Rules notified for FDI in multi-brand retail, new sectoral caps and ‘control’

Aug 23 2013, 14:27 IST
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SummaryThe government notified the decisions approved by the Cabinet earlier this month relating to FDI policy, revision of FDI caps and routes across different sectors.

The government on Thursday notified the decisions approved by the Cabinet earlier this month relating to FDI policy for multi-brand retail, revision of FDI caps and routes across different sectors and definition of ‘control’ for calculating total foreign investment (both direct and indirect) in Indian companies.

Following the notification, the decisions are effective.

Press note 4 of the Department of Industrial Policy and Promotion (DIPP) defines ‘control’ as the right to appoint majority of the directors or control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.

According to Press note 5, which amends the FDI policy for multi-brand retail, at least 50% of the total FDI brought in the first tranche of $100 million has to be invested in backend infrastructure within three years. The industry will continue to qualify as small even if it outgrows the $2-million mark. Moreover, any city can now get FDI in the sector irrespective of its population.

As for Press note 6, sectors where caps were raised include defence production, telecom and insurance while the automatic approval route will now be available for petroleum refineries, power, stock and commodity exchanges. However, the sector limit remains unchanged at 49%.

In telecom, the cap has been increased from 74% to 100%. It is automatic up to 49%, but requires an FIPB nod above that.

FDI in defence is allowed up to 26% through the government route and, over that, it will be referred to the Cabinet Committee on Security. The policy has additional clauses too.

The cap in insurance has been hiked, but the proposal will require legislative sanction. Foreign players can also now hold 100% in the paid-up capital of asset-reconstruction companies with 49% allowed automatically and via the government route above that. As for single-brand retail, foreign investors can now invest up to 49% via the automatic route. However, additional products sold under the single brand will need a fresh approval from the government.

Infra companies in the securities market can now get 49% FDI via the automatic route.

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