Big FDI reforms: From coal mining to digital media

In a major reform push, the Union Cabinet on Wednesday eased foreign direct investment (FDI) norms in several sectors, including approval of 100 per cent FDI in coal mining and contractual manufacturing.

In another major development, the cabinet, in its meeting during the day, also decided to allow 26 per cent FDI in the digital media segment through the approval route.

"It has been decided to permit 100 per cent FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure subject to provisions of Coal Mines Act, 2015 and the Mines and Minerals Act, 1957," an official statement said.

"Associated processing infrastructure" would include coal washeries, crushing, coal handling, and separation (magnetic and non-magnetic).

As per the present FDI policy, 100 per cent FDI under automatic route is allowed for coal and lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities permitted under and subject to applicable laws and regulations.

Further in a bid to provide clarity on contractaul manufacturing, the cabinet also permitted 100 per cent FDI in the sector through the automatic route. The existing FDI policy provides for 100 per cent FDI under automatic route in the manufacturing sector but there was no specific provision for contractual manufacturing.

The Union Cabinet allowed 100 per cent foreign direct investment (FDI) in contractual manufacturing through the automatic route.

An official statement said that the decision has been taken to in order to provide clarity on contract manufacturing in the country.

"Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under automatic route. Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on 'Principal to Principal' or 'Principal to Agent' basis," the Commerce Minister statement said.

The Narendra Modi cabinet also eased the 30 per cent local sourcing norm in single-brand retail (SBRT) where domestic procurement for exported goods will now qualify for inclusion under the 30 per cent sourcing rules.

"With a view to provide greater flexibility and ease of operations to SBRT entities, it has been decided that all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported," Commerce Minister Goyal told reporters after the cabinet meeting.

"Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports," he added.

The extant FDI policy provides that 30 per cent of the value of goods have to be procured from India if the SBRT entity has more than 51 per cent FDI. Besides, the local sourcing requirement can be met as an average during the first 5 years, and, thereafter, annually.

In a significant boost for the fast-growing digital media space, the cabinet approved 26 per cent FDI in digital media with government approval.

Currently, 49 per cent FDI is provided under the approval route in news channels and the government has now decided to expand the span of FDI to the digital meda space.

"The extant FDI policy provides for 49 per cent FDI under approval route in up-linking of 'News & Current Affairs' TV channels. It has been decided to permit 26 per cent FDI under government route for uploading or streaming of news and current affairs through digital media, on the lines of print media," an official statement said.

Commenting on the FDI approval, Jehil Thakkar, Partner, Deloitte India said: "FDI in digital media is a welcome development. Clarity around this fast-growing segment of the media industry will act as an enabler for capital infusion."

"Significant value will be unlocked in going forward," he added.

According to Harsha Razdan of KPMG in India, 100 per cent FDI through automatic route for contract manufacturing is true to the 'Make in India' initiative and will attract global players looking to set up alternate manufacturing hubs.

"In the same vein, adding exports to the local sourcing norms may help build larger capacities, reinforcing India's stand as a potential global manufacturing hub. Allowing single brand retailers to start online stores, while meeting local sourcing norms, aligns well with the 'Digital India' initiative, giving them time to build their brick-and-mortar presence in parallel," Razdan said.