5 Key Changes Made To Foreign Investment Policy In India After 2019 Election
India is aiming to be the fastest growing economy, and the growth rate is supposed to scale up to 7.3% annually according to the World Bank’s Global Economic Prospects Report of 2018. Furthermore, the country has also improved its ranking in the Ease of Doing Business Index of World Bank in 2018. The positive vibes can be attributed to the continuing efforts of the Indian government to improve the regulatory regime and introduce legislative changes to modify the business environment. The FDI inflows have been at an all-time high in the financial year 2016-17, further relaxation of the policies of FDI intends to attract foreign investment and move away the delays that are involved while seeking the approval.
The following five points indicate some of the key aspects of foreign investment in India and things you must note.
1. Single Brand Retail Trading or SBRT
The SBRT permits hundred percent FDI, which is to come primarily through the automatic route or without the approval of the government. It eases the process of regulation for the international and the Indian brands to leverage the growing and the big retail industry in India. Under the previous policy, FDI of about 49% used to be permitted through the automatic route. For the approval of FDI beyond 49% previously required the approval of the Indian government. However, the compulsory local sourcing requirement of about 30% has now been relaxed for a period of five years, and the foreign retailers get the credit for the massive increase in local sourcing for all worldwide operations. After the completion of the five year period, the Indian operations of Single Brand Retail Trading must meet the thirty-percent of local sourcing norm every year.
2. Investment in civil aviation
As far as foreign investment in India is concerned, the foreign airlines have been allowed to invest about 49% in a bid to privatize the national carrier. The foreign investment is allowed up to 49% in the national carrier under the route of approval provided that the total foreign investment does not exceed the designated amount. Apart from this, the ownership and control must still remain with an
3. Non-cash shares and investing in Indian holding companies
Issuing shares against non-cash aspects such as import of machinery and pre-incorporation expenses shall be allowed through the automatic route only for those sectors in the automatic route. This provides the companies with the flexibility to make their arrangements with their investors. Previously, government approval was required for the issue of shares against the import of machinery and pre-incorporation.
In addition to this, foreign investments in the Indian holding companies previously required government approval, but from now on, when the concerned activities are controlled by a regulator in the financial sector, foreign investment of 100% under the automatic route will be allowed. The Indian holding companies are those that are preoccupied with the business of investing in other Indian companies.
4. Real estate broking services
The real estate broking services have been categorized as different from the business of real estate and is eligible for 100% FDI under the automatic route. Due to the relaxation in the rules, it provides the required clarification to the international brokerage companies to improve the future improvements in the Indian counterparts, and also for setting up subsidiaries in this country. For FDI in India, this change reflects a positive outcome, and more investors would be encouraged to come to this country for doing business like never before.
5. Restriction of conditions regarding the audit firms
When a foreign investor nominates an audit firm with an international network to act on behalf of the Indian company or the investee, the audit of the latter is to be conducted jointly wherein one of the auditors is not going to be the part of the same network. This restriction is supposed to create bigger opportunities for the audit firms in India as most of the international firms are not expected to agree to the joint audit with the worldwide rival’s counterpart in India.
Things to note
When it comes to foreign direct investment in Indian company, it plays a crucial role in the economic growth of the country. Presently, the FDI regime in India is controlled by the Consolidated FDI Policy of 2017 and the Foreign Exchange Management Regulations of 2017. Over the years, the government of India has amended the policy of TISPRO and the policy of FDI, to allow up to hundred percent FDI in most of the sectors under the automatic route and this measure has resulted in the inflow of FDI in this country. According to the recent amendments of TISPRO, it has resulted in major changes in different sectors and the move is likely to popularize foreign investments and the ease with which business can be carried out in the country.
The amendments of TISPRO has led to the introduction of changes in the foreign tax laws as well and also makes certain sectors liberal for influencing foreign investments in this country such as allowing hundred percent FDI in the single brand retail trading and the Non Banking Financial Corporations that are registered with the RBI. Quite naturally, the primary focus of the major reforms is to simplify the regulatory system and the complexity of the laws in an effort to make them more investor-friendly. The measures are expected to boost the confidence of the investors and make this country a more prominent destination for foreign investments.
Amy Jones is a certified legal expert by profession and she is associated with Ahlawat & Associates- a leading law firm who have top lawyers in India. She loves sharing useful information about business, finance and law with needy people. Follow her on twitter