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India liberalises FDI policy

17th September, 2012

India has liberalised its Foreign Direct Investment or FDI Policy by increasing the limits in certain major sectors. The Ministry of Commerce and Industry, by its press releases dated September 14, 2012, has announced these changes including the decision to allow FDI in multi-brand retail trading.

As per the policy rejig, FDI upto 51% will be allowed in multi-brand retail trading. Retail sales outlets may be set up in states which agree to, or in future agree to allow FDI in multi brand retail. Such outlets are to be set up in cities having population of more than 10 lakh as per 2011 Census. Further, at least 50% of total FDI brought in shall be invested in 'backend infrastructure' within three years of the induction of FDI.

The Government has decided to amend FDI policy on single brand retail trading – in cases of FDI beyond 51%, The mandatory sourcing requirement has been relaxed and now 30% of the value of goods from India, may be sourced preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible. Also, now only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country. The onus for ensuring compliance with this condition shall rest with the Indian entity carrying out single brand product retail trading in India.  

For the broadcasting sector, the FDI limit in Direct to Home (DTH), Cable Networks (Multi-System-Operators operating at National or State or District level and undertaking up gradation of networks towards digitalization and addressability), mobile TV and Headend-in-the Sky Broadcasting Service has been increased to 74% (automatic route up to 49%; Government rote beyond 49% and up to 74%).

Foreign investment will be permitted up to 49% (FDI limit of 26% and FII limit of 23% of the paid-up capital) in Power Trading Exchanges. FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route. 

Foreign airlines have been given the nod to make foreign investment, up to 49% in scheduled and non-scheduled air transport services. Foreign airlines can now make investment up to 49%,  under the approval route, in the capital of the Indian companies operating scheduled and non-scheduled air transport services. The investment made would need to comply with the relevant regulations of SEBI (ICDR , SAST, etc) and other relevant conditions as laid out in the prospective policy. 
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