A year after the government permitted only 26% Foreign Direct Investment (FDI) in digital media companies, the Department for Promotion of Industries and Internal Trade (DPIIT) clarified on Friday that news aggregators would also fall under the purview of the law.
The development will directly affect online news aggregators such as DailyHunt and Inshorts. Lee Fixel’s newly formed venture capital firm Addition led a $35 million round in Inshorts MediaLabs in September for its video-based social media app, while DailyHunt raised $34.7 million in May from private equity firm Lupa India Systems.
The clarification specifies the nature of entities covered by the law, which include digital media entities streaming or uploading news on their platforms, online news agencies and news aggregators that use software to aggregate content from multiple sources.
The DPIIT has allowed the firms a year from the date of issuance of the clarification to comply with the norms. However, it does not specify whether online publishers such as Facebook and Google, which have an India entity, are covered by the law.
The clarification also makes it difficult for foreign entities in the digital media space to set up shop in the country. It requires a majority of board of directors in the digital media entities to be Indian nationals, including the CEO, while any foreign national employed by the company will have to furnish a security clearance ahead of appointment.
“The notification deters foreign players from entering India due to the regulations around directors in the company as well as security clearance required for foreign nationals. Further, given the compliance time of one year, it will not help Indian entities either which will have to divest their FDI of over 26%," Atul Pandey, partner at legal firm Khaitan & Co, said.
He added that the clarification did not spell out the norms governing companies with FDI of less than 26%. It is unclear whether they would require a fresh approval from the government or if their existing investments would be grandfathered.