The Union Cabinet has approved various amendments to the FDI policy pertaining to the coal mining, contract manufacturing, single brand retail trading (SBRT) and digital media sectors so as to attract and retain FDI in India. The following changes have been specifically approved :

• Coal Mining : 100% FDI has now been permitted under automatic route for sale of coal, for coal mining activities including associated processing infrastructure subject to provisions of Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957 and related legislations. “Associated Processing Infrastructure” includes coal washery, crushing, coal handling, and separation (magnetic and non-magnetic). Under the extant policy, 100% FDI under automatic route is allowed for coal & lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities . The same is also permitted for setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

• Contract Manufacturing : In addition to permitting 100% FDI in the manufacturing sector under the automatic route, 100% FDI under automatic route in contract manufacturing is now allowed. The extant policy had no specific provision for FDI in contract manufacturing although manufacturing activities were allowed to be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract on Principal to Principal or Principal to Agent basis. The present amendment provides clarity in this regard.

• Single Brand Retail Trading (SBRT) :
  • All procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports. [The extant Policy provides that 30% of value of goods has to be procured from India if SBRT entity has FDI more than 51%. The local sourcing requirement can be met as an average during the first 5 years, and thereafter annually towards its India operations]

• • Sourcing of goods from India for global operations can be done directly by the entity undertaking SBRT or its group companies (Resident or non-resident) or indirectly by them through third party under a legally tenable agreement. [The extant Policy provides that incremental sourcing for global operations by non-resident entities undertaking SBRT, either directly or through their group companies, will also be counted towards local sourcing requirement for the first 5 years]. The present change was required since prevalent business models involve sourcing not only from by the entity or its group company, but also through an unrelated third party, at their behest.

• • The entire sourcing from India for global operations shall now be considered towards local sourcing requirement and not just the incremental value. [Under the extant policy, only that part of the global sourcing is counted towards local sourcing requirement which is over and above the previous year’s value]. The amendment was made in view of the fact that the requirement of year-on-year incremental increase in exports induced aberrations in the system as companies with lower exports in a base year or any of the subsequent years could meet the current requirements, while a company with consistently high exports got unduly discriminated against.

• • Retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail. This is expected to lead to creation of jobs in logistics, digital payments, customer care, training and product skilling. [The extant policy requires SBRT entities to operate through brick and mortar stores first before starting online sales of that brand.

• Digital Media : 26% FDI under government route is now permitted for uploading/ streaming of News and Current Affairs through Digital Media on the lines of print media. [the extant policy allows 49% FDI under approval route in Up-linking of ‘News & Current Affairs’ TV Channels only]

To refer to the press release dated 28 August 2019, click here.