Searching for answers in new FDI proposal

On 28 August 2019 the government announced its new proposal on Foreign Direct Investment (FDI). While the announcement has been made, the fine print of the proposed changes to the existing FDI policy has still to be revealed and the government will need to make certain policy and regulatory changes to support the ease of doing business in sectors affected by the changes. The following are the key points in the proposal.

The government has proposed to allow 100% of FDI under the automatic route (without prior government approval) in contract manufacturing (under legally tenable contracts). This is aimed at clarifying the position that contract manufacturing will not amount to trading activity and therefore, will not be subject to existing policy on FDI for trading activities. Manufacturers in sectors like pharmaceutical, textiles, electronic goods, and so on are expected to benefit from this proposal.

100% of FDI is to be permitted under the automatic route in the sale of coal and coal mining activities, including associated processing infrastructure (including coal washery, crushing, coal handling, and magnetic & non-magnetic separation) subject to the provisions of relevant acts governing the sector. The government is hopeful this will create an efficient and competitive coal market in India, reduce dependency on the import of coal and bring to India advanced and sustainable coal mining technologies. While this may attract interest from international players, they would expect a certain ease and transparency to be brought to the processes involved in doing business in this sector. This may require the government to consider streamlining the processes for obtaining environmental clearances, mining leases, allocation and auction of mines, land acquisition, and so on. Under the existing FDI policy of India, 100% of FDI under the automatic route is allowed for coal & lignite mining for captive consumption by power projects, iron & steel and cement units and the setting up of coal processing plants like washeries, subject to restrictions on coal mining and the sale of washed coal or sized coal from such coal processing plants in the open market and a requirement to supply the washed or sized coal only to those parties who supply raw coal to coal processing plants for washing or sizing.

Vineetha MG and Srabonee Roy are partners at Samvad Partners.

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