We have done a comparative analysis of Press Note 12 issued by DIPP regarding the change in FDI policy.

Heading Existing FDI Policy Alterations carried out by Press Note 12 Impact/ Remarks
Definition of "Manufacture" Definition of the phrase 'Manufacture' was not there in the existing FDI policy. New definition has been introduced as under ; "Manufacture" with its grammatical variations, means a change in a non- living physical object or article or thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. Definition of 'Manufacture' has been included and it is now clarified that a manufacturing entity is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce without any government approval.
FDI in LLP As per existing policy:
  • FDI in LLP was allowed only through the Government approval route i.e. prior approval of Government was necessary to make FDI in any LLP.
  • LLP's were not allowed to make downstream investment.
  • Conversion of Company with FDI into LLP required Government approval.
 As per altered position:
  • FDI in LLPs is now permitted in those sectors in which 100% FDI is allowed under the automatic route.
  • LLP is also allowed to make downstream investment in another company or LLP in automatic sectors.
  • FDI in LLP is subject to the compliance of the conditions of the LLP Act, 2008.
 FDI in LLPs is now permitted under automatic route which will encourage Foreign Co(s) to consider LLP as preferred entity for setting up business in India.

LLP having foreign Investment will be permitted to make downstream investments.
FDI in Dormant Companies FDI in Indian companies not having any operations. (Dormant Companies)

Required to take Government approval for accepting any FDI.		 Now such Dormant Co(s) are not required to take Government approval to initiate FDI for operating in automatic sector. Now, Dormant Co(s) can be considered for making investments in India to save time.
FDI by Swap of Share As per existing Policy FDI by way of swap of shares both in automatic and approval route requires Government approval. Now, it has been decided that no Government approval will be required for making investment in automatic route sectors by way of swap of shares. Foreign and Indian parties can now consider swap of shares as a tool of making investment in Indian Companies.
FDI by Co./Trust/ Partnership owned and controlled by NRI Clarification was not there in the existing policy requiring the FDI by Co/Trust/Partnership by NRI. Now it has been clarified that a company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians can invest in India with the special dispensation as available to Non-Residents under the FDI policy. This clarification allows NRI's to structure their investment in India through the entities owned and controlled by them.
Monitory limit for approval by Foreign Investment Promotion Board (FIPB) As per existing Policy FIPB can consider proposals having total foreign equity inflow up to Rs. 3000 Crores and proposals above Rs. 3000 Crores were placed before the Cabinet Committee on Economic Affairs (CCEA) for consideration. It has been specified that FIPB can now approve proposal up to Rs. 5000 crore, more that which CCEA will consider the FDI proposals. This will reduce the time gap to get approvals on FDI proposals.
FDI in Coffee / Rubber / Cardamom / Palm Oil Tree & Olive Oil Tree Plantations As per existing Policy only tea plantation was open for Foreign Investment. Now it has been decided that the Coffee/Rubber/Cardamom/Palm Oil & Olive Oil tree Plantations are now open for 100% foreign Investment under automatic route Earlier only FDI in tea sector was allowed and that too under Government route. Now Coffee/Rubber/Cardamom/Palm Oil & Olive Oil Plantations are also included under 100% automatic route.
FDI in Defence Sector As per existing policy:
  • FDI in Defence Sector was allowed up to 49 % under Govt. approval route.
  • Investment above 49% to be considered by Cabinet Committee on Security (CCS).
 Pursuant to PN 12, FDI in defence Sector has been raised to 49% under automatic route (i.e. no Government approval required to invite such investments) and FDI above 49% (on a case to case basis, wherever it is likely to result in access to modern and state of the art technology in the country) shall entail Government approval.

Earlier there were 20 conditions interalia dealing with appointment of key officers, ownership and control etc., However, there are only 4 conditions which are as under-
  • "Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking Industrial License, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval;
  • License applications will be considered and licenses given by DIPP, Ministry of commerce & Industry, in consultation with Ministry of Defence and Ministry of external affairs;
  • Foreign investment in the sector is subject to security clearance and guidelines of MOD; and
  • Investee Company should be structured to be self sufficient in areas of product design and development. The investee/ joint venture company along with manufacturing facility should also have maintenance and life cycle support facility of the product being manufactured in India."
 Even though DIPP has imbibed the proposed changes in the FDI policy, they still are required to provide further clarifications.

