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(Apr 07, 2010) On February 11, 2010, the Government of India approved new rules on foreign direct investment. They were issued on March 26 by the Department of Industrial Policy and Promotion (DIPP) and entered into force on April 1. Under the liberalized measures, the Finance Minister can endorse proposals involving foreign equity of up to INR1200 crore [1 crore equals 10,000,000 Indian rupees (INR)] (about US$268 million as of April 5, 2010) without seeking approval from the Cabinet Committee on Economic Affairs (CCEA), creating an automatic consideration procedure. (Madhur Singh, India Eases Foreign Direct Investment Rules; Finance Minister Can Clear Most Proposals, BNA DAILY REPORT FOR EXECUTIVES, Mar. 30, 2010, 59 DER A-3, available at http://news.bna.com/drln/DRLNWB/split_display.adp?fedfid=16779467&vn
ame=dernotallissues&wsn=498455000&searchid=10963600&doct
ypeid=1&type=date&mode=doc&split=0&scm=DRLNWB&pg=0
.)

According to Commerce and Industry Minister Anand Sharma, "[t]his is the first major change and liberalisation after [the] 1996 capping of foreign equity at Rs600 crore for FIPB [Foreign Investment Promotion Board] clearance." (Govt Relaxes Press Note 1 Norms, TIMES OF INDIA, Feb. 10, 2010, available at http://timesofindia.indiatimes.com/biz/india-business/Govt-relaxes-Press-Note-1-
norms/articleshow/5562702.cms
.)

Previously, FDI proposals for amounts above INR600 crore were referred to the CCEA. Because the CCEA is comprised of several ministers in charge of various portfolios, it could be a time-consuming procedure. The new FDI rules stipulate that proposals for FDI of up to RS1,200 crore will be handled by the FIPB, which is under the Finance Ministry. This administrative change is expected to streamline the process. (Singh, supra.) Now, foreign investors who have already obtained the requisite approval are not required to obtain new approvals in order to make additional investments in the same entity if:

1) the investment activities or sectors have been transferred to the automatic procedure;

2) previous sectoral caps on foreign FDI activities have been removed or the permitted FDI amount increased and the activities have been placed under the automatic route; or

3) the approval was obtained to meet previous requirements set forth in Press Note 18/1998 or Press Note 1/2005. These Notes address foreign investment/ technical collaboration proposals "where the foreign investor has or had any previous joint venture or technology transfer/trademark agreement in the same or allied field in India." (Press Release, No. 1 (2010 series), 0/0 IPP F. No. 9(9)/2008-FC, Subject: Review of Cases Under Government Route i.e. Which Require Prior Approval of the Government of India for Making Foreign Investment (Mar. 25, 2010), available at http://siadipp.nic.in/policy/changes/pn1_2010.pdf.)

Moreover, foreign investors will no longer need to obtain no-objection certificates (NOC) from domestic company joint-venture partners in order to invest on their own in the same sectors. The requirement under Press Note 1/2005 whereby foreign companies needed to obtain an NOC before investing in the same sector was a major hurdle for diversification of such companies' operations in India. (Govt Relaxes Press Note 1 Norms, TIMES OF INDIA, Feb. 10, 2010, available at http://timesofindia.indiatimes.com/biz/india-business/Govt-relaxes-Press-Note-1-
norms/articleshow/5562702.cms
; Singh, supra.)

In addition, on March 31, 2010, the DIPP released a comprehensive new policy document on FDI, Consolidated FDI Policy, which "consolidates all policies on foreign direct investment, including as many as 178 press notes issued from time to time." (Madhur Singh, India Releases Consolidated Policy Paper on Foreign Direct Investment, BNA DAILY REPORT FOR EXECUTIVES (Apr. 2, 2010), 62 DER A-1, http://news.bna.com/drln/DRLNWB/split_display.adp?fedfid=16803400&vname=dernotallissues&wsn=498175000&searchid=10963600&doct
ypeid=1&type=date&mode=doc&split=0&scm=DRLNWB&pg=0
.) Minister Sharma has stated that the DIPP will revise the document every six months to incorporate policy changes. The new policy may bring needed order to FDI in India, which "has been administered through a series of disparate press notes, rules and guidelines issued from time to time," resulting in "much overlap and inconsistency, even leading to disputes." (Id.; see also DIPP, Ministry of Commerce and Industry, Government of India, Consolidated FDI Policy (Effective from April 1, 2010), Circular 1 of 2010 [D/o IPP F. No. 5(14)/2009-FC Dated 31.03.2010], DIPP website, available at http://siadipp.nic.in/policy/fdi_circular/fdi_circular_1_2010.pdf.)

Author: Wendy Zeldin More by this author
Topic: Foreign investment More on this topic
Jurisdiction: India More about this jurisdiction

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Last updated: 04/07/2010