This year witnessed changes to the foreign investment policy aimed at streamlining regulations, liberalising existing sectoral restrictions and bringing clarity on existing conditionalities in certain sectors. Additionally, steps were taken to decriminalise offences under the Companies Act, 2013 and to bring parity on stamp duty payable on transfer of shares, irrespective of the form in which such shares are held.
Pursuant to an amendment to the Foreign Exchange Management Act, 1999, the Government of India was vested with the power to regulate capital account transactions involving ‘non-debt instruments’ (such power was previously with the Reserve Bank of India). Consequently, the Government of India notified the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules), which consolidate various regulations applicable to ‘non-debt instruments’.
The NDI Rules supersede the Foreign Exchange Management (Transfer and Issue of Security by a Person Resident outside India) Regulations, 2017, which previously regulated foreign direct investments and foreign portfolio investments. While there are no major changes vis-à-vis the previous regime, the NDI Rules streamline various regulations, based on the class of investor and the mode of investment.
Another important development last year was the shift in policy direction by the Government of India to liberalise FDI in the insurance intermediaries sector, which was restricted to 49% under the automatic route. The changes proposed will allow FDI up to 100% under the automatic route in insurance intermediaries, subject to compliance with prescribed conditions including those notified by the Insurance Regulatory and Development Authority of India (IRDAI) (pursuant to the notification of the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2019). These conditions include:
While the government’s intent to liberalise this sector is clear, formal notification of this shift in policy is still awaited.
Additionally, over the past year, there have been changes in the Foreign Direct Investment (FDI) regulations for certain sectors, which have been summarised below:
Local sourcing rules continue to require an assessment of compliance as an average of five years in the first instance (beginning 1 April of the year of commencement of business) and on an annual basis thereafter.
Previously, the FDI regime did not have any specific provision dealing with ‘digital news’ activities. However, in 2019, an FDI cap of 26% under the government approval route was imposed on ‘uploading or streaming of news and current affairs through digital media’.
This has led to a degree of ambiguity regarding the precise scope of this provision as several digital news websites previously operated with higher foreign investment limits.
Previously, there was some ambiguity in the FDI regime relating to contract manufacturing activities. The scope of manufacturing activities, which is under the automatic route for FDI of up to 100%, has now been expanded to specifically include contract manufacturing activities.
If you would like to receive content directly in your inbox from our knowledge repository, please complete this subscription form.