There is no lucidity with regards the applicability of these conditions.

Usage of phrases like "in a company not seeking Industrial License" and "change in the ownership pattern" requires explanation. The need for clarification emanates from the fact that FDI in defence sector in any case is subject to grant of IL because any company intending to operate in defence manufacturing requires an IL. Thus, there may not be a situation where a company does not intend seeking an IL to operate in this sector. Therefore, clarity is awaited from the DIPP for use of the aforementioned phrases.

Even if the expression "in a company not seeking Industrial License" is ignored, then the first condition appears to mean that FDI up to 49% in defence sector that result in change in ownership of a company, will need prior FIPB approval even though the government has put such investments under automatic route. Accordingly, that also does not appear to be the intent of the amendment.

Accordingly, it is expected that DIPP will be issuing further clarification in this regard.
FDI in DTH/Cable Networks The present existing FDI was allowed under maximum cap was of 74%.
Automatic route up to 49 % and beyond 49 % up to 74% Govt. route.		 Now, up to 49% - Automatic Route and beyond 49 % under Govt. route. Thus the proposals seeking up to 100% FDI can be carried by FIPB, which was earlier allowed only to the extent of 74%.
FDI in FM radio Max 26% was allowed under Govt. Route. Now upto 49 % Government route can be considered under Government Route. FDI limits have been increased.
Up-Linking of 'News & Current Affairs' TV Channels Max 26% was allowed under Govt. Route. Now upto 49 % Government route can be considered under Government Route. FDI limits have been increased.
Up-Linking of 'Non-News & Current Affairs' TV Channels/ Down-linking of TV Channels FDI up to 100 % was allowed under Govt. approval route. 100 % FDI is allowed under Automatic Route. No approval is required for making FDI in this section.
Air Transport Service FDI in regional Air Transport Service was not allowed earlier. Now, FDI in regional Air transport Service is up to 49% and 100% for NRI under automatic route is allowed. FDI in Regional Air transport Service is now also allowed.
FDI in Ground Handling Services Earlier 74% (100% for NRIs) was allowed under which Automatic up to 49% Govt. route beyond 49% and up to 74 % Now, 100 % FDI is allowed under Automatic Route. Foreign parties can now consider making FDI in this sector without any Govt. approval.
Establishment and operation Space Satellites FDI was allowed up to 74% under Government Route. Now FDI upto 100 % is allowed under Automatic Route. Increase in the limit of FDI
Credit Information Companies As per existing policy FDI in Credit Information Companies was allowed up to 74 % under automatic route. Now FDI upto 100 % is allowed under Automatic Route. Now no approval is required for 100% in FDI in CIC's
FDI in duty free shops FDI in duty free shops was not permitted as per existing policy. FDI in duty free shops in now permitted up to 100 % under Automatic Route. Foreign parties can now consider making investments in duty free shops.
Whole Sale Trading conditions As per existing policy a Wholesale/Cash & carry trader cannot open retail shops to sell to the consumer directly. Now a wholesale/ cash & carry trader can undertake Single Brand Retail Trading (SBRT) subject to the conditions related to FDI in SBRT sectors. A wholesale cash and carry trader can undertake FDI in SBRT section.
Conditions for SBRT As per existing policy for SBRT mandates that in case of FDI beyond 51%, sourcing of 30% of the value of goods purchased has to be done from India. Now this outsourcing requirement has to be reckoned from the opening of first store.

SBRT entities operating through brick and mortar services is now allowed to take retail through e-commerce.		 As against average of first five years now this condition has to be fulfilled for the opening of first store which appears to be more stringent.
Condition for FDI in Construction Development As per the existing policy the foreign investor was allowed to exit the company and repatriate the money only after completion of the project. A foreign investor will be permitted to exit and repatriate the foreign investment before the completion of the project provided that the lock-in-period of 3years with reference to each phase of project is now classified as project. Each phase of project is to be calculated separately which was not provided before the amendment. This will give flexibility to the foreign investor to exit the project.

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