Foreign Direct Investment (FDI) is now recognized as an important driver of growth in the country.
1. FDI in Energy and Alternative Energy
FDI in electric generation, transmission and distribution of electric energy produced in-hydro electric, coal/lignite based thermal, oil based thermal and gas based thermal power plants is allowed to an extent of 100% under the automatic route. Also the industries undertaking the distribution of electric energy to households, industrial, commercial and other users are also allowed to take foreign direct investment to an extent of 100% under the automatic route.
When it comes to alternative energy the FDI policies are identical and FD in the industries engaged in non-conventional energy generation and distribution are permitted to an extent of 100% under the automatic route.
However, FDI in all the above mentioned industries would be subject to the provisions of the Electricity Act 2003. It is also pertinent to note that FDI in industries engaged in generation, transmission and distribution of electricity produced in atomic power plant/atomic energy is prohibited, since private investment in this sector/activity is prohibited and is reserved for public sector only.
2. FDI in Real Estate
In the recent years the FDI policies for the real estate sector has been liberalized substantially, earlier only NRIs and PIOs were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner with the prior approval from FIPB.
The Indian government in 2005 allowed FDI to an extent of 100% under to automatic route in the real estate sector subject to certain conditions.
Conditions Imposed upon FDI in Real Estate Sector –
The conditions which needs to satisfied before FDI can made into real estate sector can be classified in two categories –
Conditions Relating to Development of Land utilizing the FDI
For a combination project, either of the following conditions must be fulfilled –
• A minimum area of ten (10) hectares or twenty five (25) acres of land to be developed for serviced housing plots, or
• For construction development projects, a prescribed minimum area of 50,000 square meters is needed to be developed. At least 50 per cent of the project must be developed within a period of five years from the date of obtaining all statutory clearances.
For other projects, all of the following conditions must be satisfied –
• The foreign investor would not be permitted to sell undeveloped plots, and
• The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules and other regulations of the State Government/Municipal/ Local Body concerned, and
• The foreign investor shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned, and
• The State Government/Municipal/Local Body concerned, which approves the building/development plans, would monitor compliance of the above conditions by the developer.
Conditions Relating to Investment under the FDI
• The minimum capitalization of the FDI must be of USD 10 million for wholly owned subsidiaries and USD 5 million for joint ventures with Indian partners, and
• The funds for the purpose of FDI must be brought in within six months of commencement of business, and
• The original investment under the FDI, cannot be repatriated before a period of three years from completion of minimum capitalization. The investor may be permitted to exit earlier with prior Government approval, and
• Any investment over and above USD 5 million can be repatriated any time without any regulatory approval, and
• All these conditions are not applicable to Special Economic Zones projects and on establishment and operation of hotels and hospitals in which 100 per cent FDI is already allowed under automatic routes as per Press Note 4 (2001 Series) and Press Note 2 (2000 Series) respectively.
3. FDI IN TELECOMMUNICATION
For the purpose of investment in Telecommunication sector, it is classified in three parts –
• Telecom Services Provider,
• ISP including ISP with or without gateways, radio paging and end to end bandwidth
• Infrastructure Provider to above two, like providing dark fiber, right to way, duct space, tower etc
Investment cap on FDI in Telecom service provider and ISP is 74%, subject to some conditions. Further the FDI investment up to 49% is covered under automatic route and investment of beyond 49% and up to 74% is covered under Government route. On the other hand in case of Infrastructure provider the FDI is allowed to extent of 100%, under automatic route if investment is up to 49% and under Government route if beyond 49%.
It is pertinent to note that all the above investment is subject to the conditions that such companies will divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Also, licensing and security requirements notified by the Department of Telecommunications will need to be complied with for all services.
Conditions Imposed upon Telecom Services Provider
The conditions which must be satisfied before FDI can be made any telecom services provider can be classified into two categories –
1. This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added Services.
2. Both direct and indirect foreign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Nonresident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the `Indian’ shareholding will not be less than 26 percent.
3. FDI in the licensee company/Indian promoters/investment companies including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 percent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities.
