Etailers differ on e-commerce FDI policy in meeting with DPIIT

Source:, Mar 26, 2021

Leading e-commerce companies were split on the issue of the government’s Foreign Direct Investment (FDI) policy for the sector at a meeting with officials of the Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday.

US-based e-tailer Amazon and Walmart-owned homegrown e-commerce company Flipkart sought policy certainty for a stable investment climate amid the ongoing Covid-19 pandemic.

On the other hand, Tata Cliq and Reliance Retail pushed for a wider definition of group companies to prevent misuse and strict checks on violations of Press Note 2 regulations, along with penalties, multiple people who attended the meeting said.

The department has asked for written submissions from the companies in the next one week, they added.

An Amazon spokesperson told ET that the “FDI policy needs to be stable and predictable for investor confidence as any disruption in business will impact millions of livelihoods and jobs, have negative consequences on downstream suppliers and service providers including MSMEs, startups and offline stores which have barely recovered from the setback of Covid-19.”

Flipkart’s representative said at the meeting that frequent policy changes were disruptive and would spoil the country’s image and sought that the government refrain from changing any laws and for light-touch regulation to realise the full potential of the e-commerce sector.

There are already enough enforcement mechanisms to tackle violations in FDI laws and investments by domestic players were a positive for the sector, the Flipkart representative is learnt to have said at the meeting.

The virtual meeting, chaired by DPIIT secretary Guruprasad Mohapatra, was attended by representatives of about 25 e-commerce companies, including Amazon, Flipkart, Snapdeal, Reliance Retail, Jio Platforms, 1mg, Tata Cliq, Swiggy, Shopclues, Info Edge, Paytm, Grofers, Ola and Uber.

Some companies also raised issues such as capital dumping and manufacturing of own brands but sale via third parties by e-commerce players.

Tata Cliq’s submissions at the meeting were around ensuring a level playing field by curbing deep discounting, transparency through audits and disallowing marketplaces from owning inventory, said Gurvinderjit Samra, chief business officer.

“What is needed is for the government to do something on the ground (to address violations). It could be in the form of penalties or anything else,” Samra said. “Marketplaces should not be discounting from their side, which we see continuing to happen from time to time during large events”.

Reliance Retail, sources said, submitted that FDI laws were being violated and made a case for changing the definition of related parties.

Flipkart, Snapdeal and Reliance Industries did not respond to requests for comment till press time Thursday.

India continues to stay out of Kearney’s 25-country 2021 FDI Confidence Index, US tops

Source: The Economic Times, Mar 24, 2021

India continued to stay out of the Kearney FDI Confidence Index for the second year in a row, a report by the global consultancy firm showed Wednesday with only three developing economies- China, the UAE, and Brazil-making it in the top 25.

However, investors are “likely monitoring closely” India’s data privacy bill with implications for data rules, it said. India was ranked 16th in the 2019 list, while it occupied 11th spot the year prior. In 2017, India made the top ten and was ranked eighth.

“India has been deliberating a data privacy bill with implications for data rules that investors are likely monitoring closely.

As per the report, investors in Asia are particularly concerned about data protection regulations, with 43 % citing high costs associated with data privacy rules versus 41 % of investors in the Americas and 38 % in Europe.

Kearney’s 2021 FDI Confidence Index reveals high level of risk aversion. It is an annual survey of global business executives that ranks the markets likely to attract the most investment in the next three years.

The US retained its top position for investment attractiveness and was followed by Canada, Germany, the UK and Japan.

This year’s rankings point to continued apprehension and uncertainty about how quickly the global economy will recover post-Covid. In addition to the fall in confidence about the economy, most of the overall scores for the top-25 countries have fallen compared with previous years. Only 57 % of investors are optimistic about the three-year global economic outlook, which is much lower than the corresponding figure last year of 72 % (prior to and at the onset of the pandemic).

Bill to increase FDI limit in insurance sector gets Parliament’s nod

Source: Business Standard, Mar 22, 2021

New Delhi: A bill to increase foreign direct investment (FDI) in the insurance sector from 49 per cent to 74 per cent was approved by Parliament with the Lok Sabha giving green signal to the legislation by a voice vote on Monday.

Piloting the Bill, Finance Minister Nirmala Sitharaman said that hiking the FDI limit in the insurance sector will help insurers to raise additional funds and tide over financial problems.

The Insurance (Amendment) Bill, 2021 was earlier passed by the Rajya Sabha last week.

The minister said that the government will provide funds to the public sector insurance companies but the private players will have to raise capital on their own.

Observing that insurance companies are facing solvency related issues, she said, “if growth capital is hard to come by, there will be a stress situation. In order that the stress situation is not left unattended, we need to raise the FDI limit.”

