Consolidated FDI Policy

April 2011

The circular is not intended to make changes in the existing regulations. 1999 (FEMA). Further all earlier Press Notes / Press Releases / Clarifications on FDI issued by the DIPP stand rescinded. Government of India (GOI) had released Consolidated FDI Policy vide Circular 1 of 2010 dated 31 March 2010 which was effective from 1 April 2010. Accordingly the DIPP had released the revised Consolidated FDI Policy vide Circular 2 of 2010 dated 30 September 2010 which was effective from 1 October 2010 and lapsed on 31 March 2011. Consolidated FDI Policy 3 . the relevant FEMA notification will prevail. any corresponding change made by RBI from time to time would have to be complied with and in case of need / scope of interpretation. • The legal structure of the circular is built on notifications issued by Reserve Bank of India (RBI) under Foreign Exchange Management Act. • DIPP has now released the revised Consolidated FDI Policy vide Circular 1 of 2011 dated 31 March 2011 which is effective from 1 April 2011. it has been indicated that the policy would be in effect up to 30 September 2010 and subject to review every six months to reflect all changes in the regulations during the intervening six months. • It has been clarified that anything done or any action taken under the rescinded Press Notes / Press Releases / Clarifications prior to 31 March 2011 shall be effective and valid subject to the condition that it was not inconsistent with those Press Notes / Press Releases / Clarifications. • It has been indicated that the Circular consolidates all prior policies / regulations on FDI issued within the intervening period and reflect the current ‘policy framework’ on FDI. Further. Consolidated FDI Policy vide Circular 1 of 2011 dated 31 March 2011 which is effective from 1 April 2011. Hence.Background Foreign Direct Investment (FDI) Regulatory Framework • Ministry of Commerce and Industry (Department of Industrial Policy and Promotion). • The policy document had consolidated all prior policies / regulations on FDI issued by the Department of Industrial Policy and Promotion (DIPP) and the Reserve Bank of India (RBI).

it could not enter into a new joint venture. Downstream investments • The distinctions in the prior policy between operating companies. apart from conversion of ECBs and payment obligations towards lump sum fee or royalty for technical collaboration. operating-cum-investing companies and only investing companies have been eliminated. issue of shares for consideration 4 . this does not affect the requirement of obtaining FIPB approval in sectors subject to sectoral caps. Further. Prior approval in case of existing joint ventures/ technical collaborations in the ‘same field’ • Under the prior FDI policy. foreign investors would not be required to obtain FIPB approval before investing in the business in the “same field” as an existing joint venture or technology transfer or trademark agreement entered into before 1 June 2005. Now under the new policy. where a foreign investor had already in place in India a joint venture or technology transfer or trade mark with an Indian counterpart. Further companies which are classified as Core Investment Companies( CICs) would also need to additionally follow RBIs regulatory framework for CICs Issue of shares for non-cash consideration • The prior FDI policy allowed issue of shares by Indian companies only against cash consideration. • Accordingly under the new policy.Key Points under Circular 1 of 2011 Pricing of convertible instruments • It has been provided that the price/ conversion formula of convertible capital instruments issued by Indian companies is required to be decided upfront at the time of issue of the said instrument. regardless of the amount or extent of foreign investment. As such there was a need felt to Price/ conversion formula of convertible capital instruments issued by Indian companies is required to be decided upfront attract fresh investment and technology inflows and also reduce the levels of State intervention. Investment in Non-Banking Financial Companies (NBFC) • It has been clarified that foreign investment into NBFCs carrying on activities approved for FDI would need to comply with the conditions specified for such NBFCs. Companies have now been classified into only two categories. • The new policy clarifies that prior FIPB approval would be required for investments by foreign investors into companies incorporated in India and whose only activity is investing in the capital of other Indian companies (i. Further infusion of funds into an Indian company which does not have operations or downstream investments would also require prior FIPB approval. the price at the time of conversion should not in any case be lower than the fair market value worked out at the time of the issuance of such instruments. make an investment or enter into a technology collaboration or trade mark agreement or enter into a technology transfer agreement without the prior approval of the FIPB. viz “companies owned or controlled by non-resident entity/ies” and “companies owned and controlled by Indian residents”. • However there is no change in the policy framework as far as the downstream investments by companies which are owned and/or controlled by non-resident entities is concerned.e. However. Consequently the absolute price mechanism has been done away with and parties would be able to set a formula for conversion in future. holding companies) regardless of the amount or extent of foreign investment. in accordance with extant FEMA regulations (the DCF method of valuation for unlisted companies and valuation in terms of SEBI (ICDR) Regulations. All other issue of shares for consideration other than cash required approval of the FIPB. for listed companies).

