The Consolidated Foreign Direct Investment Policy Circular of 2015 became effective from May 12, 2015. Some of the key features and changes therein are highlighted here.

The Government has relaxed norms in several sectors, including railways, defence, pharmaceutical and insurance. In defence, permissible investment under the automatic route has been increased from 26% to 49%. FDI beyond 49% with proposed inflow of more than Rs. 2000 crores (formerly Rs. 1200 crores), which are to be approved by Cabinet Committee on Security, will not require further approval of the Cabinet Committee on Economic Affairs. Further, portfolio investment by FPIs/FIIs/NRIs/QFIs and by FVCIs together cannot be over 24% of the total equity of the investee/joint venture company. Furthermore, the Chief Security Officer of the investee/joint venture company should be a resident Indian citizen. The three-year lock-in requirement for transfer of equity from a non-resident to another non-resident has been removed. In railways, 100% FDI is allowed under the automatic route for construction, operation and maintenance of, inter alia, suburban corridor projects through PPP, high speed train projects and freight terminals. The CCS will consider on a case-to-case basis, proposals involving FDI beyond 49% in sensitive areas from security point of view. In insurance, the sectoral cap has been raised from 26% to 49% and upto 26% is under the automatic route. Other Insurance Intermediaries appointed under the Insurance Regulatory and Development Authority Act, 1999 can also bring FDI. In pharmaceutical, FDI up to 100%, under the automatic route is permitted for manufacturing of medical devices. Further, the definition of “Holding Company” and “Indian Company” has been aligned with the Companies Act, 2013.

The FDI Policy, 2015 recognizes fully, compulsorily and mandatorily convertible debentures and preference shares as eligible instruments. Further, it has been now clarified that shares and convertible debentures can be transferred from one non-resident to another without prior approval of the Government in sectors which are under the automatic route, however Government’s approval will be required for the same in sectors which are under Government approval route. The Policy clarified that if a non-resident (including an NRI) acquires shares on the stock exchanges under the FDI scheme, the obligation to file FC-TRS with the AD Category-I bank would be on the investee company. Further, an investment now can be made on all types of Depository Receipts as permissible under the Depositories Receipts Scheme, 2014.

In relation to pricing of instruments to be issued or transferred to non-residents, it has been clarified that the pricing be based on a fair valuation methodology done by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis, where the shares of the company are not listed on any recognised stock exchange in India. Further, no FIPB approval would be required for mergers and acquisitions happening in sectors under the automatic route. In addition, no fresh approval will be required for any additional foreign investment into the same entity within an approved foreign equity percentage/or into a wholly owned subsidiary. In a move to provide Person of Indian Origin and Overseas Citizenship of India parity with NRIs, the Cabinet has reportedly decided that NRIs would now include OCI and PIO cardholders.

The FDI Policy, 2015 essentially consolidates the changes made to the policy in the previous year and clarifies the extant policy in many aspects. At the same time, the Government has relaxed norms in several sectors and taken measures to attract greater funds, such as liberalizing FDI norms for NRIs and OCIs. Given the importance of FDI for economic development, further certainty is required in a few respects such as FDI in e-commerce.