ‘Indian Vendor’. Further, the threshold of cost of procurement proposals for applicability of offset obligations has been raised. The request for proposal (‘RFP’), may, on case to case basis, now allow foreign vendors to engage agents in India for marketing of equipment manufactured by the vendor, subject to disclosures and conditions prescribed in the DPP 2016. Depending on the procurement requirement, the RFP may provide for meeting certain enhanced performance parameters as prescribed in the DPP 2016. As per the draft RFP, vendors may be required to provide confirmation at the time of submitting the proposal, that, inter alia, there would be no review, revocation or suppression of the relevant export license. Execution of integrity pact has been made mandatory for all procurement schemes exceeding Rs 200 million (approximately US$ 2.98 million).

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