India notifies major changes under Consolidated FDI Policy, 2013

By TII News Service

Apr 10, 2013 New Delhi
THE Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India has
released Consolidated Foreign Direct Investment Policy, 2013 ( FDI Policy, 2013), This is the sixth edition of
consolidated foreign direct investment policy and will be effective from April 05, 2013. The FDI Policy, 2013,
incorporates the changes made in the foreign investment policy over past one year. The changes include investments
in sectors like single and multi-brand retail, power exchanges, asset reconstruction companies (ARCs), broadcasting,
civil aviation, and non-banking financial companies.
Salient features of changes in the Consolidated FDI Policy, 2013, are as under:
Allows upto 51% inflows of foreign direct investment (FDI) in multi-brand retail sector.
Allowing Pakistan citizens, nationals and companies to invest in India.
Allows 49% stake by a foreign airlines in the capital of Indian companies, operating scheduled and non-
scheduled air transport services,
Raises FDI cap in various broadcasting services to 74%.
Permits up to 49% foreign investment in the power trading exchanges.
Increases foreign investment ceiling in ARCs to 74%, up from 49%.
A new paragraph has been added with regards to the issue price of shares.
The aforementioned changes have been discussed in detail below.
Investment by citizen/ entity of Pakistan:
The Government of India had vide Press Note 3 (2012 series) dated August 1, 2012, issued by DIPP, GoI (Press Note
3) reviewed the FDI policy and decided to permit a citizen of Pakistan or an entity incorporated in Pakistan to make
investments in India, under the Government route, in sectors/activities other than defence, space and atomic energy.
The changes made via Press Note 3 have been incorporated under the FDI Policy, 2013 by way of a note under para
3.1.1 of the FDI Policy, 2013, which is reproduced below for reference:
a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in
sectors/activities other than defence, space and atomic energy and sectors/ activities prohibited for foreign
investment
Issue price of shares
A new para has been inserted in para 3.4.2 of FDI Policy, 2013, dealing with issue price of shares to person resident
outside India. The newly incorporated para provides that where non-residents (including NRIs) are making
investments in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of
subscription to its Memorandum of Association, such investments may be made at face value subject to their
eligibility to invest under the FDI scheme.
Conversion of ECB/ Lumpsum Fee/ Royalty etc into Equity
There has been change in the conditions in relation to issue of equity shares against import of capital goods/
machinery/ equipment (excluding second-hand machinery). One of the conditions requiring independent valuation of
the capital goods/machinery/equipments (including second-hand machinery) by a third party entity, preferably by an
independent valuer from the country of import' as provided under para 3.4.6 of the Consolidated Foreign Direct
Investment Policy, 2012 (FDI Policy, 2012) has been removed from the FDI Policy, 2013.
Downstream investments
The Government of India had vide Press Note 2 (2012 series) dated July 31, 2012, issued by DIPP, GoI ( Press Note
2 ) reviewed the policy relating to calculation of downstream investments by a banking company incorporated in
India, which is owned and/or controlled by non-residents/ a non-resident entity/non-resident entities by insertion of a
note in para 3.10.4.1 of the FDI Policy, 2012. The change made via Press Note 2 has been incorporated in FDI Policy,
2013. The new insertion is reproduced below for reference:
Downstream investment/s made by a banking company, as defined in clause (c) of Section 5 of the Banking
Regulation Act, 1949, incorporated in India, which is owned and/or controlled by non-residents/ a non-resident
entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or
in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign
investment. However, their 'strategic downstream investment' shall count towards indirect foreign investment. For
this purpose, 'strategic downstream investments' would mean investment by these banking companies in their
subsidiaries, joint ventures and associates.
Sector Specific Conditions on FDI
Broadcasting services
The foreign investment limits, in companies engaged in providing broadcasting carriage services, was revised vide
Press Note 7 (2012 series) dated September 20, 2012, issued by DIPP, GoI ( Press Note 7 ). The changes made via
Press Note 7 have been incorporated in the FDI Policy, 2013.
Civil Aviation
The Government of India had vide Press Note 6 (2012 series) dated September 20, 2012, issued by DIPP, GoI ( Press
Note 6 ) reviewed foreign direct investment limits in the civil aviation sector and decided to permit foreign airlines
also to invest, in the capital of Indian companies, operating scheduled and nonscheduled air transport services, up to
the limit of 49% of their paid-up capital. The changes made via Press Note 6 have been incorporated in the FDI
Policy, 2013.
Single Brand product retail trading
The Government of India had vide Press Note 4 (2012 series) dated September 20, 2012, issued by DIPP, GoI ( Press
Note 4 ) reviewed existing policy for foreign direct investment in single brand product retail trading sector. The
changes made via Press Note 4 have been incorporated in the FDI Policy, 2013
Multi Brand retail trading
The Government of India had vide Press Note 5 (2012 series) dated September 20, 2012, issued by DIPP, GoI ( Press
Note 5 ) reviewed existing policy for foreign direct investment in multi brand retail trading sector and decided to
permit FDI,
up to 51%, under the Government route, in Multi-Brand Retail Trading, subject to specified conditions. The changes
made via Press Note 5 have been incorporated in the FDI Policy, 2013..
Asset Reconstruction Companies
The Ministry of Finance, Government of India, had reviewed the ceiling for FDI in ARCs vide a press release dated
December 21, 2012 and had increased the same from 49% to 74 % subject to the condition that no sponsor may hold
more than 50% of the shareholding in an ARC either by way of FDI or by routing through an FII. Further, it was also
provided that:
the foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditionality and
sectoral caps;
that the foreign investment limit of 74% in ARC would be a combined limit of FDI and FII; and
the total shareholding of an individual FII shall not exceed 10% of the total paid-up capital.
Hence, the prohibition on investment by FII in ARCs was removed.
The above stated changes in relation to investment in FDI in ARCs have been incorporated in the FDI policy, 2013.
This move is aimed at inviting foreign expertise in this segment.
Non- Banking Finance Companies (NBFCs)
The Government of India had vide Press Note 9 (2012 series) dated October 03, 2012, issued by DIPP, GoI (Press
Note 9 ) reviewed the existing policy for foreign direct investment in NBFC's and provided that NBFC's (i) having
foreign investment more than 75% and up to 100%, and (ii) with a minimum capitalisation of US$ 50 million, can set
up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating
subsidiaries and without bringing in additional capital. The changes made via Press Note 9 have been incorporated in
the FDI Policy, 2013.
Power Exchanges
The Government of India had vide Press Note 8 (2012 series) dated September 20, 2012, issued by DIPP, GoI ( Press
Note 8) reviewed the existing policy for foreign direct investment in power sector thereby permitting foreign
investment, up to 49%, in Power Exchanges, registered under the Central Electricity Regulatory Commission (Power
Market) Regulations, 2010, subject to the specified conditions. The changes made via Press Note 8 have been
incorporated in the FDI Policy, 2013.
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