The Union Cabinet on 28.08.2019, approved the proposal for Review of Foreign Direct Investment ("FDI") addressing the following aspects:
- Single Brand Retail Trading (SBRT): While 100% FDI is allowed under the automatic route under the existing policy for SBRT, it is riddled with various conditionalities. The Cabinet has now approved removing some of these:
- Online retail sales by a SBRT entity can commence prior to opening of brick and mortar stores, subject to the condition that the SBRT entity opens brick and mortar stores within 2 years from date of start of online retail. The policy expectation is that online retail would lead to creation of jobs in logistics, digital payments, customer care, training and product skilling.
- Local sourcing related conditionalities has been a significant bottleneck for SBRT entities. The amendments seek to remove the 5 year time limit for meeting this requirement, and clarify that all procurements made from India by the SBRT entity for that single brand to be counted towards the "local sourcing" requirement, irrespective of whether the goods procured are sold in India or exported. Further, the current
- Under the current policy, the incremental sourcing for global operations by the non-resident entities undertaking SBRT, either directly or through their group companies, can also be counted towards the "local sourcing requirement". The amendments enhance this flexibility by allowing the entire sourcing of goods from India for global operations undertaken directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally enforceable agreement, to be accounted towards "local sourcing".
- The dismantling of the strict conditionalities is expected to make it more attractive for SBRT entities to invest in India, and commence online retail sales.
- Coal Mining: Under the existing regime, 100% FDI under automatic is allowed only for coal and lignite mining for captive consumption by power plants, iron and steel, cement units etc. 100% FDI under the automatic route is also permitted for setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
The Cabinet has approved the proposal to permit 100% FDI under automatic route for sale of coal, for coal mining activities including "associated processing infrastructure". The term "associated processing infrastructure" has been defined to include coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).
The impact of the change essentially means that global mining companies can own coal mines, and carry out processing and sale, including exports. This is expected to make it more attractive for companies to bring in state-of-the-art technology into the sector.
- Contract Manufacturing: There are no restrictions on FDI under the automatic route for any manufacturing activity under the current legal framework. The Cabinet approval specifically for "100% FDI under automatic route in respect of Contract Manufacturing, is therefore not in the nature of removal of any existing restriction; rather it is simply a clarification which signals that FDI in "contract manufacturing" is welcome.
- Digital Media: The existing legal framework provided for 26% FDI under government approval route is allowed for uploading/ streaming of "news and current affairs" through print media; and in respect of up-linking of 'news and current affairs' through television channels, 49% FDI under approval route was allowed. The Cabinet decision seeks to achieve parity between print and digital media and mandates the limit of 26% FDI under government approval route for digital media. This aspect of the Cabinet decision has resulted in some confusion and reports indicate that the silence in respect of online/ digital news platforms under the existing policy, may have resulted in higher FDI, which may need to be unraveled.1
At the heart of this controversy is the blurring of lines in accessing content in an increasingly digitized world, and whether or not laws be different as regards news content published in print form, broadcast through television channels or delivered through online means. These are larger issues which will need to be addressed.
The approvals of the Union Cabinet will now need to be legislated through appropriate changes in the FEMA Regulations, in order to be given legal effect.