New FDI rules in multi-brand retail, airlines take effect

The government today formally announced the opening up of multi-brand retail sector to foreign supermarket chains and eased FDI in airlines and broadcasting services by notifying the policy changes.

The government also notified changes in FDI policy for power trading exchanges and relaxed guidelines for single brand retail trading.

The announcement of a spate of reforms in FDI and the recent hike in fuel prices have brought the United Progressive Alliance government at the centre to the brink of collapse, which is now banking on outside support to pull through the reforms and stave off a collapse.

The government has dared political repercussions and protests by its own allies and the opposition to push foreign direct investment in the supermarket sector and increase diesel prices to bring down subsidy bill.

With today's notification, the cabinet decisions on FDI in single brand retail, multi brand retail, civil aviation, broadcasting sector and power exchanges, taken on 14 September, will take effect.

The government has reviewed the extant policy on FDI and decided to permit FDI, up to 51 per cent, under the government route, in multi-brand retail trading, subject to specified conditions.

FDI, however, has been prohibited in the following sectors such as lottery business, including government /private lottery, online lotteries, etc; gambling and betting, including casinos etc; chit funds, nidhi companies etc; trading in transferable development rights (TDRs); real estate business or construction of farm houses; manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes and activities / sectors not open to private sector investment like atomic energy and railway transport (other than mass rapid transport systems).

''Foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, management contract, is also prohibited for lottery business and gambling and betting activities," the statement added.

FDI in multi brand retail trading, in all products, will be permitted, subject to the following conditions:

• Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded;
  
• Minimum amount to be brought in as FDI by the foreign investor would be $100 million;
  
• At least 50 per cent of total FDI brought in should be invested in 'backend infrastructure' within three years of the first tranche of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units;
  
• Expenditure on land cost and rentals, if any, will not be counted for purposes of back end infrastructure; and
  
• At least 30 per cent of the value of procurement of manufactured! Processed products purchased should be sourced from Indian 'small industries' which have a total investment in plant and machinery not exceeding $1 million.

This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the manufactured / processed products purchased, beginning 1 April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

Retail sales outlets may be set up only in cities with a population of more than 1 million as per 2011 census and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the master/zonal plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

In states/ union territories not having cities with population of more than 1 million as per 2011 census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities.

Government will have the first right to procurement of agricultural products.

The above policy is an enabling policy only and the state governments/ union territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those states/ union territories, which have agreed, or agree in future, to allow FDI in MBRT under this policy.

The establishment of the retail sales outlets will be in compliance with the applicable state/ union territory laws/ regulations, such as the Shops and Establishments Act etc.

Retail trading, in any form, by means of e-commerce, would not be permissible for companies with FDI, engaged in the activity of multibrand retail trading.

Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for government approval.

The above decision will take immediate effect.

Foreign investment in single brand product retail trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices, an official release said.

FDI in single brand product retail trading would be subject to the following conditions:

• Products to be sold should be of a 'single brand' only;
  
• Products should be sold under the same brand internationally;
  
• 'Single Brand' product-retail trading would cover only products which are branded during manufacturing;
  
• The foreign investor should be the owner of the brand;
  
• In respect of proposals involving FDI beyond 51 per cent, sourcing of at least 30 per cent of the value of products sold would from Indian SMEs is mandatory;

Only one non-resident entity, whether owner of the brand or otherwise, will be permitted to undertake single brand product retail trading in the country, for the specific brand, through a legally tenable agreement, with the brand owner for undertaking single brand product retail trading in respect of the specific brand for which approval is being sought. The onus for ensuring compliance with this condition will rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/ franchise/sub-licence agreement, specifically indicating compliance with the above condition.

The government has reviewed the position in regard to FDI in airline top 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 per cent of their paid-up capital.

Such investment would be subject to the following conditions:

• It would be made under the government approval route;
  
• The 49 per cent limit will subsume FDI and FII investment; and
  
• The investments so made would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR)

Regulations/ Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations.

A scheduled operator's permit may be granted only to a company that is registered and has its principal place of business within India; the chairman and at least two-thirds of the directors of which are citizens of India and; the substantial ownership and effective control of which is vested in Indian nationals.

All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and all technical equipment that might be imported into India as a result of such investment require clearance from the relevant authority in the ministry of civil aviation.

The above revised policy is not applicable to Air India.

At present foreign investment in non-scheduled air transport is allowed up to 74 per cent, including FDI under the automatic route of up to 49 per cent; Up to 100 per cent FDI from NRIs is allowed for air transported related services while 100 per dent FDI is allowed in helicopter/seaplane services requiring DGCA approval.

A scheduled operator's permit will be granted only to a company that is registered and has its principal place of business within India; the chairman and at least two-thirds of the directors of which are citizens of India; and the substantial ownership and effective control of which is vested in Indian nationals.

All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and all technical equipment that might be imported into India as a result of such investment require clearance from the relevant authority in the ministry of civil aviation.

The government has reviewed the position on FDI in the broadcasting and cable TV sector such as teleports (setting up up-linking HUBs/teleports); Direct to Home (DTH); cable networks (MSOs operating at national or state or district level and undertaking upgradation of networks towards digitalisation and addressability).

The foreign investment (FI) limit has been raised from 49 per cent to 74 per cent, subject to foreign investment up to 49 per cent being permitted under the automatic route and foreign investment beyond 49 per cent and up to 74 per cent being permitted under the government route.

This will be applicable to foreign investment in mobile TV up to 74 per cent.

The terms and conditions relating to security and other conditions will separately be incorporated in the sectoral guidelines of each broadcasting carriage service, the release said.

The government also reviewed the position in regard to foreign investment in power trading exchanges and decided to permit foreign investment, up to 49 per cent in power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010.

Such foreign investment would be subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital; FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route; FII purchases would be restricted to secondary market only; No non-resident investor/ entity, including persons acting in concert, will hold more than 5 per cent of the equity in these companies; and the foreign investment would be in compliance with SEBI regulations; other applicable laws/ regulations; security and other conditionalities.