Review of sectoral caps and simplification of Foreign Direct Investment (FDI) Policy

Review of sectoral caps and simplification of Foreign Direct Investment (FDI) Policy

Review of sectoral caps and simplification of Foreign Direct Investment (FDI) Policy In all sectors where there is a limit/cap on foreign investment, such limit/cap shall be reckoned in a composite manner. In other words, "sectoral cap", i.e., the maximum amount which can be invested by foreign investors in an entity will include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedules 1, 2, 2(A), 3, 6, 8, 9 and 10 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000.  Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) having underlying of instruments which can be issued under Schedule 5, being in the nature of debt, shall not be treated as foreign investment under such composite limit/cap.  However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment under the composite limit/cap. “Total foreign investment" in an Indian company will be the sum total of direct and indirect foreign investments. Portfolio investment up to aggregate foreign investment level of 49% or sectoral /statutory cap, whichever is lower, will not be subject to either Government approval or compliance with the sectoral conditions, as the case may be, provided such investment does not result in change in ownership leading to control of Indian entities .  Other foreign investments will be subject to conditions of Government approval and compliance of sectoral conditions as laid down in the FDI policy and the related Regulations under the Foreign Exchange Management Act 1999. The onus of compliance with the sectoral/statutory caps on foreign investment and attendant conditions, if any, shall be on the company receiving foreign investment. A company shall be considered as owned by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens.  A Limited Liability Partnership (LLP) will be considered as owned by resident Indian citizens if more than 50% of the investment in such an LLP is contributed by resident Indian citizens and/ or entities which are ultimately ‘owned and controlled by resident Indian citizens’ and such resident Indian citizens and entities have majority of the profit share. Foreign investment in LLP is permitted under the automatic route if the LLP is engaged in sector where 100% FDI is allowed and there are no attendant FDI linked performance conditionalities to the sector. Foreign investment up to 100 percent under the automatic route has been permitted in the plantation sector which includes tea plantations, coffee plantations, rubber plantations, cardamom plantations, palm oil tree plantations and olive oil tree plantations.  There have been changes in the foreign investment cap in other sectors. The updated Annex-B to schedule-1 has been notified vide Notification No. FEMA 362/2016-RB dated February 15, 2016. Manufacturing has been given a precise definition and foreign investment up to 100% under the automatic route is permitted in manufacturing subject to the conditions of the FDI policy and the provisions of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.