Sep 18, 2012

FDI Policy & RBI Updates

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FDI Policy & RBI Updates

Permitting FDI in multi-brand product retail trading
The Cabinet has on 14.09.2012 approved 51% FDI in multi brand retail trading subject to specified conditions:

  1. Retail sales outlets may be set up in those states who agree to allow them in their States.
  2. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act etc.
  3. Regarding the location; following points have to be kept in mind:
    1. The retail outlets shall only be allowed in cities with a population of more than 10 lakhs as per the 2011 Census.
    2. If a State or a Union territory is not having a city has a population of more than 10 lakhs as per the 2011 census, they can choose the city for opening such outlet. Such city may be largest city of such State/ Union Territory.
    3. The outlet may also cover an area of 10 kms around the municipal/urban agglomeration limits of such large cities
    4. The locations have to be restricted to conforming areas as per the Master /Zonal plans of the concerned cities
    5. Provisions will be made for facilities like transport connectivity and parking.
  4. At least 50% of the Total FDI brought in shall be invested in ‘backend infrastructure’ within 3 years of the induction of FDI.
    1. Backend infrastructure shall include investment towards:
      1. Processing
      2. Manufacturing
      3. Distribution
      4. Design Improvement
      5. Quality Control
      6. Packaging
      7. Logistics
      8. Storage
      9. Ware-house
      10. Agriculture market produce infrastructure
  5. It shall not include expenditure on:
    1. Land Cost
    2. Rentals
FDI In multi brand product retail trading has been allowed with a view to benefit farmers, small manufactures, small traders, young persons seeking employment, and consumers.

Amendment of conditions in the policy on Foreign Direct Investment in single-brand product retail trading
The Cabinet has on 14.09.2012 approved an amendment proposal of the Department of Industrial Policy & Promotion. The DIPP has proposed for amendment of the existing policy on Foreign Direct Investment in Single-Brand Product Retail Trading, which was approved by the Cabinet on 10.01.2012 to liberalise policy for FDI in single brand retail. Government had permitted FDI, up to 100%, in single brand product retail trading, subject to specified conditions, including, interalia, the conditions that:

  1. The foreign investor should be the owner of the brand
  2. In respect of proposals involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/ village and cottage industries artisans and craftsmen.
The CCEA has approved modification of the above mentioned conditions, for the activity of single brand product retail trading, as under:

  1. Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country, for the specific brand, through a legally tenable agreement, with the brand owner for undertaking single brand product retail trading in respect of the specific brand for which approval is being sought. The onus for ensuring compliance with this condition shall rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/ franchise/sub-licence agreement, specifically indicating compliance with the above condition.
  2. In respect of proposals involving FDI beyond 51%, sourcing of 30%, of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible.
Policy on Foreign Investment in Power Trading Exchanges
The Cabinet Committee on Economic Affairs has approved on 14.09.2012 the proposal of the Department of Industrial Policy & Promotion for permitting foreign investment up to 49 percent, in Power Trading Exchanges.

The CCEA has decided to permit foreign investment, up to 49 percent (FDI & FII) [FDI limit of 26 per cent and FII limit of 23 per cent of the paid-up capital], in Power Trading Exchanges, in compliance with SEBI Regulations; Central Electricity Regulatory Commission (Power Market) Regulations, 2010; and other applicable laws/ regulations; security and other conditionalities.

FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route.

This is subject to the conditions that FII purchases shall be restricted to secondary market only, and no non-resident investor/ entity, including persons acting in concert, will be holding more than 5 percent of the equity in these companies.

Review of the policy of Foreign Investment in Companies Operating in the Broadcasting Sector
The Cabinet Committee on Economic Affairs has approved on 14.09.2012 the proposal of the Department of Industrial Policy & Promotion for Review of the policy on Foreign Investment (FI) in companies operating in the Broadcasting Sector.

The CCEA, after review, has liberalized the policy on foreign investment, for companies operating in the broadcasting sector, as below:

  1. Teleports (setting up up-linking HUBs/Teleports): Direct to Home (DTH); Cable Networks (Multi-System-Operators operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability):

    Currently, foreign investment, up to 49 percent, is permitted in these activities. It has been decided to now increase the foreign investment limit from 49 percent to 74 percent, with the proviso that:

    1. Up to 49 percent be permitted under the automatic route and
    2. Beyond 49 percent and up to 74 percent be permitted under the Government route
  2. Mobile TV:
    There is no specific dispensation under FDI policy for mobile TV. It has now been decided to permit Foreign Investment (FI) up to 74 percent, with the proviso that:

    1. Up to 49 percent be permitted under the automatic route and
    2. Beyond 49 percent and up to 74 percent be permitted under the Government route
  3. Headend-in-the Sky Broadcasting Service:
    The existing limit of 74 percent foreign investment – automatic route up to 49 percent and Government route beyond 49 percent and up to 74 percent – would continue

    1. In respect of Cable Networks (Other Multi-System-Operators not undertaking up-gradation of networks towards digitalization and addressability and Local Cable Operators), the existing limit of 49% foreign investment, under the automatic route, would continue.
    2. Similarly, for up-linking of ‘News & Current Affairs’ TV channels / FM Radio, the existing limit of 26 percentforeign investment, under the Government route, would continue and for up-linking of Non-‘News & Current Affairs’ TV Channels / Down-linking of TV Channels, the existing policy of 100 percent foreign investment, through the Government route, would continue.
Foreign investment, in companies engaged in all the aforestated services, will be subject to sectoral and security conditionalities and guidelines, as may be specified from time to time, by the concerned Ministries.
The foreign investment limit in companies engaged in various activities of the I&B sector shall include, in addition to FDI, investment by Foreign Institutional Investors (FIIs), Non Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

Review of Policy on Foreign Direct Investment in Civil Aviation Sector
The Cabinet Committee on Economic Affairs has approved on 14.09.2012 the proposal of the Department of Industrial Policy and Promotion for permitting foreign airlines to make foreign investment, up to 49 percent in scheduled and non-scheduled air transport services.
The Government has permitted foreign airlines to invest, under the Government approval route, in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 percent of their paid up capital. The 49 percent limit will subsume FDI and FII investment. The investments so made, would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations / Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations. Such investment would further be subject to the conditions that:

  1. A Scheduled Operator’s Permit can be granted only to a company:
    1. That is registered and has its principal place of business within India,
    2. The Chairman and at least two-thirds of the Directors of which are citizens of India, and
    3. The substantial ownership and effective control of which is vested in Indian nationals.
  2. All foreign nationals likely to be associated with Indian Scheduled and Non-Scheduled air transport services, as a result of such investment, shall be cleared from security view point before deployment, and
  3. All technical equipment that might be imported into India, as a result of such investment, shall require clearance from the relevant authority in the Ministry of Civil Aviation.
Establishment of Liaison Office (LO) / Branch Office (BO) / Project Office (PO) in India by Foreign Entities – Clarification
As per extant FEMA guidelines, a person resident outside India requires prior approval of the Reserve Bank of India for establishing a Liaison Office (LO) / Branch Office (BO) in India.

General permission is, however available to a foreign company to open project office in India provided it has secured from an Indian company, a contract to execute a project in India, and subject to satisfying certain other criteria.

As per the provisions of A. P. (DIR Series) Circular No. 23 dated December 30, 2009, applications from Non – Government Organisations / Non – Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Government of India, Ministry of Finance

Reserve Bank of India has once again issued a clarification vide its A. P. (DIR Series) Circular No. 31 dated September 17, 2012 that permission to establish offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments, by whatever name called, are under the Government Route. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise.


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