Ashika Monthly Insight Flip July 2016

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JULY <strong>2016</strong> FOREIGN DIRECT INVESTMENT pharmaceuticals and civil aviation, among others, thereby adding to growth and employment”. FICCI Secretary General A Didar Singh said: “The Modi administration through these moves has once again highlighted that reform is a continuous process in order to capitalise on the potential India offers.” Singh felt that “there is no doubt that India today is the most preferred investment destination in the world. While the attraction of our market is known to all, there is now even more reason for global investors to commit themselves for making and doing business in India”. Assocham Secretary General D S Rawat said the decision will help in bringing investment and advanced technology into the defence sector, potentially leading to inflow of capital and setting up of entities of original equipment manufacturers (OEMs) and their suppliers through technology transfer. Girish Vanvari, head of the tax practice at KPMG in India, said the government’s move to ease the FDI regime was well-timed. “It actually opens up the country to the global world. The liberalization of limits in defence, brownfield pharma, airports, private security services, food processing etc can be game changers and be a huge source of employment creation. The move to prescribe a small negative list for FDI with most sectors under the automatic route is a big mindset shift”. Changes in FDI Policy Sector Proposed FDI regime Existing FDI regime Implication Defence Aviation Pharmaceuticals Food Products B r o a d c a s t , C a b l e networks, Direct to home (DTH), Headendin-the-sky (HITS) • Condition of access to ‘stateof-art’ technology scrapped for FDI beyond 49% under government approval route . • 100% FDI (up to 49% via automatic route) in scheduled passenger airlines by nonairline foreign investor; • for foreign airlines the cap remain at 49%; • 100% FDI under automatic route in brownfield airports. • 74% FDI through automatic route in brownfield pharma p r o j e c t , b e y o n d w h i c h g ove r n m e n t a p p rov a l i s required • 100% FDI under government approval route • 1 0 0 % F D I a l l owe d v i a automate route • 49% for foreign entities under automatic route and beyond 49% on government approval on a case-by-case basis subject to access to s t a t e - o f - t h e - a r t technology. . • 49% FDI (automatic) in scheduled passenger airlines;· • 74% FDI (automatic) in b row n f i e l d a i r p o r t s . . • 100% FDI in brownfield t h ro u g h gove r n m e n t approval • 51% in single brand retail and 100% FDI in the cash-and-carry or wholesale business were permitted via automate route · 100% FDI allowed, only 4 9 % a l l o w e d v i a automate route • Making entry of foreign firms less complicated • Foreign defence firms can set up manufacturing facilities in India· Russian firm Kalashnikov looking for Indian partners; • Swedish firm Saab may raise stake from 49% in existing JV with a local partner. • Local airlines can attract more capital • A foreign airline can join hand with a foreign non-airline investor to completely buy into a domestic a i r l i n e . . • More private equity deals in pharma as new regulation clears uncertainty over FIPB approvals. • Easier merger & acquisitions of domestic companies by Big Pharma companies. • Easier for Wal-Mart, Marks and Spencer and Tesco, among others, to set up food manufacturing and foodonly retail bases in India. • More investment opportunities • No FDI expected till cross-media ownership cap removed Single Brand Retail Trading • Waiver of 30% local sourcing rule for 3 years and a relaxed sourcing regime for another 5 years for entities having state-of-art technology • Entities having state-ofart technology can be exempted from sourcing rule • Players like Apple can start sourcing locally only from fourth year of setting up own retail outlets Source : DIPP, PIB, FIPB 20
FDI - WINDOW OF OPPORTUNITY Defence In a major policy change, the Centre has made it simpler for foreign defence firms to invest in India. The Centre has removed the phrase “state-of-art” and replaced it with “modern technology” and “other reasons” in the amended version. In this regard, the following changes have interalia been brought in the FDI policy on this sector: i. Foreign investment beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with. ii. FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959. The government’s decision to allow defence FDI up to 100% without the access to technology clause is expected to result in a surge of interest on part of the foreign vendors. Global players from Israel, Russia and European companies are expected to make a beeline to India for setting up their plants in India. Recently, while talking to Indian media in New Delhi, Jan Widerstrom, Saab India’s chairman, made it clear that the Swedish defence major is looking at more than 49% FDI in defence in the joint venture that will make Gripen in India. According to Puneet Kaura, MD and CEO, Samtel Avionics, “100% FDI in defence is the second good initiative in this quarter for the defence industry from government after announcement of Defence Procurement Policy. This shows the government’s commitment towards defence manufacturing within the country and creating more jobs for youth of the country”. Welcoming the government’s decision, Dhiraj Mathur, partner — aerospace and defence, PwC India, “Defence is extremely technology driven and OEMs invest huge sums of money generating technology and IP. The fact that there was no control permitted earlier was a major issue that was quoted for not investing in India. That obstacle has now been removed and coupled with the major simplification in the DPP, OEMs should respond positively and proactively to these path breaking reforms.” Amber Dubey, Partner & India head of Aerospace and Defence at KPMG says, “We may see its positive impact over the next 6-12 months. This decision will now bring in real investments provided the defence ministry also speeds up the procurement process and issues big ticket orders. “ “Easy terms like ‘modern technology’ and ‘other reasons’ will allow most leading defence companies to come in unhindered. All defence technologies are ‘modern’ by their nature.” “Defence OEMs can now focus on actual research, design and manufacturing than wasting time on legal and regulatory issues. If MoD rejigs its defence procurement policies and insists on platform level manufacturing in India, India could become a global aerospace and defence hub instead of just being a supplier of parts and assembler of imported kits,” he adds. Civil aviation i. The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route. ii. With a view to aid in modernization of the existing airports to establish a high standard and help to ease the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route in Brownfield Airport projects. iii. As per the present FDI policy, foreign investment up to 49% is allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. It has now been decided to raise this limit to 100%, with FDI up to 49% permitted under automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route. However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing policy. The Centre has decided to allow 100 per cent FDI in domestic airlines, but the catch is that foreign airlines can hold only up to 49 per cent in such ventures and the balance can be held by a foreign body that is not an airline. The decision means the likes of Emirates and Qatar Airways can tie up with sovereign, private equity or hedge 21
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Ashika Monthly Insight Flip July 2016

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