FDI restrictions in Single Brand Retail Trading to be eased

Indian Union Cabinet has on 28th August 2019 approved major proposals for relaxation in Foreign Direct Investments (FDI) policy relating to Single Brand Retail Trading (SBRT), coal mining and sale, contract manufacturing in India, and for uploading / streaming specific content through digital media.  The decision follows the budget announcement on 05th July 2019. In her maiden budget speech, Finance Minister Nirmala Sitharaman announced the intention of government to ease local sourcing norms in SBRT.

India’s FDI inflows in FY 2018-19 remained at US$ 64.375 billion marking a 6% growth over the previous year. According to the press release available on pib.nic.in the changes will result in making India a more attractive FDI destination, leading to benefits of increased investments, employment and growth. 

FDI 2019: Single Brand Retail Trading (SBRT) 

FDI policy on SBRT has been in operation since 2006. From 2006 till 29th March 2018, 112 brands have obtained approval of Government for SBRT activities resulting in total FDI equity inflow of USD 1,636.24 million. FDI upto 100% under the automatic route has been allowed in SBRT vide Press Note 1 of 2018 effective 26th March 2018.

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Key Changes in FDI: SBRT 

• All procurements made from India by the SBRT entity for that single brand will be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Earlier exports in such cases were only factored in for off-setting the local sourcing norms for the first 5 years, the cap of 5 years is proposed to be removed.
• The entire sourcing from India for global operations, and not merely incremental from the preceding year, will be counted towards local sourcing requirement. In order to satisfy the 30% local sourcing norms, sourcing may be either through the investee entity, i.e. the entity directly undertaking SBRT, or its group companies (resident or non-resident), or even indirectly by the investee entity or its group company(ies) through a third party under a legally tenable agreement. 
• SBRT entities can undertake retail trading through online retail prior to opening brick and mortar stores. The condition is that brick and mortar stores are opened by the SBRT entity within 2 years from the date of start of online retail. 

FDI in Digital Media 

The extant FDI policy provides for 49% FDI under approval route in uplinking of news and current affairs TV channels and 26% FDI in case of print media. There were no limits earlier for Digital Media. It has been now decided to make FDI in Digital Media in line with print media – i.e., 26% FDI under government route for uploading/ streaming of news and current affairs through digital media.

Coal mining and sale 

• 100% FDI is proposed to be allowed under the automatic route for sale of coal and for coal mining activities including ‘associated processing infrastructure’ subject to certain provisions. 
• ‘Associated Processing Infrastructure’ in this context would include coal washery, crushing, coal handling and separation (magnetic and nonmagnetic). 

Contract manufacturing 

• 100% FDI has been decided to be allowed in contract manufacturing under the automatic route. In the manufacturing sector, which already allows 100% FDI under the automatic route, the manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on a principal to principal basis or principal to agent basis.