New consolidated FDI policy maintains China investment curbs, cap on digital media

New consolidated FDI policy maintains China investment curbs, cap on digital media
Photo Credit: Reuters
29 Oct, 2020

The government on Wednesday released a consolidated FDI (foreign direct investment) policy circular effective from October 15, 2020. The circular issued by the Department for Promotion of Industry and Internal Trade (DPIIT) collates changes and updates made to FDI regulations through the year.

Some key takeaways from the circular

  • The circular incorporates the 26% cap on FDI in digital media, which includes uploading or streaming of news and current affairs. Earlier this month, DPIIT had clarified that news aggregators will also fall under the purview of the cap, which was introduced in 2019
  • For the ecommerce sector the circular makes a distinction between inventory-led ecommerce and marketplace model. 
  • The circular states, “An entity having equity  participation by an ecommerce marketplace entity or its group companies, or having control on its inventory by an ecommerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.”
  • It also specifies that the inventory of a vendor will be deemed controlled by an ecommerce marketplace if over 25% purchases for the vendor originate from marketplace platform or its group companies. “Pertinently, ecommerce companies will note that the changes introduced in the present FDI Policy carries forward the changes in Press Note 2 of 2018, including the requirements of ensuring that the ecommerce companies do not have any equity / control over inventory of the sellers in any manner,” said Atul Pandey, partner at legal firm Khaitan & Co.
  • The circular also states that an entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country can only invest only under the government route. 
  • This incorporates the curbs imposed by the government in April 2020 to prevent hostile takeover of Indian companies by Chinese investors. “However, given that the ambit of beneficial ownership has yet to be clarified by the government, this has given rise to ambiguity since foreign investors and funds which, although not being owned/controlled by Chinese entities but have minority stakes / limited partners from China are being treated to be covered within the said curbs,” Pandey told TechCircle.

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