The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has released the latest Consolidated FDI Policy, 2017 (FDI Policy 2017), effective from August 28, 2017. Some major changes reflected in the FDI Policy 2017 are outlined below:
Investment exceeding Rs. 5000 Crores - Previously, additional infusion into the same entity/its Wholly Owned Subsidiary, within approved FDI limits, did not require fresh approval of FIPB to be sought. As per the latest FDI Policy, any additional infusion into the same entity/ its Wholly Owned Subsidiary, exceeding the cumulative amount of INR 5,000 Cr, shall require fresh approval to be sought.
Conversion of a Limited Liability Partnership (LLP) into Company - Conversion of an LLP into a company (and vice-versa) operating in sectors/activities where 100% FDI is allowed under the automatic route and where there are no FDI-linked performance conditions, has now been permitted under Automatic route
Single Brand Product Retail Trading (SBRT) - Under the FDI Policy, SBRT entities having FDI exceeding 51% are required to source at least 30% of the value of goods purchased, from within India, preferably from MSMEs/cottage industries/artisans. However, SBRT entities trading in ‘state of art’ or ‘cutting edge’ products may seek relaxation from such compliance with local sourcing norms. Given the ambiguity surrounding assessment of products that qualify as ‘state of art’ and ‘cutting edge’, the Government of India have now announced that a Committee comprising of representatives from DIPP, NITI Aayog, technical experts would examine ‘state of art’ and ‘cutting edge’ qualifying features in such proposals
Under the previous FDI Policy, Indian Manufacturers (i.e owner of an Indian brand) having FDI were required to manufacture at least 70% of its products (in terms of value) in-house. That is, an Indian Manufacturer could previously outsource manufacturing for only a maximum of 30% of its products (in terms of value).
With the deletion of the notion of an ‘Indian Manufacturer’ under the FDI Policy 2017, domestic entities engaged in SBRT will no longer be required to meet the stringent criteria of in-house manufacturing of minimum 70% of its products. Nevertheless, local sourcing norms will still need to be complied with by domestic SBRT entities having FDI exceeding 51%.
E-Commerce - The previous FDI Policy mandated only a maximum of 25% sales from a single vendor/vendor’s group companies, but had not specified the manner of computation. The FDI Policy now clarifies that only a maximum of 25% of the sales value on financial year basis can be affected by an e-commerce entity through its marketplace, from one vendor/vendor’s group companies.