Changes to FDI Policy – Part V: Sectoral Rules

In this final post in the series, we look at the one change introduced by the Consolidated FDI Policy, Circular No. 1 of 2011 to the sectoral requirements in the agricultural sector, and also briefly touch upon some areas that have been overlooked in the current round of policy review (but yet are under active consideration).
Earlier, FDI under the automatic route up to 100% was available for “floriculture, horticulture, development of seeds, animal husbandry, pisciculture, aquaculture and cultivation of vegetables & mushrooms under controlled conditions and services related to agro and allied sectors” (para. 5.2.1 of the FDI Circular). The relaxation now made is to allow 100% FDI for development and production of seeds and planting material without the requirement to do so “under controlled conditions”. The other stipulations continue to operate, as elaborated in this report.
As far as a few other sectors and types of entities are concerned, although some movement has been made in relation to the following matters, there is no definitive policy pronouncement forthcoming from the Government:
– multi-brand retail trading, which is a hot-button issue, where Government has been holding consultations after having issued a discussion paper;
– FDI in limited liability partnerships (LLP), in whose case too there is already a discussion paper (although the LLP as an entity appears to be undergoing some turmoil lately due to imposition of minimum-alternate tax in Budget 2011, as discussed here); and
– enhancement of FDI limit in the insurance sector from 26% to 49%.

Investors keen on taking a stake in these sectors will have to await further policy pronouncements.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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