The COVID-19 pandemic, Sitharaman said, has further added to the woes of the insurance companies.

The minister further said that the FDI limit was being raised on the recommendations of the regulator IRDAI which had extensive consultations with stakeholders.

The FDI inflow in the insurance sector, the minister said, had increased significantly after the government decided to raise the cap from 26 per cent to 49 per cent in 2015. As much as Rs 26,000 crore has come as FDI in the insurance sector since 2015, she said, adding the asset under management (AUM) in this sector has grown by 76 per cent during the last five years.

Bill to raise FDI in insurance sector to 74%

Source: The Hindu Business Line, Mar 15, 2021

New Delhi: Finance Minister Nirmala Sitharaman on Monday introduced a Bill to facilitate increasing Foreign Direct Investment (FDI) limit to 74 per cent in the Rajya Sabha.

“In order to achieve the objective of government’s Foreign Direct Investment Policy of supplementing domestic long-term capital, technology and skills for the growth of the economy and the insurance sector, and thereby enhance insurance penetration and social protection, it has been decided to raise the limit of foreign investment in Indian insurance companies from the existing 49 per cent to 74 per cent,” the Bill’s statement said.

It aims to amend provisions defining ‘Indian Insurance’ and also to allow foreign ownership and control with safeguards. It will legislate one of the key Budget announcement.

Budget pitch

In her Budget speech, Finance Minister had said, “I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in Insurance Companies and allow foreign ownership and control with safeguards.”

The foreign investment in insurance sector was permitted in the year 2000 by allowing the same up to 26 per cent in an Indian insurance company. Later, in 2015, this limit was raised to 49 per cent.

SBI’s analysis

According to an analysis by the State Bank of India, in the last 20 years, private insurance companies have explored many new innovations to boost business. However, due to the nature of this business, the sector needs more capital for growth and regulatory needs. The Covid-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required.

“However, the Indian promoters are not able to invest further capital in the sector. Further, some insurers need fresh capital infusion to meet the regulatory solvency margins,” the report mentioned.

According to 2019 data, insurance penetration is staggering at 3.76 per cent (Life: 2.82 per cent, Non-life: 0.94 per cent), compared to World average of 7.23 per cent (Life: 3.35 per cent and 3.88 per cent).

The report, using March 2019 data, said that the average FDI investments in the 23 private life insurer is only 35.5 per cent, 30 per cent for 21 non-life private insurers and 31.7 per cent for the 7-specialised health insurance. “In our view, the increase in FDI limit in the insurance may receive ₹5,000-6,000 crore of foreign investment in the sector in the next 1-2 years and ₹15,000-16,000 crore in the next 5-years, apart from deeper product expertise and better underwriting skills,” the report said.

44 firms given FDI nod to jointly produce defence items with foreign cos

Source: Business Standard, Mar 08, 2021

New Delhi: A total of 44 Indian companies, including public sector units, have got approvals related to foreign direct investment (FDI) till now for joint production of defence items with foreign companies, said Minister of State for Defence Shripad Naik on Monday.

“So far, FDI inflows of about Rs 4191 crore have been reported by the companies operating in defence and aerospace sector in the country,” Naik said in a written reply to a question inRajya Sabha.

As on date, FDI approvals have been given to 44 companies — including DPSUs — for joint ventures or co-production of various defence items, he stated.

These items include fixed-wing aircrafts, aerospace and aero structures components, simulator, unmanned aerial systems, optical goods and optical instruments, radar systems, mortars and tactically protected vehicles, he added.

On September 17 last year, thegovernment had permitted FDI in defence production up to 74 per cent under automatic route.

It had also permitted FDI in defence production above 74 per cent under automatic route ifit is “likely to result in access to modern technology”.

Before September 17, 2020, FDI indefence production had been permitted up to 49 percentunder automatic route.

FDI in computer software, hardware jumps 4-folds to $24.4 billion during Apr-Dec 2020

Source: The Economic Times, Mar 07, 2021

Foreign direct investments (FDI) in the computer software and hardware sector jumped nearly four-times to USD 24.4 billion during April-December 2020-21, according to the latest data of DPIIT. While in the year-ago period the sector received USD 6.4 billion FDI, the entire 2019-20 saw overseas investment of USD 7.7 billion, the Department for Promotion of Industry and Internal Trade (DPIIT) data showed.

According to experts, the accelerated digitalisation and increased use of artificial intelligence due to the pandemic led work-from-home scenario have all resulted in a huge opportunity for the computer software and hardware sector.

“There has been extensive unlocking of value, and we have seen huge FDI into this sector,” Arvind Sharma, Partner, Shardul Amarchand Mangaldas & Co said.

