Department of Industrial Policy and Promotion ("DIPP"), by way of a Press Note ("Press Note"), listed the reforms to the existing Consolidated Foreign Direct Investment Policy, 2015 ("FDI Policy"). As per the information released by the DIPP, the World Bank has improved India's ranking by 12 places in the "2016 Study of Ease of Doing Business" and several global institutions have projected India as the leading destination for Foreign Direct Investment ("FDI") in the world. Further, it mentions that FDI has gone up by 40%. The reforms to the FDI Policy are intended to simplify and further liberalise the FDI Policy in order to attract more FDI in India. Briefly, the reforms include, amongst others, increase in sectoral caps, bringing more activities under the automatic route, opening up of new sectors for FDI, etc.
Set out below are the key developments provided in the Press Note.
1. Construction Development Sector
a) The condition on the investee company to bring minimum FDI of USD 5 million within 6 months of commencement of the project has been removed.
b) The foreign investors are permitted to exit and repatriate the foreign investment before the completion of project under the automatic route1 subject to a lock-in period of 3 years2. However, foreign investors may exit any time (even before the lock-in period) if the project or truck infrastructure is completed.
c) The transfer3 of stake from non-resident to another non-resident without repatriation of investment is not subject to lock-in period and does also not require approval from the government4.
d) The definition of "real estate business" clarifies that earning of rent/income on lease of the property not amounting to transfer will not amount to "real estate business".
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Footnotes
1 This government approval for repatriation before the completion of project was required under the FDI Policy.
2 Lock-in period will not apply to hotels and tourist resorts, hospitals, special economic zones, educational institutions, old age homes and investment by non-resident Indians.
3 "Transfer" in relation to the FDI Policy on the sector, includes: (a) the sale, exchange or relinquishment of the asset; or (b) the extinguishment of any rights therein; or (c) the compulsory acquisition thereof under any law; or (d) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or (e) any transaction, by acquiring shares in a company or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property.
4 This government approval was required under the FDI Policy.
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