APR 04, 2016

RECENT AMENDMENT IN FDI POLICY

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DIPP issued Press Note 1 and 2 (2016 Series) - liberalizing FDI norms in insurance and pension sector

On 23rd March, 2016, the Department of Industrial Policy and Promotion (DIPP), Government of India, issued Press Note 1 and 2 of 2016 Series, thereby liberalizing the extant FDI Policy on insurance and pension sector, respectively. The amendment in the said sectors is as following:

  • Amendment in Insurance Sector

Prior to the issuance of Press Note 1 (2016 Series), 26% FDI was permitted in the insurance sector under the automatic route and government approval was required for FDI beyond 26% and up to 49%. Now, up to 49% FDI is permitted under the automatic route, subject to prescribed conditions.

In addition, it has now been prescribed that the investment under the automatic route up to 49% shall be subject to verification by the Insurance Regulatory and Development Authority of India.

  • Amendment in Pension Sector

Prior to issuance of Press Note 2 (2016 Series), FDI in the pension sector was permitted vide Press Note 4 of 2015 Series, under which 26% FDI was permitted in the pension sector under the automatic route and government approval was required for FDI beyond 26% and up to 49%. Now, up to 49% FDI is permitted under the automatic route, subject to prescribed conditions.

In addition, the condition of investment being subject to the provisions of the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 is applicable on all kinds of foreign investment as against only FDI, prescribed earlier.

DIPP issued Press Note 3 (2016 Series) - allowing 100% FDI in B2C e-commerce marketplaces

With a view to attract more foreign direct investment (FDI) in India, the Department of Industrial Policy & Promotion (DIPP), Government of India has, subject to prescribed guidelines/conditions, allowed 100% FDI in B2C e-commerce marketplace model, vide its Press Note No. 3 (2016 Series); dated 29th March, 2016.

Marketplace model of e-commerce has been defined to mean providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

It has been clarified that digital and electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc. In addition, the terms ‘E-commerce’ and ‘E-commerce entity’ has been defined in the following manner:

  • E-commerce means buying and selling of goods and services including digital products over digital and electronic network
  • E-commerce entity means a company incorporated under the Companies Act, 1956 or Companies Act, 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of FEMA, 1999 owned or controlled by a person resident outside India and conducting the e-commerce business.

Furthermore, the Government has clearly specified that FDI is not permitted in inventory based model of e- commerce, which has been defined to mean an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly.

Earlier, DIPP vide Press Note 12; dated 24th November, 2015, allowed only those single brand retail trading entities to undertake retail trading through e-commerce, which operate through brick and mortar stores in India. However, through the said press note, the government has issued clear guidelines on FDI in retail e-commerce marketplaces, effective from 29th March 2016. Consequently, any FDI in e-commerce marketplace shall be subject to the following conditions:

  1. An e-commerce entity will not be permitted to sell more than 25% of the sales affected through its marketplace from one vendor or their group companies.
  2. Guidelines on cash and carry wholesale trade, as contained in the FDI Policy, shall apply mutatis mutandis to B2B e-commerce also.
  3. Contact details of the sellers are to be displayed online by the e-commerce entities.
  4. E-commerce entity providing a marketplace will not exercise ownership over the goods to be sold.
  5. An e-commerce marketplace entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
  6. Support services to the sellers, like warehousing, logistics, call center etc., may also be provided by the e-commerce entities.
  7. The warranty/guarantee of products or services sold online will be borne by the sellers, not the e-commerce entity. In addition, the seller alone shall be responsible for delivery of goods and satisfaction of customer.
  8. Payments for sale shall be facilitated by the e-commerce entity in conformity with the RBI guidelines.
  9. The price of goods or services shall not be, directly or indirectly, influenced by the e-commerce entities providing marketplace.

It has been clarified that sale of services through e-commerce will continue to be under the automatic route, subject to applicable laws.

While 100% FDI in B2B e-commerce was already permitted; this move is aimed towards attracting more foreign investment in the country. Also it comes as a relief to the global retail giants operating through e-commerce, like Amazon and Ebay.