4. The investment approval by FIPB shall envisage the conditionality that Company would adhere to licence Agreement.
5. FDI shall be subject to laws of India and not the laws of the foreign country/countries.
1. The Chief Officer In-charge of technical network operations and the Chief Security Officer should be a resident Indian citizen.
2. Details of infrastructure/network diagram (technical details of the network) could be provided on a need basis only to telecom equipment suppliers/manufacturers and the affiliate/parents of the licensee company. Clearance from the licensor (Department of Telecommunications) would be required if such information is to be provided to anybody else.
3. For security reasons, domestic traffic of such entities as may be identified /specified by the licensor shall not be hauled/routed to any place outside India.
4. The licensee company shall take adequate and timely measures to ensure that the information transacted through a network by the subscribers is secure and protected.
5. The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens.
6. The majority Directors on the Board of the company shall be Indian citizens.
7. The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee.
8. The Company shall not transfer the following to any person/place outside India:-
(a) Any accounting information relating to subscriber (except for international roaming/billing), but it does not restrict a statutorily required disclosure of financial nature; and
(b) User information (except pertaining to foreign subscribers using Indian Operator’s network while roaming).
9. (ix) The Company must provide traceable identity of their subscribers. However, in case of providing service to roaming subscriber of foreign Companies, the Indian Company shall endeavour to obtain traceable identity of roaming subscribers from the foreign company as a part of its roaming agreement.
10. On request of the licensor or any other agency authorised by the licensor, the telecom service provider should be able to provide the geographical location of any subscriber (BTS location) at a given point of time.
11. The Remote Access (RA) to Network would be provided only to approved location(s) abroad through approved location(s) in India. The approval for location(s) would be given by the Licensor (DOT) in consultation with the Ministry of Home Affairs.
12. Under no circumstances, should any RA to the suppliers/manufacturers and affiliate(s) be enabled to access Lawful Interception System(LIS), Lawful Interception Monitoring(LIM), Call contents of the traffic and any such sensitive sector/data, which the licensor may notify from time to time.
13. The licensee company is not allowed to use remote access facility for monitoring of content.
14. Suitable technical device should be made available at Indian end to the designated security agency /licensor in which a mirror image of the remote access information is available on line for monitoring purposes.
15. Complete audit trail of the remote access activities pertaining to the network operated in India should be maintained for a period of six months and provided on request to the licensor
16. The telecom service providers should ensure that necessary provision (hardware/software) is available in their equipment for doing the Lawful interception and monitoring from a centralized location.
17. The telecom service providers should familiarize/train Vigilance Technical Monitoring (VTM)/security agency officers/officials in respect of relevant operations/features of their systems.
18. It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security angle.
19. In order to maintain the privacy of voice and data, monitoring shall only be upon authorisation by the Union Home Secretary or Home Secretaries of the States/Union Territories.
20. For monitoring traffic, the licensee company shall provide access of their network and other facilities as well as to books of accounts to the security agencies.
21. The aforesaid Security Conditions shall be applicable to all the licensee companies operating telecom services covered under this circular irrespective of the level of FDI.
22. Other Service Providers (OSPs), providing services like Call Centres, Business Process Outsourcing (BPO), tele-marketing, teleeducation, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom service providers and 100% FDI is permitted for OSPs. As the security conditions are applicable to all licensed telecom service providers, the security conditions mentioned above shall not be separately enforced on OSPs.
The above mentioned General Conditions and Security Conditions shall also be applicable to the companies operating telecom service(s) with the FDI cap of 49%. Also all telecom service providers must submit a compliance report on the aforesaid conditions to the licensor on 1st day of July and January on six monthly basis.
4. FDI in Information technology
In case IT industry, FDI norms are quite liberalized and foreign investment has been permitted for foreign equity up to 100 per cent in software and electronics, except aerospace and defence subject to certain conditions.
