Tag Archives: Contract Manufacturing

Cabinet to consider relaxing FDI norms to attract Overseas Investment

Foreign Direct Investment (FDI) is major driver of growth and development of the economy of the country. With this intent, the Government of India has time and again come up with investor friendly reforms under FDI regulations to have more liberalized reforms across various sectors.

To boost up FDI, the Union Cabinet headed by Prime Minister Narendra Modi on 28 August 2019, has approved the proposal for reviewing of the FDI policy on various sectors. They have considered relaxing foreign direct investment (FDI) norms in several sectors, including coal mining, manufacturing, single-brand retail and digital media, to attract overseas players.

The key highlights of the proposed changes are as follows:

Coal Mining

The present FDI policy allows 100% FDI under automatic route for captive coal mining only. The captive coal mining deals with coal & lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities. Along with the captive coal mining, 100% FDI under automatic route is also allowed for setting up coal processing plants like washeries. However, the companies are prohibited to sell washed coal or sized coal from its coal processing plants in the open market and supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

This proposal aims at allowing 100% FDI under automatic route for “Associated Processing Infrastructure”. Associated Processing Infrastructure includes coal washery, crushing, coal handling, and separation (magnetic and non-magnetic). This proposal has opened 100% FDI for selling coal subject to provisions of Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957.

In crux

  • 100% FDI under automatic route is allowed for Associated Processing Infrastructure.
  • 100% FDI under automatic route is allowed for sale of coals.

Contract Manufacturing

Contract manufacturing in international markets is used in situations when one company arranges for another company in a different country to manufacture its products. This concept is not captured in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 and therefore there is no clear laws and rules regulating FDI in contract manufacturing in India. Therefore, the Government through this proposal has allowed to include contract manufacturing under the manufacturing sector and has allowed 100% FDI under automatic route. Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent basis.

In crux

  • Contract manufacturing included as an activity under the manufacturing sector.
  • 100% FDI under automatic route is allowed for contract manufacturing.

Single Brand Retail Trade (SBRT)

The present FDI policy provides that 30% of the value of goods has to be procured from India if SBRT entity has FDI more than 51% and the same can be met as an average during the first 5 years, and thereafter annually towards its India operations. As regards local sourcing requirement, the Government has decided to count procurements made from India by the SBRT entity for that single brand as local sourcing, irrespective of whether the goods procured are sold in India or exported. Also, the Government would relax the cap of 5 years by removing it. The approvals allow ‘sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident}, or indirectly by them through a third party under a legally tenable agreement.

The present policy limits the global sourcing by stating that only that part of the global sourcing shall be counted towards local sourcing requirement which is over and above the previous year’s value. The Government is trying to relax this restriction by considering sourcing from India for global operations shall be considered towards local sourcing requirement.

The present FDI policy states that if any SBRT wants to trade through e-commerce, they would be required to operate through brick and mortar stores before trading through e-commerce. The Government by approving this proposal is relaxing the said condition by allowing SBRT to operate through e-commerce subject to the opening of brick and mortar stores within 2 years of starting to trade online.

In crux

  • Goods procured are sold in India or exported to be considered as local sourcing.
  • The 5 years cap removed.
  • No incremental value for calculating local sourcing requirement.
  • SBRT can trade through e-commerce prior to having a brick and mortar store.

Digital Media

The present FDI policy is silent on the fast-growing digital media segment. In the print media sector, 26 percent FDI is allowed through government approval route. Similarly, 49 percent FDI is permitted in broadcasting content services through government approval route. With this proposal, it has been decided by the Government to permit 26% FDI under government route for uploading/ streaming of News & Current Affairs through Digital Media, on the lines of print media.

In crux

  • Introduction of the concept of digital media
  • 26% FDI under governmental route is allowed for uploading/ streaming of News & Current Affairs through Digital Media.

The proposed change reflects that the Government is keen on promoting FDI in various sectors. These amendments are meant to liberalize and simplify the FDI policy to provide ease of doing business in the country. These changes will lead to benefits of increased investments, employment and growth.

Source:  https://pib.gov.in/PressReleseDetail.aspx?PRID=1583294

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