To boost Foreign Direct Investment in India, the government has been constantly liberalizing various sectors. Recently certain other sectors, including the much sought after e-commerce was also opened to foreign investors.
The snapshot of the recent changes to the Foreign Direct Investment policy are as follows:
1. Foreign Direct Investment ine-commerce sector
Vide a Press Note released on March 29, 2016 by Department of Industrial Policy & Promotion, 100% FDI under automatic route is permitted in marketplace model of e-commerce subject to conditions. However, FDI is not permitted in inventory based model ofe-commerce.
DIPP has defined the following:
- E-commerce: E-commerce means buying and selling of goods and services including digital products over digital and electronic network.
- E-commerce entity: E-commerce entity means a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2(42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of FEMA, 1999, owned or controlled by a person resident outside India and conduction the e-commerce business.
- Inventory based model of e-commerce:Inventory based model of e-commerce means an e-commerce activity
where inventory of goods and services is owned by e-commerce entity and is sold tothe consumers directly.
- Market place based model of e-commerce:Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
2. Foreign Direct Investment in Insurance Sector
Vide a Press Note released on March 23, 2016 by Department of Industrial Policy & Promotion, the Government of India has liberalized the FDI Policy in Insurance Sector and it has been decided to enhance the limit of foreign investment in insurance sector from 26 to 49% under the automatic route subject to certain terms and conditions.
3. Foreign Direct Investment in Pension Sector
Vide a Press Note released on March 23, 2016 by Department of Industrial Policy & Promotion, the Government of India has liberalized the FDI Policy in Pension Sector and it has been decided to enhance the limit of foreign investment in pension sector from 26 to 49%under the automatic route.
Apart from the above, the government has also provided a list of proposed changes in this years Union budget, which they would try and implement during the year. The proposed changes are as follows:
- 100 per cent FDI to be allowed in ARCs under the automatic route. FPIs are allowed to invest up to 100 percent of each tranche in securities receipts issued by ARCs subject to sector al caps. Currently, FDI in ARCs is allowed under automatic route up to 49% and approval route beyond 49%.
- Investment limit for foreign entities on Indian stock exchanges to be enhanced from 5 to15 per cent on par with domestic institutions. 100 per cent FDI to be allowed through the FIPB route in marketing of food products produced and manufactured in
- India. Currently, FDI in market of food products produced and manufactured in India is not permitted.
- Hybrid Instruments will now be considered as eligible FDI Instruments, subject to certain conditions – List of hybrid instruments awaited.
- No FIPB permission will henceforth be required for foreign investment in regulated financial services activities outside of 18 specified NBFC activities.
- The SARFAESI Act, 2002 is to be amended to enable the Sponsor of an ARC to hold upto 100% stake (presently 50%) in the ARC; non-institutional investors to be allowed to invest in Securitization Receipts.
- Certain relaxation proposals for FPI investments: i) 100%investment now permitted (presently 74%) of each ranche in securities receipts issued by ARCs subject to sector al caps. ii) 49%stake now permitted (presently 24%) in listed Central Public Sector Enterprise sother than banks. iii) Investment permitted in unlisted debt securities and pass through securities issued by securitization SPVs.
- Foreign investors will now be accorded Residency Status against the current practice of granting business visa up to 5 years at a time, subject to prescribed conditions.
- Necessary amendments will be introduced in Companies Act facilitating registration of companies in one day and also addressing other challenges in doing business in India, including for start-ups.
- A comprehensive Code on Resolution of Financial Firms will be introduced in the Parliament to deal with bankruptcy situations in banks, insurance companies and financial sector entities.
- A Financial Data Management Center will be set up to facilitate integrated data aggregation and analysis in the financial sector.
- Measures will be introduced to rejuvenate corporate bond market – dedicated fund to provide credit enhancement to infrastructure projects, guidelines for large borrowers to access alternative source for financing needs.
- Center State Investment Agreement will be introduced to ensure fulfillment of the obligations of the State Governments under the Bilateral Investment Treaties signed by India with other countries.
- The RBI Act, 1934 is proposed to be amended to provide a statutory basis for a Monetary Policy framework and a Monetary Policy Committee to maintain price stability while keeping in mind the objective of growth.
- The RBI is to facilitate retail participation in government securities in the primary and secondary markets through stock exchanges and access to the NDSOM trading platform.
- New derivative products are to be developed by the Securities and Exchange Board of India (SEBI) in the commodity derivatives market.
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