Incentives by Government –
• 100 per cent foreign investment has been permitted in units set up exclusively for exports. Such units can be set up under any one of the following schemes, namely EHTPs, STPs, Free-Trade Zones/EPZs and 100 per cent EOUs;
• FDI for 100 per cent of the equity has been permitted in BPO companies;
• Duty-free imports of capital goods are permitted (under the EPCGS) for BPO companies;
• A number of States have developed their own IT policy to promote the development of software sector;
• A tax holiday for research and development has been declared for up to 10 years with 15 percent tax concession;
• An IT venture capital fund has been set up;
• Simplification and liberalization of the Export & Import Policy;
• The Foreign Trade Policy 2010-2014, under Zero duty EPCG scheme allows import of capital goods for preproduction, production and post production (including CKD/SKD thereof as well as computer software systems) at zero Customs duty, subject to an export obligation equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue-date.
5.FDI in Pharmaceutical and Health care Sector –
Under the FDI Policy of India, the FDI in pharmaceutical and healthcare sectors are allowed to an extent to 100% under the automatic route. The Government has recently introduced a lot of measures, with a view to increase investment in these sectors, such as –
• Extension of tax benefits to financial institutions,
• Providing long-term capital to private hospitals with 100 beds or more,
• Increase in tax depreciation rate up to 40 per cent on life saving medical equipments, and
• Reduction/exemption of customs and excise duties on life saving equipment and drugs, hearing aids, crutches, wheel chairs, walking frames, tricycles and artificial limbs.
6. FDI in Mining Sector -
Under the FDI Policy of India, for the purpose of foreign investment the mining sector is classified into three categories –
• Mining and exploration of metal and non-metal but excluding titanium;
This sector includes mining and exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores.
For this category FDI is permitted to an extent of 100% under the automatic route.
Investment in the industries covered under this category is subject to the Mines and Minerals( Development & Regulation) Act, 1957.
• Coal & lignite mining and its processing;
This sector includes coal & lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under Coal Mines (Nationalization) Act, 1973. Setting up coal processing plants like washeries is also included in this category.
For this category FDI is permitted to an extent of 100% under the automatic route.
i. Investment in the industries undertaking coal & lignite mining for captive consumption is subject to Coal Mines (Nationalization) Act, 1973;
ii. Investment in industries undertaking coal processing plants like washeries is subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
Mining and mineral separation of titanium.
Mining and mineral separation of titanium bearing minerals & ores, its value addition and integrated activities are included in this category.
For this category FDI is permitted to an extent of 100% under the government route.
Investment in the industries covered under this category is subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957)
The foreign investment is also subject to notifications issued by the Department of Atomic Energy. Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of “prescribed substances” under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/concentrates including Zircon, were removed from the list of “prescribed substances”. As a result –
i. FDI for separation of titanium bearing minerals & ores will be subject to the following additional conditions viz.:
a) Value addition facilities are set up within India along with transfer of technology;
b) Disposal of tailings during the mineral separation shall be carried out in accordance with regulations framed by the Atomic Energy Regulatory Board such as Atomic Energy (Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987.
ii. FDI will not be allowed in mining of “prescribed substances” listed in the Notification No. S.O. 61(E) dated 18.1.2006 issued by the Department of Atomic Energy.
With reference to these conditions the titanium bearing ores such as Ilmenite, Leucoxene and Rutile, manufacture of titanium dioxide pigment and titanium sponge constitutes value addition. Ilmenite can be processed to produce ‘Synthetic Rutile or Titanium Slag as an intermediate value added product.
The objective of these conditions is to ensure that the raw material available in the country is utilized or for setting up downstream industries and the technology available internationally is available for setting up such industries within the country. Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (a) above shall be deemed to be fulfilled.
