India increases foreign investment limits for foreign investors

in Tax, 11.01.2016

On 10 November 2015, the Indian Department of Industrial Policy and Promotion (DIPP) introduced a number of amendments to the Foreign Direct Investment (FDI) Policy to encourage more investments. These changes especially impact the sectors of construction development, defense manufacturing and single-brand retail trading (SBRT).

The main changes proposed in the respective sector are the following:

Construction development sector

  • Abolition of the existing minimum floor area restriction and minimum capitalization requirements
  • Possibility of exit and repatriation of foreign investment before completion of the project (if certain conditions are met) under the automatic route
  • Possibility of transfer of stake (without repatriation of investment) from one non-resident to another without any lock-in period or government approval
  • Permission of 100% FDI under automatic route in completed projects for e.g. business centers, shopping complexes, etc.

Defense manufacturing

  • Permission of foreign investment up to 49% under automatic route
  • Proposals for foreign investment in excess of 49% to be considered by Foreign Investment Promotion Board

Single-brand retail trading

  • Relevance of the domestic sourcing requirement (30% of value of goods purchased) from the opening of first store (today: date of infusion of investment)
  • Relaxation of sourcing norms, in particular for high technology single-brand entities subject to government approval
  • Permission for Indian brands to undertake SBRT activities
  • Permission to undertake e-commerce activities for entities with permission to undertake SBRT
  • Permission of 100% FDI in Duty Free Shops under automatic route
  • Permission for one entity to carry out both wholesale and SBRT provided each business separately complies with conditions

Further to the mentioned changes in those three sectors, the DIPP announced the following reforms:

  • Several enhancements of FDI caps and a liberalization of the approval route, predominantly aimed at the media, broadcasting and aviation sectors
  • Permission of 100% FDI into the tea sector, as well as in other plantation sectors, such as coffee, rubber, cardamom, palm oil and olive oil (now under the automatic route)
  • Permission of foreign investment of up to 49% into regional air transport service under automatic route
  • Removal of several other impediments for exiting foreign investments

These reforms to the Indian FDI Policy will remove the key hurdles impeding inflow of capital in several sectors especially the ones mentioned above. By placing foreign investment under the automatic route instead of the government route, decision-making for foreign investors will be speeded up, making investment into India more attractive. The proposed amendments will certainly add to the investor and business friendly Indian ecosystem, but should be flanked by labor, land, tax and other reforms, which are in the pipeline.

 

 

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