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India’s Extant FDI Policy Part-II | FIPB review 2009

India’s Extant FDI Policy Part-II | FIPB review 2009 (

2009 saw a maximum number of 444 revenue proposals that brought in FDI and 122 proposals that involved zero FDI but netted control structures with share swaps, currency derivatives, or involved modifications within Telecom and Broadcasting FDI corporates of earlier. The total FDI that passed thru FIPB in 2008 amounted to $17bn while these 566 proposals requested $10bn in 2009. 300 proposals were approved and 170 deferred while 26 were advised to go thru the automatic route.

Of the 300 approved, 48 were proposals with an existing JV/Technology Transfer Agreement in India, and another 48 for conversion of Operating companies to Holding cum Operating companies for downstream investment.

Proposals reviewed in detail under hearing mostly refer to parties that already had existing arrangements where protection of jeopardy, multiple JV partners, JV after expiry of current agreements etc are considered.


a. Protection of jeopardy was found not applicable in the case of Houghton Hardcastle and a new JV allowed despite objection of Indian partner

b. Takata where the Indian Partner has signed with a competitor without jeopardy,

c. John Deere where jeopardy is not applicable after expiry of current JV TT agreement

d. Celebi Havas Turkey where the two locations are different was also approved and many more..

FDI Policy Changes – 2009

The following Press Notes were issued in 2009:

i. Press Note 1 of 2009: Foreign investment in Print Media dealing

with news and current affairs- It provides that FDI up to 100% is

permitted with prior approval of the Government in publication of

facsimile edition of foreign newspapers provided the FDI is by the

owner of the original foreign newspaper(s) whose facsimile edition

is proposed to be brought out in India, in accordance with the

conditions stipulated in the Press Note.

ii. Press Note 2 of 2009: Guidelines for calculation of total foreign

investment i.e. direct and indirect foreign investment in Indian


iii. Press Note 3 of 2009: Guidelines for transfer of ownership or

control of Indian companies in sectors with caps from resident

Indian citizens to non-resident entities.

iv. Press Note 4 of 2009: Clarificatory guidelines on downstream

investment by Indian Companies. A detailed discussion on Press

Note 2 to 4 of 2009 is in Section ii of this document

v. Press Note 5 of 2009: Guidelines for foreign investment in

Commodity Exchanges – In order to allow existing Commodity

Exchanges to comply with the guidelines notified vide Press Note

2(2008), the Government allowed a further transition/ complying/

correction time to the existing Commodity Exchanges from June

30, 2009 to September 30, 2009.

vi. Press Note 6 of 2009: Clarificatory guidelines on FDI into a Small

Scale Industrial Undertaking (SSI)/ Micro & Small Enterprises (MSE)

and in Industrial Undertaking manufacturing items reserved for SSI/

MSE. It clarifies that:

a. The present policy on FDI in MSE permits FDI subject only

to the sectoral equity caps, entry routes and other relevant

sectoral regulations.

b. Any industrial undertaking, with or without FDI, which is not

a MSE, manufacturing items reserved for manufacture in the

MSE sector (presently 21 items) as per the Industrial Policy,

would require an Industrial License under the Industries (Development & Regulation) Act, 1951, for such manufacture.

Such an industrial undertaking would also require prior approval of the Government (FIPB) where foreign investment is more

than 24% in the equity capital.

vii. Press Note 7 of 2009: Guidelines for foreign investment in Commodity Exchanges – a further transition/complying/correction

time has been permitted to them beyond September 30,2009 till March 31, 2010.

viii. Press Note 8 of 2009: Liberalization of Foreign Technology Agreement Policy – Payments for royalty, lumpsum fee for transfer of

technology, use of trademark/ brand name have been allowed under the automatic route, without the need for Government approval.

These changes have been consolidated after a few confusing years in to the extant policy document and a Min of Commerce presentation with e filing compulsory for all proposers. the new policy is already presented earlier.

Ownership control issues were at the fore in Defence Ministry’s decision to reject L&T JV with FDI despite Indian control and employees ..and such gray areas also continue in the case where earlier proposals are revisited because of new definition of holding cum operating companies which had subsequently shifted to the automatic route. Now that even 2% investment downstream makes the operating company subject to Compounding ( penalty under FEMA and FDI with RBI), these Foreign JVs / standalone ventures have to go back to FIPB and RBI for each subsidiary investment whether thru Sale of goods/barter, supplier agreements,  Wholly Owned Subsidiary FIPB and MoD also have jurisdiction where the FDI partner like Telenor has dealings in Pakistan or maybe some cases with conflict in China as well.

Proposals from Goldman Sachs, NTT Docomo and Four Seasons were also approved during 2009. A lot of FDI is expected in India Infrastructure in 2010.

2 comments on “India’s Extant FDI Policy Part-II | FIPB review 2009

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