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Foreign direct investment (“FDI”)- Policy changes

Foreign direct investment (“FDI”)- Policy changes. September 2012. Table of contents. Key changes. FDI in Civil Aviation sector allowed upto 49 percent FDI in Multi-brand product retail trading (“MBRT”) allowed upto 51 percent

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Foreign direct investment (“FDI”)- Policy changes

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  1. Foreign direct investment (“FDI”)- Policy changes September 2012 Preliminary & tentative – Not for circulation For discussions only

  2. Table of contents Preliminary & tentative – Not for circulation For discussions only

  3. Key changes • FDI in Civil Aviation sector allowed upto 49 percent • FDI in Multi-brand product retail trading (“MBRT”) allowed upto 51 percent • Amendment of conditions in the policy on FDI in Single-brand product retail trading (“SBRT”) • FDI in Broadcasting sector increased from 49 percent to 74 percent • FDI in Power Trading Exchanges allowed upto 49 percent Preliminary & tentative – Not for circulation For discussions only

  4. FDI in Civil Aviation • Background • Current FDI regulations allowed 49 percent FDI in aviation sector by entities other then foreign airlines • Foreign airlines were only allowed to make investments in non passenger air transport services i.e., cargo airlines, helicopter and seaplane services • Key policy change • The Cabinet Committee on Economic Affairs(“CCEA”) has approved FDI upto 49 percent by foreign airlines in scheduled and non-scheduled air transport services • 49 percent limit will be inclusive of FDI & Foreign Institutional Investors (“FII”) Investment • Regulatory and other requirements • Foreign Investment Promotion Board (“FIPB”) clearance mandatory • Compliance with Securities and Exchange Board of India (“SEBI”) Regulations namely ICDR Regulations, SAST Regulations and other applicable rules and regulations • Mandatory security clearance of all foreign nationals likely to be associated with the air transport services as a result of FDI • Clearance from Ministry of Civil Aviation for all imported technical equipments as a result of FDI Preliminary & tentative – Not for circulation For discussions only

  5. FDI in MBRT • Background • FDI in MBRT upto 51 percent was approved by CCEA on November 24, 2011 • However, the same was deferred due to political opposition on December 7, 2011 • Key policy change • FDI in MBRT has been permitted upto 51 percent • However, prerogative of the State governments to allow or not to allow FDI in MBRT in their respective states • Regulatory and other requirements • Retails outlets only to be set up in cities having population of more than 10 lacs • In other cases, any city as decided by the State government (preferably the largest city of the State) • Locations of the retail outlets to confirm with the Master/Zonal plans of the concerned cities • 50 percent of the total FDI to be invested in “back-end infrastructure” within 3 years of the initial investing Preliminary & tentative – Not for circulation For discussions only

  6. FDI in MBRT • Regulatory and other requirements • Back-end infrastructure to include capital expenditure in the nature of investment made towards processing, manufacturing, distribution, design improvements, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. • Investments in front-end units and expenditure on land cost and rentals will not construe as investment towards back-end infrastructure • Mandatory sourcing of at least 30 percent of the value of the products sold from Indian small industries(“SMEs”) • Compliance with applicable State laws/ regulations such as Shops & Establishment Act etc. • Conditions/ safeguards approved by CCEA on November 24, 2011 also to apply • Consensual States/Union territories • Delhi, Assam, Maharashtra, Andra Pradesh, Rajasthan, Uttrakahand, Haryana, Manipur, Daman & Diu, Dadra & Nagar Haveli and J&K have expressed their written consent for FDI in MBRT Preliminary & tentative – Not for circulation For discussions only

  7. FDI in SBRT • Background • 100 percent FDI in SBRT was permitted subject to following conditions- • FDI by brand owner only • For FDI beyond 51percent, mandatory sourcing of at least 30 percent of the value of the products sold from SMEs/ Village and cottage industries, artisans and craftsmen • Key policy change • FDI by a single non-resident entity other then brand owner also permitted • Mandatory 30 percent domestic sourcing requirement relaxed. Not required for sectors where domestic sourcing is not feasible • Regulatory and other requirements • For a specific brand, only a single non-resident entity will be permitted to make investment throughout the country through a legally tenable agreement i.e., a licensing or a franchisee or a sub-licence agreement etc. with the brand owner • Onus on the Indian entity carrying on SBRT in India to ensure compliance with above condition • Copy of the aforesaid agreement to be furnished at the time of seeking approval for FDI in SBRT Preliminary & tentative – Not for circulation For discussions only

  8. FDI in Broadcasting sector • Background • FDI in Information & Broadcasting sector was subjected to different limits based upon the category of services • Key policy change • Uniform FDI limits as provided in the below table have been approved by CCEA Preliminary & tentative – Not for circulation For discussions only

  9. FDI in Broadcasting sector • Key policy change • The foreign investment limits specified above will include in addition to FDI, investment by way of FIIs, FCCBs, ADRs, GDRs and CPS • Regulatory and other requirements • FDI subject to the guidelines issued by relevant departments of the concerned Ministries Preliminary & tentative – Not for circulation For discussions only

  10. FDI in Power Trading Exchanges • Background • No specific dispensation under the FDI Policy for Power Trading Exchanges. However, 100 percent FDI under automatic route was allowed in power sector(except atomic energy) i.e., power generation, transmission and distribution including power trading • Key policy change • Foreign investment in Power Trading Exchanges has been permitted upto the following limits • FII investments upto 23 percent under automatic route • FDI upto 26 percent under government route • Regulatory and other requirements • Above limits are subject to compliance with the following; • SEBI regulations • Central Electricity Regulatory Commission (power market) Regulations, 2010 • Other applicable laws/regulations Preliminary & tentative – Not for circulation For discussions only

  11. THANK YOU Preliminary & tentative – Not for circulation For discussions only

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