FDI Policy Amendments: From an Eye of Analyst

The big ticket FDI reforms are expected to change India's foreign investment scenario in a big way. SMEStreet has got some interesting analysis from Mr Kalpesh Maroo, Partner, BMR & Associates LLP on the latest changes made to the FDI policy.

While welcoming the changes announced yesterday in the FDI policy for various sectors and follows a series of similar steps to relax and simplify FDI norms across sectors, Kalpesh said, "The most important announcement is in relation to permitting FDI in entities engaged in retailing of food products produced and manufactured in India. This announcement follows an earlier announcement in this regard by the finance minister in his budget speech earlier this year. The policy is a significant step forward as FDI in retail trade (multi brand retail as well as for single brand retail) in general has hitherto been subject to several conditions. Moreover, retailing has been permitted for this segment in brick and mortar as well as e-commerce formats.  Only possible dampener on this is that the demand of the industry to allow restricted retailing of essential commodities (detergents, etc) along with food products does not seem to have been accepted."

"FDI in brown field pharma has also been liberalised with FDI upto 74% being under the automatic route and approval required only for investments beyond this limit. This pharma sector has been witnessing heightened activity in the recent past and this change should help in reducing timelines for deals involving FDI of less than 74% equity stake. In the defence sector beyond 49% was permitted under the approval route wherever it is likely to result in access to modern and ‘state of art’ technology in the country.  This has now been relaxed and the condition to access state of the art technology in India has been done away with." He also added.

In another key move involving single brand retailing, the government appears to have tightened the sourcing norms for single brand trading in products having “state of the art” and “cutting edge” technology. While the language is not too clear, it appears that the entities engaged in trading of such products would now need to comply with the sourcing norms over a period of 8 years (3 plus 5) as against an earlier norm where the government had the option to completely waiving the sourcing norms for such entities. Kalpesh mentioned, "If this is indeed the case, this move would adversely impact the fate of several companies especially in the technology space, that were hoping for a complete waiver on the grounds that the products proposed to be sold involved state of the art technology.”