7. FDI in Oil, Gas and Natural Resources
In case of industries in the Oil, Gas and Natural Resources sectors, the FDI norms are quite liberalized. The Indian government has introduced a host of measures to increase foreign investment in these sectors. Under the FDI Policy of India –
• FDI is permitted up to 100 per cent under the automatic route in oil exploration in both small and medium sized fields subject to and under the policy of the Government on private participation in –
(i) exploration of oil and
(ii) the discovered fields of national oil companies;
• Refining Industry has been de-licensed – Tremendous opportunity for investment exists in these sectors in the years to come, in which the private sector, including the foreign companies can set up their own projects or through joint ventures in public sector companies;
• The refining sector is open to the joint sector (public-private partnerships) as well as to the private sector for new refineries. FDI participation up to 49 per cent is permitted in case of PSUs, subject to approval from the FIPB. In case of private Indian companies, FDI is permitted up to 100 per cent under the automatic route;
• For petroleum products pipeline and natural gas pipeline, FDI is permitted up to 100 per cent on the automatic route subject to and under the Government policy and regulations thereof;
• FDI is permitted up to 100 per cent on the automatic route in petroleum products marketing. FDI in this sector would be permissible subject to the existing sectoral policy and regulatory framework in the oil-marketing sector. Subject to the policy laid down by the Government, marketing of transportation fuels can be permitted to a company investing or proposing to invest at least INR 20 billion in exploration, refining, pipelines or terminals in the oil and gas sector of India. Import of LNG and natural gas is on OGL. If an entity requires the acquisition of Right of Use (ROU) in land, it approaches the Ministry of Petroleum and Natural Gas for the acquisition under the Petroleum & Mineral Pipelines (Acquisition of Right of Use in Land) Act, 1962 (P&MP Act, 1962).
• FDI up to 100 per cent is permitted for the purpose of market study and formulation, and for investment/financing.
8. FDI in Agriculture
Under the FDI Policy of India, any foreign investment in agriculture is allowed to an extent of 100% under the automatic route. However such investment is permitted only in a limited number of sector or activity, listed below –
1. Floriculture, horticulture, and cultivation of vegetables & mushrooms under controlled conditions;
2. Development and production of seeds and planting material;
3. Animal Husbandry (including of breeding of dogs), pisciculture, aquaculture under controlled conditions; and
4. Services related to agro and allied sectors.
9. FDI in Chemical Sector
Under the FDI policy of India, the foreign investment to extent of 100% is permitted in the Chemical Sector under the automatic route. It is also pertinent to note that manufacturing most of the chemical products including organic, inorganic, dyestuffs or pesticides do not require any license. The entrepreneurs need to submit only Industrial Entrepreneurs Memorandum (IEM) with the Department of Industrial Policy & Promotion provided that Locational Policy of the department is not applicable. Only the following items are covered in the compulsory licensing list because of their hazardous nature.
• Hydrocyanic acid & its derivatives
• Phosgene & its derivatives
Isocynates & di-isocynates of hydrocarbons
10. FDI in Media and Entertainment Sector
Under the FDI Policy of India, for the purpose of foreign investment the media and entertainment sector is classified into four categories –
1. Terrestrial Broadcasting of FM Radio
The FDI in the undertaking engaged in terrestrial broadcasting of FM Radio is permitted only to an extent of 20% including investment from NRI & PIO investments and portfolio investment under the government route.
The FDI in these undertaking is subject to such terms and conditions as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations
2. Cable Network
The FDI in the undertaking engaged in providing service of cable network is allowed only to an extent of 49%, including the investment from NRI & PIO investments and portfolio investment under government route.
The FDI in these undertaking is subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting
3. Direct –to-Home
In case of the undertaking engaged in providing service of DTH, the FDI is allowed only to an extent of 49% including NRI & PIO investments and portfolio investment under the government route. However, in this case the FDI component in such investment must not exceed 20%.
The FDI in these undertaking is subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting
4. Headend-In-The-Sky (HITS)
Headend-In-The-Sky Broadcasting Service refers to the multi channel down linking and distribution of television programme in CBand or Ku Band wherein all the pay channels are down linked at a central facility (Hub/teleport) and again up linked to a satellite after encryption of channel. At the cable head end these encrypted pay channels are down linked using a single satellite antenna, trans modulated and sent to the subscribers by using a land based transmission system comprising of infrastructure of cable/optical fibers network.
The FDI in the undertaking in these services is allowed only to extent of 74% inlcluding the indirect foreign investment and portfolio investment. However if the total investment is up to 49%, such investment comes under the automatic route and under government route if total investment is beyond 49% and up to 74%.
The FDI in these undertaking is subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting.