Rationalisation of the FDI Policy - FEMA - 04/2006

Government of India Ministry of Commerce Industry Department of Industrial Policy Promotion (FC Section) PRESS NOTE NO. 4 (2006 Series) Subject: Rationalisation of the FDI Policy The policy on Foreign Direct Investment (FDI) has been reviewed on a continuing basis and several measures announced from time to time for rationalization / liberalization of the policy and simplification of procedures. 2. Government of India has recently further reviewed the policy on FDI and decided as under: a. To allow under the automatic route, FDI up to 100%, for : i. distillation brewing of potable alcohol; ii. manufacture of industrial explosives; iii. manufacture of hazardous chemicals; iv. manufacturing activities located within 25 kms of the Standard Urban Area limits which require Industrial license under the Industries(Development Regulation)Act, 1951; v. setting up Greenfield airport projects; vi. laying of Natural Gas/LNG pipelines, market study formulation and Investment financing in the Petroleum Natural Gas sector; and vii. cash carry wholesale trading and export trading. b. To increase FDI caps to 100% and permit it under the automatic route for: i. coal lignite mining for captive consumption; ii. setting up infrastructure relating to marketing in Petroleum Natural Gas sector; and iii. exploration and mining of diamonds precious stones. c. To allow FDI up to 100% under the automatic route in i. power trading subject to compliance with Regulations under the Electricity Act, 2003; ii. processing and warehousing of coffee and rubber. d. To allow FDI up to 51 % with prior Government approval for retail trade of 'Single Brand' products, detailed guidelines for which have been notified vide Press Note 3 (2006 Series). e. To allow under the automatic route transfer of shares from residents to non-residents in financial services, and where Securities Exchange Board of India (Substantial Acquisition and Takeover) Regulations are attracted, in cases where approvals are required from the Reserve Bank of India/ Securities Exchange Board of India (Substantial Acquisition and Takeover) Regulations /Insurance Regulatory Development Authority. With this, transfer of shares from residents to non-residents, including acquisition of shares in an existing company would be on the automatic route subject to sectoral policy on FDI. f. To dispense with the requirement of mandatory divestment of 26% foreign equity in B2B e-Commerce. 3. FDI/NRI investment under the automatic route shall continue to be governed by the Sectoral regulations/licensing requirements. 4. A summary of the FDI policy and regulations applicable in various sectors / activities is at the Annex. (Umesh Kumar) Joint Secretary to the Government of India F, No. 5(3)/2005-FC dated 10 -2-2006 ANNEX TO PRESS NOTE 4 (2006 Series) Policy on Foreign Direct Investment (FDI) I. Sectors prohibited for FDI i. Retail trading (except Single Brand Product retailing) ii. Atomic energy iii. Lottery business iv. Gambling and Betting . II. All Activities/ Sectors would require prior Government approval for FDI in the following circumstances : i. where provisions of Press Note 1(2005 Series) are attracted; ii. where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector. III. In Sectors/Activities not listed below, FDI is permitted up to 100% on the automatic route subject to sectoral rules / regulations applicable . IV. Sector-specific policy for FDI S.N Sector/Activity FDI Cap / Equity Entry Route Other conditions Relevant Press Note issued by D/o IPP www.dipp.gov.in 1. Airports - a. Greenfield projects 100% Automatic Subject to sectoral regulations notified by Ministry of Civil Aviation www.civilaviation.nic. in PN 4 / 2006 b. Existing projects 100% FIPB beyond 74%. Subject to sectoral regulations notified by Ministry of Civil Aviation www.civilaviation.nic. in PN 4 / 2006 2. Air Transport Services 49%- FDI; 100%- for NRI investment Automatic Subject to no direct or indirect participation by foreign airlines. Government of India Gazette Notification dated 2.11.2004 issued by Ministry of Civil Aviation www.civilaviation.nic. in . 3. Alcohol -Distillation Brewing 100% Automatic Subject to license by appropriate authority PN 4 / 2006 4. Asset Reconstruction Companies 49% (only FDI) FIPB Where any individual investment exceeds 10% of the equity, provisions of Section 3(3)(f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 should be complied with. www.finmin.nic.in 5. Atomic Minerals 74% FIPB Subject to guidelines issued by Department of Atomic Energy vide Resolution No. 8/1(1)/97-PSU/1422 dated 6.10.98. 6. Banking - Private sector 74% (FDI+FII) Automatic Subject to guidelines for setting up branches/ subsidiaries of foreign banks issued by RBI. www.rbi.org.in PN 2 / 2004 7. Broadcasting a. FM Radio FDI +FII investment up to 20% FIPB Subject to Guidelines notified by Ministry of Information Broadcasting www.mib.nic.in PN 6 / 2005 b. Cable network 49% (FDI+FII ) FIPB Subject to Cable Television Network Rules (1994) Notified by Ministry of Information Broadcasting www.mib.nic.in c. Direct-To-Home 49% (FDI+FII ). Within this limit, FDI component not to exceed 20% FIPB Subject to guidelines issued by Ministry of Information Broadcasting www.mib.nic.in d. Setting up hardware facilities such as up-linking, HUB, etc 49% (FDI+FII ) FIPB Subject to Up-linking Policy notified by Ministry of Information Broadcasting www.mib.nic.in PN 1 / 2006 e. Up-linking a News Current Affairs TV Channel 26% FDI+FII FIPB Subject to guidelines issued by Ministry of Information Broadcasting www.mib.nic.in PN 1/ 2006 f. Up-linking a Non- news Current Affairs TV Channel 100% FIPB Subject to guidelines issued by Ministry of Information Broadcasting www.mib.nic.in PN 1 / 2006 8. Cigars Cigarettes -Manufacture 100% FIPB Subject to industrial license under the Industries (Development Regulation) Act, 1951 PN 4 / 2006 9. Coal Lignite mining for captive consumption by power projects, and iron steel, cement production and other eligible activities permitted under the Coal Mines (Nationalisation) Act, 1973. 100% Automatic Subject to provisions of Coal Mines (Nationalization) Act, 1973 www.coal.nic.in PN 4 / 2006 10. Coffee Rubber processing warehousing 100% Automatic PN 4 / 2006 11. Construction Development projects, including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships. 100% Automatic Subject to conditions notified vide Press Note 2 (2005 Series) including: a. minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for joint venture. The funds would have to be brought within six months of commencement of business of the Company. b. Minimum area to be developed under each project- 10 hectares in case of development of serviced housing plots; and built-up area of 50,000 sq. mts. in case of construction development project; and any of the above in case of a combination project. [Note: For investment by NRIs, the conditions mentioned in Press Note 2 / 2005 are not applicable.] PN 2 / 2005 PN 2 / 2006 12. Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898. 100% FIPB Subject to existing laws and exclusion of activity relating to distribution of letters, which is exclusively reserved for the State. www.indiapost.gov.in PN 4 / 2001 13. Defence production 26% FIPB Subject to licensing under Industries (Development Regulation) Act, 1951 and guidelines on FDI in production of arms ammunition. PN 4 / 2001 PN 2 / 2002 14. Floriculture, Horticulture , Development of Seeds, Animal Husbandry , Pisciculture, aqua-culture, cultivation of vegetables,, mushrooms, under controlled conditions and services related to agro and allied sectors. 100% Automatic PN 4 / 2006 15. Hazardous chemicals, viz., hydrocyanic acid and its derivatives; phosgene and its derivatives; and isocyanates and di-isocyantes of hydrocarbon. 100% Automatic Subject to industrial license under the Industries (Development Regulation) Act, 1951 and other sectoral regulations. PN 4 / 2006 16. Industrial explosives - Manufacture 100% Automatic Subject to industrial license under Industries (Development Regulation) Act, 1951 and regulations under Explosives Act, 1898 PN 4 / 2006 17. Insurance 26% Automatic Subject to licensing by the Insurance Regulatory Development Authority www.irda.nic.in . PN 10 / 2000 18. Investing companies in infrastructure / services sector (except telecom sector) 49% FIPB Foreign investment in an investing company will not be counted towards sectoral cap in infrastructure /services sector provided the investment is up to 49% and the management of the company is in Indian hands. PN 2 / 2000 PN 5 / 2005 19. Mining covering exploration and mining of diamonds precious stones; gold, silver and minerals. 100% Automatic Subject to Mines Minerals (Development Regulation) Act, 1957 www.mines.nic.in Press Note 18 (1998) and Press Note 1 (2005) are not applicable for setting up 100% owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and / or the particular mineral. PN 2 / 2000, PN 3 / 2005, PN 4 / 2006 20. Non Banking Finance Companies- approved activities i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii) xiv) xv) xvi) xvii) xviii) xix) Merchant banking Underwriting Portfolio Management Services Investment Advisory Services Financial Consultancy Stock Broking Asset Management Venture Capital Custodial Services Factoring Credit Reference Agencies Credit Rating Agencies Leasing Finance Housing Finance Forex Broking Credit card business Money changing business Micro credit Rural credit. 