The major changes to the FDI policy are summarised below:​

Single brand retail trading

100% FDI in ‘single brand’ retail trading is permitted (up to 49% FDI is allowed under the automatic route with Government approval needed beyond that). Where FDI exceeds 51%, there is a local sourcing requirement for 30% of the value of goods purchased, preferably from MSMEs, village and cottage industries, artisans and craftsmen. Under the new announcement, entities undertaking single-brand retail trading involving ‘cutting edge and state-of the-art technology’ can be exempted from the local sourcing requirement for three years, with an option to extend this by another five years.

​The Government has already permitted a single brand retail trading entity operating through a bricks and mortar store to undertake retail trading through e-commerce.

​Defence

​Full foreign ownership of arms-making projects will now be allowed but this will be subject to Government approval. In the defence sector, the Government has permitted foreign investment beyond 49% under the Government approval route.

100% FDI had already been allowed in cases where ‘state-of-the-art technology’ was brought into the country. However, the Government has now removed this condition and will consider cases which bring ‘modern technology’ into India.

100% FDI in defence will provide a boost to the sector as a whole, creating a win-win situation for India. Not only will it give access to cutting edge technologies but it will also enhance overall investment in research and development for solutions catering specifically for the country’s security needs.

Civil aviation

​The Government has raised the FDI limit in scheduled commercial airlines to 100% from 49%. Foreign airlines, however, are barred from holding equity stakes in Indian carriers above 49%. As per the present FDI policy, foreign investment of up to 49% is allowed under the automatic route in scheduled air transport service/domestic scheduled passenger airlines and regional air transport services. It has now been decided to raise this limit to 100%, with FDI of up to 49% permitted under the automatic route and FDI beyond 49% allowed with Government approval.

The Government has also agreed to 100% FDI in airports under the automatic route for greenfield and brownfield projects.

Pharmaceuticals

The Government has relaxed its rules to allow 100% FDI in existing pharma companies or brownfield units provided any FDI beyond 74% is subject to Government approval. For all greenfield projects, 100% FDI is allowed under the automatic route. Until now, foreign pharma companies needed approval from the Government to buy into an Indian entity which is a time-consuming process. However, foreign pharma companies or financial investors wishing to invest or acquire Indian pharma companies can now do so by buying an equity stake of up to 74% without any prior clearance.

Private security agencies

The Government has permitted FDI of 49% in private security agencies under the automatic route and investment of up to 74% will be allowed with prior Government approval. Indian private security agencies are governed by the Private Security Agencies Act and an amendment to the Act may be required to increase FDI from 49% to 74%.

Other decisions have included allowing 100% FDI in teleports, direct-to-home, cable networks and mobile TV under the automatic route. The Government has also removed ‘controlled conditions’ for FDI in animal husbandry, pisciculture, aquaculture and apiculture. At present, 100% FDI in these activities is allowed under the automatic route under controlled conditions.

These are the second set of reforms to be introduced since the radical changes announced in November 2015 to promote the Make in India agenda of the Government and are expected to provide a major uplift to employment and job creation in India. Investment in most sectors is now permitted under the automatic approval route, with just a few exceptions.

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INDIAN GOVERNMENT TIGHTENS NORMS FOR E-COMMERCE COMPANIES​

The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry, of the Government of India, issued Press Note No 2 (2018 Series) on 26 December 2018 (PN 2 of 2018).  The PN2 of 2018 provides clarity as to the Foreign Direct Investment (FDI) policy on the e-commerce sector and amends para – 5.2.15.2 of the Consolidated FDI Policy Circular 2017. Effective date of PN2 of 2018 is 1 February 2019.

​The FDI policy on e-commerce, first pronounced through Press Note 2 of 2000, permitted 100% FDI in B2B e-commerce activities, subject to certain conditions.  However, FDI in entities engaged in B2C e-commerce, which is multi-brand retail through an inventory-based model, has all along remained prohibited for FDI. Accordingly, through the latest PN2 of 2018, the Indian government has reiterated the policy provisions to ensure better implementation of the policy.

Key Highlights

• 100% FDI under automatic route is permitted in the marketplace model of e-commerce.

• FDI is not permitted in the inventory-based model of e-commerce.

• Under the PN2 regime, the ownership and control of inventory (goods purported to be sold) of the seller is not permitted. Furthermore, if more than 25% of the seller’s inventory is purchased from the marketplace entity or its group companies, then such inventory of the seller will be deemed to be controlled by the market place entity.

But it’s difficult for online marketplaces to track or monitor all sales from any vendor, given a vendor is free to sell their products across multiple online platforms and even offline. Furthermore, if platforms realise that the threshold of 25% percent has been crossed, they cannot recall or cancel a transaction that has already taken place to rectify the situation.

• A seller having equity participation by marketplace entity or its group companies will not be permitted to sell its products on the platform run by such a marketplace entity.

• Services provided by the marketplace entity or other entities in which marketplace entity has direct or indirect equity participation, to the seller on their platform should be at an arm’s length basis and in a fair and non-discriminatory manner. Similarly, cash-back offer & provided by marketplace entity to buyers shall be fair and non-discriminatory.

• e-commerce entities providing a marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain a level playing field.

• Marketplace entities will be prohibited from mandating any seller to sell any product exclusively on their platform. But there is no guidance on how enforcing authorities would determine if a seller has been “mandated” to sell its products exclusively on an e-commerce platform, or it was a voluntary act.

• e-commerce market place entity will be required to furnish a certificate, along with a report of the Statutory Auditor to Reserve Bank of India, confirming compliance of the guidelines.

Although PN2 of 2018 is an attempt in right direction to make the marketplace model more robust and transparent, there are various concerns that require further clarity and immediate attention.

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