Bimal Raj, Partner, Singhi Advisors, too said the sector witnessed an increase in FDI as there was a surge in the electronics and digital transformation globally and the Indian tech firms were ideally poised to capture that potential.

The other sectors which recorded significant growth in foreign inflows during the nine-month period of 2020-21 include construction (infrastructure) activities (USD 7.2 billion), and pharmaceuticals (USD 1.24 billion).

FDI in telecommunication dipped to USD 357 million from USD 4.3 billion during April-December 2019-20. Automobiles too witnessed a slowdown with USD 1.18 billion in April-December 2020-21 as against USD 2.5 billion in the same period of the previous fiscal. Sharma said key sectors which have potential to attract more FDI include IT, telecom, pharma and electronics manufacturing.

“With the increased use of high-end technology during the COVID-19 pandemic, the focus of global investors has moved to the IT and telecom sectors. Besides, the government’s continued emphasis on Make in India and its introduction of performance linked incentive schemes for various sectors will also result in accelerated growth and more FDI inflow,” he said.

Further, during April-December 2020-21, India attracted maximum FDI from Singapore (USD 15.71 billion) followed by the US (USD 12.82 billion), the UAE (USD 3.91 billion), Mauritius (USD 3.47 billion), and Cayman Islands (USD 2.53 billion).

Overall FDI equity inflows into the country jumped 40 per cent to USD 51.47 billion.

Singapore top source of FDI in Apr-Dec into India

Source: The Economic Times, Mar 05, 2021

Singapore was the top source of foreign direct investment (FDI) into India in the first nine months of FY21 at $15.7 billion, followed by the US at $12.82 billion with Mauritius at the third position at $3.47 billion.

The government on Thursday said that FDI equity inflows rose 40% year-on-year in the April-December of FY21 at $51.47 billion compared to $36.77 billion in the year ago period.

Officials said Gujarat garnered the highest share of FDI in the period at $21.23 billion followed by Maharashtra at $13.63 billion.

In the October 2019-December 2020 period, FDI in Gujarat was $23.8 billion and in Maharashtra, $20.89 billion.

“With ties with China warming up a bit on the border front, and strategic investment proposals being cleared, one will see these numbers only grow,” said an expert on investment issues.

India’s high foreign inflows come at a time when the global FDI collapsed in 2020, falling 42% to an estimated $859 billion from $1.5 trillion in 2019, according to UNCTAD. Such a low level was last seen in the 1990s and is more than 30% below the investment trough that followed the 2008-2009 global financial crisis, the intergovernmental body said earlier this year.

Computer software and hardware was the biggest gainer and garnered FDI worth $24.38 billion in the April-December period of FY21. Construction witnessed the second largest FDI inflows at $7.14 billion. Services sector that includes banking, financial and insurance, drew $3.85 billion of FDI during the period.

FDI equity inflows were $21.46 billion in the quarter ended December 31, 2020 with October receiving the lowest inflows at $5.33 billion in the quarter. FDI in November and December 2020 was $8.51 billion and $7.62 billion, respectively.

Large Chinese FDI only in sectors critical for India

Source: The Economic Times, Mar 03, 2021

New Delhi: Chinese investments in sectors critical for India or where local companies don’t have adequate capacity will be considered for approval but the country is unlikely to adopt an open-door policy any time soon, according to people familiar with the matter.

This is part of a three-pronged standard operating guideline the administrative ministries will follow for vetting Chinese investments in India.

The other two types of proposals that will get a green light will be those from companies or investors headquartered elsewhere but routing funds via Hong Kong and those that entail small investments by Chinese investors. Security clearance would continue to be mandatory in all the three cases.

“Proposals are being examined as per three key guidelines… Any proposal entailing large investment would have to be in a critical area where there is minimal or negligible local presence,” said a government official.

Border tensions escalated between the two countries last year. India and China began disengagement last month, raising expectations of a dilution in the restrictions on Chinese investments and faster clearance. That’s unlikely, according to people with knowledge of the matter.

These standard operating procedures (SOPs) will guide the clearance process, the official said.
Discussions on Investment Cap
This comes amid discussions about setting a cap for Chinese investment, below which prior approval for sectors that are on the automatic approval route would be waived. No final view has been taken on setting such a limit.

India had in April last year amended the foreign direct investment (FDI) policy and made a prior government nod mandatory for foreign investment from countries sharing a land border with it, a measure that was largely seen targeted at Chinese investments.

The Department for Promotion of Industry and Internal Trade (DPIIT), while making the change, said in its April 18 press note that this was aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic.”

These changes to the FDI policy implied that any foreign direct investment from Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan needed prior government approval, irrespective of the FDI cap applicable to the sector.

Prior approval was made mandatory for sectors that were otherwise on the automatic route. This applied to even indirect FDI from these countries routed via others.

