Major Changes in the Foreign Direct Policy of 2016

The Foreign Direct Investment (FDI) policy of 2015 has been overridden by the new FDI policy of 2016, recently released by the Indian government, Department of Industrial Policy and Promotion (DIPP) under the Commerce and Industry ministry. The FDI policy of 2016 has been operative from the 7th of June, 2016 i.e. the date of its publication.

In the previous years, a number of policy reforms were witnessed in the following sectors: manufacturing, insurance, defence broadcasting, civil aviation, asset reconstruction companies and single brand retail trading.  In order to further liberalize the Indian economy and to create more employment and to increase the production of jobs, the Indian government introduced vital changes in the new FDI policy, 2016. The new policy would ease out the imposition of various conditions earlier required for foreign investment, would initiate an  increase in sector-wise caps thereby bringing more activities under automatic route.

The Major changes are outlined herein below:

  • The erstwhile FDI policy of 2015 provided for 100% investment under the automatic route in ‘greenfied’ pharmaceuticals and up to 100% investment government approved ‘brownfield’ pharmaceutical projects. Under the new FDI policy of 2016, 74% investment is allowed under the automatic route ‘brownfield’ pharmaceuticals, and if it increases beyond the aforementioned investment of 74%, then the approval of the government is a requirement.
  • FDI into the Defence arena has been permitted to 100%.
  • The FDI limit for private security agencies has been increased from 49% as provided in the erstwhile policy of 2015, to 74% as provided in the 2016 policy, with government’s approval.
  • The  ‘controlled conditions’ requirement of the erstwhile 2015 FDI policy in the Animal Husbandry sector, has been eased out in the new policy of 2016. 
  • The FDI policy of 2016, has allowed 100% FDI under the route approved for trade through online websites with respect to food items manufactured or produced in the country.
  • Under the 2016 FDI policy, no authorizations would be required from the Reserve Bank of India or any separate approvals for security would be required for setting up of a branch, liaison or project office for a company in India, provided the main business of the person applying for such an investment is in the telecom, defence, private security and information and broadcasting, for which prior approval have already been obtained by the Government or the concerned Ministry.
  • Under the earlier policy, government approval was a mandatory required for manufacturers to freely sell their merchandise/items on wholesale basis or through e-commerce web portals under the automatic route.  This requirement has been done away with in the new policy.
  • With reference to ‘Single Brand Retail Trading’, the government has relaxed the mandatory application of the local sourcing norms for a period of three years on enterprises commencing their business, pledging the SBRT of products involving 'state-of-art' and 'cutting-edge' technology.  Post the 3 year period the foreign entity would be required to meet the domestic sourcing norm within a time period of 5 years at 30% of the average rate on annual basis. 100% FDI is permitted through the automatic route in the areas of broadcasting services i.e. DTH, mobile television and teleports etc.
The policy changes and reforms in the FDI policy, 2016 would give a strong impetus to the foreign investor to invest in India and give a push to the Prime Ministers Make in India campaign. The services of a corporate lawyer or a legal help/advice can be obtained in order to take advice/opinions relating to the policy reforms by foreign investors in India. With a PAN India presence, one can easily seek assistance in Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Pune, Goa, Kolkata, Ahmedabad, Gurgaon, Noida and other places. 

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