With amendments to its foreign direct investment policy, India seeks to attract foreign investment in the country.

On June 20, the government of India (GOI) issued a press release announcing major changes to its foreign direct investment policy (FDI Policy) aimed at simplifying doing business in India to make it more attractive for foreign direct investment. The amendments will come into effect upon notification of the same by the Department of Industrial Policy and Promotion (DIPP). The changes to the FDI Policy are summarised below:

SINGLE BRAND RETAIL TRADING

Under the existing FDI Policy, FDI beyond 49% in single brand retail trading is permitted through the “government approval route” (this route requires FDI to be subject to the prior approval of the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance, or DIPP, as applicable), subject to the fulfillment of certain domestic sourcing requirements. With the newly announced changes to the FDI Policy, the GOI has decided to relax the sourcing norms for a period of up to three years. For entities undertaking single brand retail trading of products having “state-of-art” and “cutting-edge” technology, the relaxation is for another period of five years.

DEFENCE

Under the existing FDI Policy, FDI beyond 49% in the defence sector is permitted through the government approval route on a case-by-case basis in projects that are likely to result in access to modern and “state-of-art” technology. This condition of access to “state-of-art” technology has been removed. With the new changes FDI beyond 49% will be permitted through the government approval route in cases resulting in access to modern technology or for other reasons to be recorded. Further, the FDI limit for the defence sector will apply to manufacturing of small arms and ammunition covered under the Arms Act, 1959.

PHARMACEUTICAL

Under the existing FDI Policy, 100% FDI is permitted in greenfield projects under the “automatic route” (this route does not require FDI to be subject to the prior approval of Indian governmental authorities) and 100% FDI is permitted in brownfield projects under the government approval route. The changes to the FDI Policy will permit FDI up to 74% in brownfield projects under the automatic route and beyond 74% under the government approval route.

CIVIL AVIATION

Under the existing FDI Policy, 100% FDI is permitted under the automatic route in greenfield projects in the airports sector. With respect to brownfield projects in this sector, 74% FDI is permitted under the automatic route and beyond 74% under the government approval route. The GOI has decided to permit 100% FDI under the automatic route in brownfield projects in the airport sector.

Under the existing FDI Policy, FDI is limited up to 49% under the automatic route in scheduled air transport service/domestic scheduled passenger airline and regional air transport service. The GOI has decided to allow 100% FDI in this sector with FDI up to 49% under the automatic route and beyond 49% under the government approval route.

PRIVATE SECURITY AGENCIES

Under the existing FDI Policy, 49% FDI in private security agencies is allowed under the government approval route. The GOI has decided to permit FDI up to 49% in this sector under the automatic route and FDI beyond 49% and up to 74% under the government approval route.

BRANCH OFFICE, LIAISON OFFICE OR PROJECT OFFICE

A foreign investor engaged in defence, telecom, private security, or information broadcasting and seeking to establish a branch office, liaison office, project office, or any other place of business in India will not be required to obtain the approval of the Reserve Bank of India or separate security clearance, provided approval of FIPB or license/permission by the respective ministry or regulator has been obtained by such foreign investor.

FOOD PRODUCTS

Under the government approval route, 100% FDI for trading of food products manufactured or produced in India (including through e-commerce) will be permitted.

ANIMAL HUSBANDRY

Under the existing FDI Policy, 100% FDI under the automatic route is permitted in animal husbandry, pisciculture, aquaculture, and apiculture subject to certain controlled conditions. The GOI has decided to remove the requirement of the controlled conditions in this sector.

BROADCASTING CARRIAGE SERVICES

Under the existing FDI Policy, 49% FDI is permitted in the broadcasting carriage sector under the automatic route and beyond 49% under the government approval route. The GOI has decided to permit 100% FDI in this sector under the automatic route subject to the condition that FIPB approval will be required in the case of a fresh infusion of FDI beyond 49% in a company not seeking license/permission from the relevant ministry and which results in a change in the ownership or transfer by an existing investor to a new foreign investor.