Government Eases FDI Norms: Relief for Single Brand Retailers, Coal Sector, Digital Media

Article posted by: office@indialawoffices.com

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Investment climate in India has significantly improved over the years. This has been attributed to ease in FDI norms across sectors of the economy. This is done to push India’s aim to establish itself as a lucrative investment destination. Despite the decline in global FDI trends, India seems to be on right track with the receipt of an all-time high FDI inflow of $64.4 billion in 2018-19. Therefore, even though the global FDI picture has been a little foggy, India continues to be preferred as an attractive destination to carry out FDI.

With intent to further liberalize the extant FDI policy, recently, the Union Cabinet relaxed the limits on investment in the entities engaged in the business of coal mining, and contract manufacturing, while relaxing the local sourcing requirements for single brand retail trading (SBRT). Following is brief of the changes introduced by the government:

Single Brand Retail Trading (SBRT):
To incite Foreign Direct Investment in retail in India, government eased operating norms for foreign-owned single-brand retailers, allowing for more lenient local sourcing and better market access through online sales. Following are some of the changes incorporated by the government:
  • All the products made from India by the SBRT establishment for that single brand will now be counted towards local sourcing, irrespective of whether the product procured are sold within India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports.
  • 'Sourcing of goods from India for global operations' can be done 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 tenable agreement.
  • Entire sourcing from India for global operations shall be considered towards local sourcing requirement and not just the incremental value.
  • The retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from the date of start of the retail online.
What does this mean?
This means that more & more International products and brands that were reluctant to enter the Indian market due to the need to have a compulsory partner will now be happy to come to India. Also with the relaxation of the 30% sourcing condition on all products to be sold in India to a position where their purchases would be set off against the 30%,will give a boost to the economy as well as exports. Further, it is believed to benefit global retailers like H&M (Swedish multinational clothing retail company), IKEA (global furniture giant) as well as Uniqlo (Japanese casual wear retailer) among multiple others. This will make a huge difference in terms of ushering investments in this sector.

Coal Mining:
Under the current FDI policy, 100% FDI under automatic route is granted for coal as well as lignite mining for confined utilization by power projects, cement units and iron & steel and other eligible activities granted under and according to applicable laws and regulations. Moreover, 100% FDI under automatic route is also permitted for setting up coal processing plants like washeries subject to the condition that the company shall not carry out coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply those to those who are supplying raw coal to coal processing plants for washing or sizing.

Now, the Centre has decided to allow 100% FDI under automatic route for sale of coal, coal mining activities like “associated processing infrastructure” which includes coal washery, coal handling, crushing and separation (magnetic/ non- magnetic) subject to provisions of Coal Mines (special provisions) Act and the Mines and Minerals (development and regulation) Act as amended from time to time.

Contract Manufacturing:
As per the current FDI policy, 100% FDI is provided under the automatic route in manufacturing sector. There is no specific provision for contract management. Now to provide clarity, it has been decided to grant 100% FDI under automatic route in contract management.

According to the conditions of the FDI policy, the foreign investment in manufacturing sector is under automatic route. Manufacturing activities can be conducted either through by the investee entity under a legal contract or contract manufacturing in India, whether on Principal to Agent or Principal to Principal basis.

Digital Media:
The current FDI policy provides for 49% FDI under approval route in up-linking of “News & Current Affairs” television channels. Now, it has been decided to allow 26% FDI under the government route for uploading/ streaming news and current affairs through Digital Media which will be similar to the print media.

Major Benefits from this FDI policy reform:
  1. The latest amendments will result in ensuring India to become an even more appealing FDI destination which will ensure increase in employment and growth and increased investments.
  2. By permitting 100% FDI in the coal sector, sale of coal will ensure international agencies to create a competitive and productive coal market.
  3. Moreover, manufacturing through contract will promote “Make in India”. This will ensure a good boost to the manufacturing sector in India.
  4. Now, by easing the sourcing norms in SBRT will lead to ease of operations as well as greater flexibility besides establishing a level play playing field to companies with higher exports in an index year.
  5. Apart from this, to boost the economy the retailers will now be permitted to sell their products online even before having to set-up physical stores provided that the global retail opens a brick and mortar store within 2 years from the date of start of the online retail.
In coming months it is anticipated for global economic slowdown, however, these timely measures will prove effective and would reinforce confidence in investors towards Indian government’s adherence to attract more FDI at same time improving ease of doing business in India. This will further lead to greater FDI inflows ensuring growth of income, investment as well as employment in the nation.

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