FDI – Steps in the right direction?
Amit Vyas December 16, 2015
The Indian Prime Minister speaking recently at the Economic Convention in Singapore had said that “Foreign Direct Investment” in short FDI to him is “First Develop India”. The Government of India through a host of measures such as relaxing provisions on ease of doing business in India and amendments to various laws has been trying to attract foreign investment and state of the art technology into India.
To take these efforts forward, the Department of Industrial Policy and Promotion (“DIPP”) has on November 25, 2015 issued a press note no. 12 which has eased the FDI restrictions in several sectors including Limited Liability Partnership (“LLP”) and construction development sector. This blog concentrates on the key changes that have been brought about in these sectors.
Earlier, LLP’s were considered to be less favorable as FDI was permitted into LLPs only through the government approval route, though the industry was of the view that if there are no or less restriction on a company with regards to FDI, then why was LLP not brought under the same automatic route. It appears that the lobbying by the companies has finally found an ear and the DIPP has now permitted FDI in LLP in those sectors where in 100% FDI is permitted and which don’t have any FDI linked performance metrics.
The circular has also clarified that LLP having foreign investment shall be permitted to have downstream investments in 100% FDI permitted sectors and which do not have any FDI linked performance conditions. The circular prescribes certain conditions for downstream investments such as intimating the SIA/ DIPP and FIPB about the investment within 30 days, even where the capital instruments have not been allotted, approval of the members of the LLP and adherence to the pricing guidelines. The funds for such downstream investment need to be brought in from abroad and not leveraged from the domestic market.
To give you a quick background, the various issues faced by the construction development sector for the past some time were in relation to the limit of FDI permitted in the sector being less than 100%, lock in period of three years before the investment could be repatriated by the investor and approval requirement for repatriation of funds.
DIPP has put several of these issues to rest by its circulars and press releases. The circular issued on December 3, 2014 had clarified various points on investments and lock in period requirements of the investments made in the construction sector. Now, with the introduction of
press note 12, there has been further tweaking of the requirements and one of the most awaited clarifications with respect to lock in and FIPB approval has been issued.
As per the said press note 12, an investor is permitted to exit a project on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting and drainage and sewerage (this was part of the December circular).
Further, now a foreign investor is permitted to exit and repatriate the investment before the completion of the project under automatic route, provided the lock in period of three years, calculated with reference to each tranche of foreign investment has been completed.
A transfer in the stake from a non-resident (“NR”) to another non-resident, without repatriation of investment, will neither be subject to any lock in period nor to any Government approval. This is a major change, as earlier any stake sale from NR to NR needed approval from FIPB on a case to case basis which has now been done away with. This provides the Investors the flexibility to plan certain structuring of investments at the parent level without the Governmental nod and one hopes that this would facilitate several deals and may increase the flow of foreign investment in the construction sector.
Having gone through the changes made to the FDI policy regarding these two sectors over a period of time one can definitely say that efforts are being made by the Government in the right direction to bring in the investments into India. However, it would be the implementation part of the same which shall prove how these hosts of measures shall work out for the foreign investors. Till then we need to wait and watch.
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