Several investment proposals, including one from automobile company Great Wall, are awaiting clearance.

India to clear 45 investments from China, likely to include Great Wall, SAIC

Source: The Economic Times, Feb 22, 2021

India is set to clear 45 investment proposals from China, which are likely to include those from Great Wall Motor and SAIC Motor Corp, government and industry sources told Reuters, as military tensions between the two countries ease at the disputed border.

The proposals have been held up since last year after India tightened controls on Chinese investment in the country in retaliation against alleged Chinese troop incursions in the western Himalayan region. China blamed Indian troops for the standoff.

About 150 investment proposals from China worth more than $2 billion were stuck in the pipeline. Companies from Japan and the U.S. routing investment through Hong Kong were also caught in the cross-fire as an inter-ministerial panel led by the home ministry increased scrutiny of such proposals.

Union Home Ministry spokesman did not respond to a request for comment on the proposals to be cleared.

Two government sources who have seen the list said most of the 45 proposals set for early approvals are in the manufacturing sector, which is considered non-sensitive in terms of national security.

The sources did not elaborate but two other government officials and two industry sources who are privy to the process said proposals from Great Wall and SAIC are likely to be on the list.

Great Wall and General Motors (GM) made a joint proposal last year seeking consent for the Chinese automaker to purchase the U.S. company’s car plant in India, in a deal expected to be valued at around $250-$300 million.

Great Wall, which plans to invest $1 billion in India over the next few years, said earlier that establishing operations in the country is a key part of its global strategy. It had planned to start selling cars in India from this year, and was also mulling bringing in electric vehicles.

Great Wall said it continues to seek relevant approvals and investment clearances.

“Should we be granted all relevant approvals, we will push all work forward in India, abiding by the laws and rules laid down by the Indian government,” a company spokesman said.

A GM spokesman added: “We continue to seek all relevant approvals to support the transaction.”

SAIC, which started selling cars in India in 2019 under its British brand MG Motor, has invested around $400 million of the nearly $650 million it has committed to India and would need approval to bring more investment.

SAIC’s India unit did not respond to an email seeking comment.

The change in the Indian government’s stance follows an improvement in the border situation. Troops who were in eyeball to eyeball confrontation in territory claimed by both sides have been withdrawn, the two countries announced on Sunday.

The plan going forward is to split up over 150 proposed Chinese investments into three categories depending on the risk to national security, the sources said. Sectors such as automobiles, electronics, chemicals and textiles are seen as non-sensitive whereas those involving data and finance are deemed sensitive, consultants and lawyers have said. Proposals from non-sensitive sectors will be approved faster, while those seen as “sensitive” will be reviewed later, one of the government sources said.

After 9-month freeze, Centre starts clearing China FDI plans

Source: The Economic Times, Feb 22, 2021

NEW DELHI: The government has begun clearing foreign direct investment (FDI) proposals from China on a “case-by-case” basis, ending the freeze on such clearances that lasted around nine months. Over the last few weeks, approvals have started, although it is so far limited to “smaller cases”, government sources told TOI.

The sources made it clear that the large proposals would be take up later after a careful analysis of the situation. To help smoothen the process, the government has also set up a coordination committee comprising officers from the ministries of home, external affairs, commerce & industry and Niti Aayog, which looks at the issues.

“The committee is not like the Foreign Investment Promotion Board, which looked at all the cases,” explained a source. All FDI proposals from neighbouring countries are to be vetted by the ministry concerned, which will decide on it.

A similar system is followed in sectors such as telecom or insurance where proposals are still reviewed before they are accepted or rejected. In case of automatic approvals, companies have no obligation to seek prior permission from the government.

In April, the government had changed the rules to allow FDI from neighbouring countries only with its prior approval, even in sectors where “automatic” clearances were allowed. The move had hit Chinese investors hard given that they had emerged as a major source of flows in recent years, especially in the technology and digital space.

As a result, even transfer of one share required the Centre’s clearance. While the rule was changed after the Covid-19 outbreak, no consent was given as tension mounted at the Ladakh border, resulting in a pile-up of investments totalling over Rs 12,000 crore.

The stated objective was to keep a check on opportunistic takeover by Chinese entities from across the border with sources citing a clampdown in several countries across the world.

Although some approvals have come through, the recent hostility at the border — which resulted in India banning several Chinese mobile apps, including popular ones such as TikTok — has meant that the government is unlikely to move towards a business as usual approach with restrictions to be in place.

While the steps taken by the government made it clear that there can be no compromise on national security, the recent step of “limited opening up” suggests that it is also aware of the need to ensure that investments are not adversely impacted at a time when all efforts are being made to revive growth and create jobs.