New foreign investment limits for digital news media

By Shinoj Koshy and Purvi Khanna, L&L Partners
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In August 2019, the government announced reforms to the foreign direct investment (FDI) policy to permit 26% FDI under the government route in the uploading and streaming of news and current affairs through digital media, along the lines of the policy applicable to print media. Subsequently, the Department for Promotion of Industry and Internal Trade (DPIIT) amended the FDI Policy of 2017 through press note 4 of 2019, which introduced “Uploading/Streaming of News and Current Affairs through Digital Media” as a sub-heading to the broadcasting sector. Amid calls for clarification by stakeholders on the scope of the term “digital media”, and how the amendment would impact entities that held more than 26% FDI, the changes came into effect from 5 December 2019 following notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (non-debt rules).

Shinoj Koshy,L&L Partners
Shinoj Koshy
Partner
L&L Partners

Under the FDI policy, it is understood that sectors in which FDI caps are not specified are open to 100% FDI under the automatic route, subject to applicable sectoral laws and other conditions. The amendment to the FDI Policy of 2017 has posed issues for entities which were previously structured as wholly-owned subsidiaries of international news agencies operating in India, or had raised foreign investment beyond the 26% limit prior to 5 December 2019.

Nearly ten months after the amendment to the non-debt rules, on 16 October 2020, the DPIIT issued the “Clarification on FDI Policy for uploading/streaming of news and current affairs through Digital Media” to address the uncertainty surrounding the entities covered by the changes in the FDI Policy. According to the clarification, the decision to permit 26% FDI applies to digital media entities streaming or uploading news and current affairs, to news agencies distributing news directly or indirectly to digital media entities or news aggregators, and to news aggregators, which are registered or located in India. The clarification gives digital news entities one year from the date of the clarification to reduce their FDI to the 26% level with the approval of the government. Digital news media entities will also need to comply with other conditions in the clarification within that time, such as requiring the CEO and majority directors to be Indian citizens and obtaining security clearances for foreign personnel. The additional conditions are a reiteration of the conditions applicable to the broadcasting sector under the FDI Policy, and would ordinarily have been applicable to digital news media entities as they are a subset of the broadcasting sector.

Purvi Khanna,L&L Partners
Purvi Khanna
Associate
L&L Partners

The government has resolved the vexed subject of regulating digital content on online media and over-the-top (OTT) platforms. The Ministry of Electronics and Information Technology, by virtue of the provisions of the Information Technology Act, 2000, and the Ministry of Information and Broadcasting (I&B ministry), which traditionally regulates broadcasting content, claimed regulatory jurisdiction over digital content. It became necessary therefore to decide which ministry was to regulate online content. Clarity was provided by the 9 November amendment to the Government of India (Allocation of Business) Rules, 1961 (allocation of business rules), which allots the business of the government between various ministries, departments, secretariats and offices, and identifies the subject matter overseen by each ministry. The amendment placed digital and online media under the I&B Ministry.

Therefore, the I&B ministry be responsible for framing rules, policies and guidelines in respect to news and current affairs content on online platforms. The I&B ministry may introduce a framework for regulating digital content on OTT and digital news platforms as along the lines of the print media and cable television news, which are required to comply with legislations such as the Press and Registration of Books Act, 1867 and the Cable Television Networks (Regulations) Act, 1995, respectively.

The clarification identifies activities that bring Indian entities within the 26% FDI threshold. This, coupled with the requirement to comply within a year, may lead overseas parent entities to reconsider the nature of activities that they undertake through their Indian arms. While this may be possible for large companies, news agencies that exist primarily to collect and transmit news will have to re-examine their equity structure to comply with the new FDI norms.

Shinoj Koshy (left) is a partner and Purvi Khanna is an associate at L&L Partners.

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