other than cash has been expressly permitted for the following categories after taking prior approval of the FIPB and subject to the conditions as stipulated: – import of capital goods/ machinery/ equipment (including second-hand machinery). iv. Verification and certification of the preincorporation/pre-operative expenses by the statutory auditor. All such conversions of import payables for capital goods into FDI should be done within 180 days from the date of shipment of goods.. preferably by an independent valuer from the country of import along with production of copies of documents / certificates issued by the customs authorities towards assessment of the fair-value of such imports. The application has to clearly indicate the beneficial ownership and identity of the Importer Company as well as overseas entity. Sectoral Specific changes: Following modifications have been provided in respect of the following sectors/sub-sectors Agriculture • The restriction in respect of ‘controlled conditions’ is not applicable in respect of the activity of development and production of seeds and planting material.). iii.subject to compliance with the following conditions: i. made by a resident in India. has to be in accordance with the Export/ Import Policy issued by GOI as defined by DGFT/FEMA provisions relating to imports. • Trading for exports has been removed from the schedule. subject to compliance with the following conditions: i. chartered airlines and cargo airlines have been removed from the definition of Non- scheduled Air Transport Services Trading • Wholesale Trading of items sourced from Medium & Small enterprises (MSEs) is now considered as 100% under the automatic route. – pre-operative/ pre-incorporation expenses (including payments of rent etc. ii. Civil Aviation • Non-scheduled airlines. Any import of capital goods/machinery etc. Consolidated FDI Policy 5 . ii. Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred. An independent valuation has to be carried out for the capital goods / machinery / equipments (including second-hand machinery) by a third party entity.

Conclusion This periodical updation/ review of the foreign investment policy is a welcome initiative on the part of the Ministry of Commerce and Industry and provide a mechanism to the government to consider the policy on investments into India in various sectors and also address issues/concerns of investors which may act as a deterrent on an ongoing basis. 6 . defence sector and multi-brand retail and translating into a policy announcement. it maybe relevant to consider the discussion papers and comments received thereon in respect of FDI in LLPs. downstream investments and prior approval of existing joint ventures is welcomed. These need to be read with any stipulations/ combinations provided under the policy/sector rules/ regulations and the schedule. While the clarification/ policy changes on pricing of convertible instruments. A Brief Comparative of sectoral caps after considering the policy changes has been given in the Annexure for the readers’ ready reference.

Broadcasting 9. Built-up Infrastructure and construction development projects 11. Banking – Public Sector 8. Security Agencies in Private Sector 20. Civil Aviation Sector 5. Telecommunications 22. Industry 1. Satellites – Establishment and operation 21. Insurance 15. Trading Consolidated FDI Policy 7 . Non-Banking Finance Companies 17. Industrial Parks both setting up and in established Industrial Parks 14. Stock Exchanges. Development of Townships. Depositories and Clearing Corporations 16. Credit Information Companies(CIC) 13. Housing. Print Media 19. parcels and other items which do not come within the ambit of the Indian Post Office Act. Banking – Private Sector 7. 12. Mining 2. 1898. Commodity Exchanges 10. Infrastructure companies in securities markets namely. Asset Reconstruction Companies 6. Power C. Manufacture 3. Service Sector 4. Petroleum and Natural Gas Sector 18. Courier services for carrying packages. Agriculture B.Annexure Industry Sectors A.

