December 8, 2015
On November 24, 2015, the Government of India (“Government“) effected several important amendments to India’s consolidated foreign direct investment policy (“FDI Policy“). These amendments enable higher levels of foreign direct investment (“FDI“) in a number of business sectors and simplify various sector-specific conditions under the FDI Policy. Key amendments to the FDI Policy (“2015 Amendments“) are discussed below.
Under the FDI Policy, there are two routes for foreign strategic investors to invest in an Indian company:
Revised FDI Policy
The 2015 Amendments amend the FDI Policy in a number of business sectors. The previous and revised policies for certain key business sectors are set forth in the table below:
|Sector||Former Policy||||Revised Policy|||
|Government||Up to 49%||Automatic|
|Broadcasting Carriage Services||74%||Government||Up to 49%||Automatic|
|FM Radio Broadcasting||26%||Government||49%||Government|
|News TV Channels||26%||Government||49%||Government|
|Non-News TV Channels||100%||Government||100%||Automatic|
|Non-Scheduled Air Transport Services||Up to 49%||Automatic||100%||Automatic|
|||Above 49% and up to 74%||Government|||||
|Ground Handling Services||Up to 49%||Automatic||100%||Automatic|
|||Above 49% and up to 74%||Government|||||
|Duty free shops||–||–||100%||Automatic|
|Tea, coffee, rubber, cardamom, palm oil and olive oil plantations||100%||Government||100%||Automatic|
Government approval is no longer required for FDI through share swaps in business sectors where FDI is permitted through the automatic approval route. However, the valuation of shares is still required to be made by a merchant banker registered with the Securities and Exchange Board of India (“SEBI“) or an investment banker registered with the appropriate regulatory authority in the host country.
The 2015 Amendments provide that FDI in a company not engaged in any business activity and with no downstream investments (at the time that FDI is received by such company) is permitted under the automatic approval route if such company proposes to engage in activities that are otherwise permitted under the automatic approval route. Prior to the 2015 Amendments, FDI in any company without operations required prior approval of the Government.
Limited Liability Partnerships
Pursuant to the 2015 Amendments, FDI is now permitted in limited liability partnerships (“LLPs“) without Government approval in business sectors where 100% FDI is permitted under the automatic approval route. In addition, LLPs are permitted to make further downstream investments in any company or LLP in India engaged in a business sector where 100% FDI is permitted under the automatic approval route. While this has been done to bring LLPs on par with companies under the FDI Policy for the purpose of receiving FDI, LLPs continue to be subject to certain restrictions under the Limited Liability Partnership Act, 2008. For example, debt investment in LLPs continues to be prohibited.
Transfer of Ownership and Control of Indian Companies
Prior to the 2015 Amendments, it was unclear whether the transfer of ownership and/or control of an Indian company from a resident Indian to a non-resident required prior Government approval where the company is engaged in a business sector with an FDI limit. The 2015 Amendments have now clarified that prior Government approval will only be required where ownership and/or control is transferred from resident Indians to non-resident investors in an Indian company engaged in a business sector where FDI in such sector requires prior Government approval.
Single Brand Retail Trading
The Government has simplified and rationalised the conditions imposed on FDI in single brand retail trading (“SBRT”) where 100% FDI is already permitted. The key amendments concerning this sector are as follows:
The 2015 Amendments have clarified that Indian manufacturing entities with FDI are permitted to engage in wholesale and retail trading of products manufactured by them (including by way of e-commerce), without prior Government approval. The 2015 Amendments stipulate that for the purpose of this provision, the Indian manufacturer should:
The FDI Policy permits 100% FDI in the construction sector under the automatic approval route, subject to certain conditions. The 2015 Amendments have now amended the conditions imposed by the FDI Policy in the construction sector:
The FDI Policy now permits foreign institutional and portfolio investment in private banks up to a limit of 74% under the automatic approval route, subject to the approval of the board of the private bank followed by a special resolution approval of the private bank’s shareholders. However, the FDI should not result in a change in the control and management of the private bank and the aggregate holding of an individual investor cannot exceed 10%. Additionally, prior approval of the Reserve Bank of India (“RBI“) is required if any individual or company makes an investment of 5% or more in a private bank.
Investment Trusts and Funds
In a separate recent development, the RBI has permitted FDI in investment trusts including real estate investment trusts, infrastructure investment trusts and alternative investment funds. The establishment and operation of these trusts and funds are regulated by SEBI.
 Press Note 12 (2015 Series) dated November 24, 2015.
 The Foreign Investment Promotion Board (“FIPB“) is the Government agency responsible for evaluating and approving foreign direct investment proposals up to INR 50 Billion (approx. USD 830 Million) (earlier INR 30 Billion – approx. USD 500 Million). Foreign direct investment proposals above INR 50 Billion (approx. USD 830 Million) require the approval of the Cabinet Committee on Economic Affairs.
 The FDI Policy now requires that such proposals be considered by the FIPB instead of the Cabinet Committee on Security (as previously required). These proposals are considered on the criteria of securing access to new and state of the art technologies. Additionally, investment in the defence sector is subject to satisfaction of other conditions including security clearance.
 Companies operating in broadcasting sectors for which the FDI Policy specifies a foreign investment cap of 49% or lower must be owned and controlled by resident Indian citizens and/or by Indian companies that are owned and controlled by resident Indian citizens.
 Investment in the credit information sector is subject to obtaining regulatory clearance from the Reserve Bank of India.
 Notification No. FEMA. 355/2015-RB, Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eleventh Amendment) Regulations, 2015.
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