Unwinding the ambiguity for FDI in Digital Media Sector

To boost the flagging economy, the Government of India last year announced certain changes to the Foreign Direct Investment Policy (“FDI Policy”) under which investment norms were relaxed in certain sectors. Pursuant to the said announcement, Press Note no. 4 dated September 18, 2019, was released which detailed the amendments to the consolidated FDI Policy concerning coal mining, contract manufacturing and single-brand retail trading. However, one change in the press note which raised questions was the decision to introduce and allow 26% FDI in uploading and streaming of news and current affairs through digital media under the Government approval route.

The Enigma posed by the Press Note

The said amendment attracted ambiguities that (i) previous FDI Policy was silent on the aspect of digital media as it covered broadcasting and print media, so as far as digital media is concerned, the content can be hosted and uploaded on a website from any part of the world and accessed locally and consequently, many digital news platforms raised capital in access of the limit prescribed in the Press Note assuming that 100% FDI was permitted under the automatic route as the sector was not regulated; (ii) whether the FDI cap of 26% is applicable to aggregator led news platforms and intermediaries as the aggregator led news platforms and intermediaries do not create original content but act as a service, which either compiles news articles or structures them in summary form.

Clarification provided by DIPP

The Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry (“DIPP”) issued a clarification regarding the ambiguities posed through the Press Note, on October 16, 2020, for uploading/streaming of news and current affairs through digital media. The following clarifications are provided by the DIPP which includes that:

1. The decision of permitting 26% FDI through government approval route would apply to following categories of Indian entities, registered or located in India:

(a)   Digital media entity streaming/uploading news and current affairs on websites, apps (applications) or other platforms;

(b)   News Agency which gathers, writes and distributes/transmits news, directly or indirectly, to digital media entities and/or news aggregators and;

(c)   News aggregators, being an entity which, using software or web application, aggregates news content from various sources, such as news websites, blogs, podcasts, video blogs, user-submitted links, etc. in one location.

2. The entities mentioned above in point no. 1 would be required to align their FDI to 26% level with the approval of the Central Government, within a period of 1 (one) year from the date of issue of the clarification.
3. Further, the investee entity would also be required to comply with the new FDI Policy and the applicable notification under FEMA Notification dated December 5, 2019 (“FEMA Notification”) and the entity would adhere to the following conditions:

(a)   The majority of directors on the board of the company shall be Indian citizens;

(b)   The Chief Executive Officer shall be an Indian citizen and;

(c)   The entity shall be required to obtain a security clearance of all foreign personnel likely to be deployed for more than 60 days in a year by way of appointment, contract or consultancy or in any other capacity for the functioning of the entity prior to their deployment. Further, in the situation security clearance of any foreign personnel is being denied or withdrawn then the investee entity will ensure that the concerned person resigns and his/her services are terminated forthwith after receiving the directions from the Government.

Thus, based on the clarification as issued by DIPP and elaborated above, the Government has unwound the ambiguity as to what entities will be covered under digital media along with the compliances that the entities are required to undertake under the FEMA Notification and the FDI Policy and have placed such entities on par with the other media entities including domestic news aggregators and local entities associated with international media organizations.