100% Automatic Subject to: a. minimum capitalization norms for fund based NBFCs - US$ 0.5 million to be brought upfront for FDI up to 51%; US$ 5 million to be brought upfront for FDI above 51% and up to 75%; and US$ 50 million out of which US$ 7.5 million to be brought upfront and the balance in 24 months for FDI beyond 75% and up to 100%. b. minimum capitalization norms for non-fund based NBFC activities- US$ 0.5 million. c. foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities subject to bringing in Under Secretary 50 million without any restriction on number of operating subsidiaries without bringing additional capital. d. joint venture operating NBFC's that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities subject to the subsidiaries also complying with the applicable minimum capital inflow. e. compliance with the guidelines of the RBI. PN 2 / 2000, PN 6 / 2000, PN 2 / 2001 21. Petroleum Natural Gas sector a. Other than Refining and including market study and formulation; investment/ financing; setting up infrastructure for marketing in Petroleum Natural Gas sector. 100% Automatic Subject to sectoral regulations issued by Ministry of Petroleum Natural Gas; and in the case of actual trading and marketing of petroleum products, divestment of 26% equity in favour of Indian partner/public within 5 years. www.petroleum.nic.in PN 1 / 2004 PN 4 / 2006 b. Refining 26% in case of PSUs 100% in case of Private companies FIPB (in case of PSUs) Automatic (in case of private companies) Subject to Sectoral policy www.petroleum.nic.in PN 2 / 2000 22. Print Media- a. Publishing of newspaper and periodicals dealing with news and current affairs 26% FIPB Subject to Guidelines notified by Ministry of Information Broadcasting. www.mib.nic.in b. Publishing of scientific magazines/ specialty journals/ periodicals 100% FIPB Subject to guidelines issued by Ministry of Information Broadcasting. www.mib.nic.in PN 1 / 2004 23 Power including generation (except Atomic energy); transmission, distribution and Power Trading. 100% Automatic Subject provisions of the Electricity Act, 2003 www.powermin.nic.in PN 2 / 1998, PN / 7 2000, PN 4 / 2006 24. Tea Sector , including tea plantation 100% FIPB Subject to divestment of 26% equity in favour of Indian partner/Indian public within 5 years and prior approval of State Government for change in land use. PN 6 / 2002 25. Telecommunication a. Basic and cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services 74% (Including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares, and proportionate foreign equity in Indian promoters/ Investing Company) Automatic up to 49%. FIPB beyond 49% Subject to guidelines notified in the PN 5 / 2005 Series PN 5 / 2005 b. ISP with gateways, radio-paging, end-to-end bandwidth. 74% Automatic up to 49%. FIPB beyond 49% Subject to licensing and security requirements notified by the Department of Telecommunications www.dotindia.com PN 4 / 2001 c. ISP without gateway, infrastructure provider providing dark fibre, electronic mail and voice mail 100% Automatic up to 49%. FIPB beyond 49% Subject to the condition that such companies shall divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Also subject to licensing and security requirements, where required. www.dotindia.com PN 9 / 2000 d. Manufacture of telecom equipments 100% Automatic Subject to sectoral requirements. www.dotindia.com PN 2 / 2000 26. Trading a. Wholesale / cash carry trading 100% Automatic Subject to guidelines for FDI in trading issued by Department of Industrial Policy Promotion vide Press Note 3 (2006 Series). PN 4 / 2006 b. Trading for exports 100% Automatic c. Trading of items sourced from small scale sector 100% FIPB d. Test marketing of such items for which a company has approval for manufacture 100% FIPB e. Single Brand product retailing 51% FIPB 27. Satellites - Establishment and operation 74% FIPB Subject to Sectoral guidelines issued by Department of Space / ISRO www.isro.org 28. Special Economic Zones and Free Trade Warehousing Zones covering setting up of these Zones and setting up units in the Zones 100% Automatic Subject to Special Economic Zones Act, 2005 and the Foreign Trade Policy. www.sezindia.nic.in PN 9 / 2000; PN 2 /2006; PN 4 / 2006