Note: Besides the above FDI is not allowed in any other plantation / sector activity. Power Trading Note: All the above would be subject to the provisions of the Electricity Act 2003. Industry 1. Note: (i) to (iii) above do not include generation. Services related to agro and allied sectors. industrial. v.Industry A. Agriculture & animal husbandry i. Pisciculture. oil based 100% (Automatic) thermal and gas based thermal power plants. iii. mushrooms. 2. 1957 ii. Tea Sector. including tea plantations Compulsory divestment of 26% equity of the company has to be done in favour of an Indian partner / Indian public within a period of 5 years. iii. For setting up coal processing plants like washeries subject to the conditions iv. commercial and other users. under controlled conditions. Animal Husbandry (including breeding of dogs). ining M i. Cigars and Cigarettes – Manufacture 26% (FIPB) (Prohibited for the activity of manufacturing of cigars. Floriculture. its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation) Act. cement units and other eligible activities permitted under the Coal Mines (Nationalisation) Act. B. anufacturing M Cap from 1 April 2011 100% (Automatic) 100% (FIPB) 100% (Automatic) 100% (Automatic) 100% (Automatic) 100% (FIPB) i. 1951 ii. Such an undertaking FIPB beyond 24% would be required to obtain Industrial License under the Industries (Development & Regulation) Act 1951. Power i. Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act. gold. coal/lignite based thermal. Non-Conventional Energy Generation and Distribution. ii. iv. Distribution of electric energy to households. silver and precious ores but excluding titanium bearing minerals and its ores subject to the Mines and Minerals (Development and Regulation) Act. Development and production of Seeds and planting material. 1973 iii. Coal and Lignite mining for captive consumption by power projects. Manufacture of items reserved for production in Micro and Small Enterprises (MSEs). cheroots. transmission and distribution of electricity produced in atomic power plant / atomic energy since private investment in this sector / activity is prohibited and is reserved for public sector. ii. Note: Besides the above FDI is not allowed in any other activity. Mining and Exploration of metal and non-metal ores including diamond. for such manufacture. and iron and steel. 1957 Note: FDI will not be allowed in mining of “prescribed substances” listed in Government of India notification No. ii. cigarillos and cigarettes of tobacco and tobacco substitutes) 3. Generation and transmission of electric energy produced in hydroelectric. Horticulture and cultivation of vegetables. 8 . and iv. Mining and mineral separation of titanium bearing minerals and ores. 61(E) dated 18 January 2006 issued by the Department of Atomic Energy. aqua-culture under controlled conditions. S.O.

anking – Private Sector B 7. Air Transport Services a. Aircraft Component. aintenance and Repair organizations. Chartered. Chartered Airlines. Helicopter. xisting projects E ii. Aerodrome. Air Transport Undertaking. flying training institutes. 2 The policy for FDI in the Civil Aviation Sector would be subject to the Aircraft Rules. Cargo. Cargo Airlines. Greenfield projects b. Scheduled Air Transport Service. ivil Aviation Sector 1 2 C i. Helicopter and Seaplane Services.Industry C. anking – Public Sector B 1 For the purpose of Civil Aviation Sector. on-scheduled Air Transport Service N c. xisting projects E Cap from 1 April 2011 100% (Automatic) 100% (Automatic – up to 74%) (FIPB - beyond 74%) 100% (Automatic) 100% (Automatic – up to 74%) (FIPB - beyond 74%) 49% (Automatic) For NRI 100% (Automatic) 74% (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) For NRI 100% (Automatic) 100% (Automatic) 74% (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) For NRI 100% (Automatic) 100% (Automatic) 49% (FIPB) 74% (including investment by FII) (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) 20% (FIPB) (FDI + Portfolio investment) ii. Air Transport Services 3 a. Service sector 4. 1934 as amended from time to time. Civil Aviation Requirements. the terms Airport. Airports a. 3 Airport Transport Services includes Domestic Scheduled Passenger Airlines. Consolidated FDI Policy 9 . sset Reconstruction Companies (ARCs) A 6. 4 HITS Broadcasting Services refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (Hub/teleport) and again uplinked to a satellite after encryption of channel. Ground Handling Services subject to sectoral regulations and security clearance b. Greenfield projects b. Non-Schedules Airlines. Helicopter Services / Seaplane services requiring DGCA approval iii. Other Services a. Seaplane. Scheduled Air Transport Services/Domestic Scheduled Passenger Airline b. Air Transport Service. Non-Scheduled Air Transport Service. and technical training institutions M 5. and Ground Handling have been defined. and Aeronautical Information Circulars as notified by the Ministry of Civil Aviation.

etc. ommodity Exchanges C 10. Up-linking a Non-news & Current Affairs TV Channel vii. minimum capitalization. 15. Credit Information Companies(CIC) 100% (FIPB) 49% (FIPB) (FDI+FII) (FII investment not to exceed 24%) 100% (Automatic) 26% (Automatic) 49% (FIPB) (FDI+FII) FDI –26% FII – 23% 13. 6 Note: FDI is not allowed in Real Estate Business 11. Development of Townships. Setting up hardware facilities such as up-linking. Infrastructure companies in securities markets namely. parcels and other items which do not come within the ambit of the Indian Post Office Act. vi. Direct-To-Home Cap from 1 April 2011 20% (FIPB) (FDI +NRI +PIO) 49% (FIPB) (FDI+NRI + PIO ) 49% (FIPB) (FDI+ NRI +PIO) (FDI component not to exceed 20%) 74% (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) (Direct and Indirect foreign investment including FDI and Portfolio) 49% (FIPB) (FDI+FII) 100% (FIPB) 26% (FIPB) (FDI+FII) 49% (FIPB) (FDI+FII) Investment by FII in PIS Scheme will be limited to FII 23% and in FDI Scheme shall be limited to 26% iv. Cable network iii. Courier services for carrying packages. FM Radio ii.Industry 8. etc. Built-up Infrastructure and construction development project subject to 100% (Automatic) conditions like minimum area to be developed. HUB. Up-linking a News & Current Affairs TV Channel 9. Headend-In-The-Sky (HITS) Broadcasting Service 4 v. 1898 12. Insurance is subject to licensing with Insurance Regulatory & Development Authority. Industrial Parks7 both setting up and already established Industrial Parks 14. Housing. roadcasting B i. Depositories and Clearing Corporations Note: FII can invest only through purchases in the secondary market 10 . Stock Exchanges.

