Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

September 23, 2019
2019-6170

India liberalizes foreign direct investment policy for certain sectors

In line with the 2019 budget announcements, the Indian Government introduced the further liberalization of its foreign direct investment (FDI) policy on 28 August 20191 with the intent of attracting higher FDIs and promoting the “Make in India” initiative of the Government. The changes in the FDI policy will be effective from the date of issuance of the notification by the Reserve Bank of India.2

Contract manufacturing

  • FDI up to 100% ownership is available under the “automatic route”3 for contract manufacturing activities. Manufacturing activities can be undertaken either by the investee entity or through contract manufacturers in India, whether on a “principal to principal” or “principal to agent” basis.

Single brand retail trading (SBRT)

  • An SBRT entity (with foreign investment exceeding 51%) is required to procure a minimum of 30% of its goods (by value) from Indian sources. In calculating the local sourcing requirement, any acquisitions of Indian goods are included, regardless of whether the goods are sold in the Indian market or are exported, a change from a five-year time limit to the inclusion of exported goods in the calculation.
  • SBRT entities will be able to include the value of the entire procurement of goods from Indian sources for their global group’s operations in the local sourcing requirement, rather than a per year incremental increase in Indian purchases by the global group.
  • The procurement of goods from India can be undertaken by the SBRT entity or its group companies (resident or nonresident), or indirectly through a third party.
  • SBRT entities will be permitted to sell products through e-commerce channels before setting up brick-and-mortar stores,4 conditional on the SBRT entity opening brick-and mortar-stores within two years of the commencement of e-commerce sales.

Digital media

  • FDI up to 26% ownership is available under the “Government approval route”5 for uploading or streaming of news and current affairs through digital media. Additional details of this revised policy may be released by the Government.

Coal mining

  • FDI up to 100% ownership is now feasible under the “automatic route” for the coal mining and sale activities (including any associated processing infrastructure such as coal washery, crushing, handling and separation), broadening FDI’s eligible activities.

Implications

The changes made by the Government are anticipated to provide a boost to foreign investment in India. The contract manufacturing FDI policy may lead to the establishment of additional Indian facilities, particularly in light of recent global trade developments, and creates an opportunity for employment growth, promotion of exports and the expansion of India’s role in global supply chains.

Endnotes

1. Refer to Press Note 4 issued on 18 September 2019.

2. The notification has not been issued at the date of this Alert.

3. No specific government approvals are required prior to establishing a company undertaking such activities in India.

4. Refers to companies that have a physical presence (e.g., a retail shop in a building) and offer face-to-face customer experiences.

5. Government approvals are required prior to establishment.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (India), Mumbai
  • Sudhir Kapadia | sudhir.kapadia@in.ey.com
Ernst & Young LLP (India), Hyderabad
  • Jayesh Sanghvi | jayesh.sanghvi@in.ey.com
Ernst & Young LLP (United States), India Tax Desk, New York
  • Roshan Samuel | roshan.samuel1@ey.com
  • Chintan Gala | chintan.gala@ey.com
  • Arpita Khubani | arpita.khubani@ey.com
Ernst & Young LLP (United States), India Tax Desk, San Jose
  • Archit Shah | archit.shah@ey.com
Ernst & Young Solutions LLP, India Tax Desk, Singapore
  • Gagan Malik | gagan.malik@sg.ey.com
Ernst & Young LLP (United Kingdom), India Tax Desk, London
  • Amit B Jain | amit.b.jain1@uk.ey.com
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
  • Chris Finnerty | chris.finnerty1@ey.com
  • Kaz Parsch | kazuyo.parsch@ey.com
  • Bee Khun Yap | bee-khun.yap@ey.com

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more