Petroleum Refinery of Public Sector Undertaking (PSU) without any disinvestment or dilution of domestic equity in the existing PSUs. Asset management viii. Factoring xi. Publication of facsimile edition of foreign newspapers 19. Print Media i. Satellites – Establishment and operation 26% (FIPB) (FDI+FII+NRI+ PIO) 26% (FIPB) (FDI+FII+NRI+ PIO) 100% (FIPB) 100% (FIPB) 49% (FIPB) 74% (FIPB) 5 The FDI will be subject to the condition that the portfolio investment from FII/ NRI shall not be “persons acting in concert” with FDI investors. Housing Finance xiv. educational institutions. the terms Industrial Park. Leasing & Finance xiii. 1997. Custodian Services x. Credit Card Business xvi. for the purpose of these guidelines. Infrastructure. containing public news or comments on public news. Cap from 1 April 2011 100% (Automatic) 49% (FIPB) ii. Money Changing Business xvii. 7 For the purpose of industrial parks. infrastructure related to marketing of petroleum products. Publishing of newspaper and periodicals dealing with news and current affairs ii. brought out on non-daily basis. Stock Broking vii. Financial Consultancy vi. petroleum product pipelines. Underwriting iii. Publication of Indian editions of foreign magazines dealing with news and current affairs iii. 6 It would include. 100% actual trading and marketing of petroleum products. hospitals. commercial premises. Forex Broking xv. hotels. Consolidated FDI Policy 11 . (Automatic) market study and formulation and Petroleum refining in the private sector subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies 18. Merchant Banking ii. Non-Banking Finance Companies i. Rural Credit Note: Investment would be subject to the compliance with the minimum capitalization Norms as prescribed 17.Industry 16. city and regional level infrastructure. Petroleum and Natural Gas Sector i. natural gas/LNG pipelines. Investment Advisory Services v. housing. will be defined as a periodical publication. Exploration activities of oil and natural gas fields. but not be restricted to. 8 ‘Magazine’. and Industrial Activity have been defined. Publishing / Printing of scientific magazines / specialty journals / periodicals iv. Common Facilities. Micro Credit xviii. Portfolio Management Services iv. Security Agencies in Private Sector 20. as defined in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations. resorts. Venture Capital ix. Credit Rating Agencies xii. Allocable Area. recreational facilities.

NRI. Basic and cellular. and proportionate foreign equity in Indian promoters / Investing Company) Indian shareholding shall not be less than 26% 74% (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) 74% (Automatic – up to 49%) (FIPB – beyond 49% up to 74%) 100% (Automatic – up to 49%) (FIPB – beyond 49%)) 100% (Automatic – up to 49%) (FIPB – beyond 49% 100% (Automatic) 100% (Automatic) 100% (FIPB) ii. 12 . iii. Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of 2 years. GDRs. FCCBs. tower (Category I) v. E-commerce Activities 9 iii. FDI is permitted up to 100% on the automatic route subject to applicable laws / sectoral rules / regulations. 51% (FIPB) 9 E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform.Industry 21. Telecommunications i. ADRs. Wholesale / Cash & Carrying Trading as defined (including sourcing from MSEs) ii. inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well. Single Brand Product retailing In sectors / Activities not listed above. Unified Access Services. and investment in setting up manufacturing facility commences simultaneously with test iv. ISP with gateways. Such companies would engage only in B2B e-commerce and not in retail trading. duct space. Infrastructure provider providing dark fibre. Trading i. radiopaging. end-to-end bandwidth. V-Sat. right of way. ISP without gateways iv. Electronic mail and voice mail 22. FII. Global Mobile Personal Communications Services (GMPCS) and other value added telecom services Cap from 1 April 2011 74% (Automatic – up to 49% and (FIPB – beyond 49% up to 74%) (Including FDI. convertible preference shares. National/ International Long Distance. Public Mobile Radio Trunked Services (PMRTS).

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