FDI in print media promises readers more variety

By Gautam Khaitan, OP Khaitan & Co
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The Indian press is undergoing continued liberalization following the government’s decision in 2002 to allow foreign direct investment (FDI) in print media. The decision to permit 26% FDI came with several conditions aimed at preventing national interest from being compromised as a result of greater foreign investment.

Although the government of India has permitted FDI in print media, it has divided the sector into two parts which has led to variations in FDI policy between a) the publication of newspapers and periodicals dealing with news and current affairs, and b) the publication of scientific magazines, specialty journals and periodicals.

News-based publications

Foreign investment in the publication of newspapers and periodicals dealing with news and current affairs still stands at its initial 26%, since 2002 subject to guidelines notified by the Ministry of Information and Broadcasting.

Gautam Khaitan Partner OP Khaitan & Co
Gautam Khaitan
Partner
OP Khaitan & Co

Foreign investment will be allowed only where the resultant entity is a company registered with the Registrar of Companies under the provisions of the Companies Act, 1956; and permission will only be granted in cases where equity held by the largest Indian shareholder is at least 51% of the paid-up equity. The term “largest Indian shareholder” used in this clause includes any, or a combination of the following.

In the case of individual shareholders. the largest Indian shareholder can be: a) the individual shareholder themselves; b) a relative of the shareholder under the conditions stipulated in section 6 of the Companies Act, 1956; or, c) a company or group of companies or the Hindu Undivided Family (HUF) to which the individual shareholder belongs, which has management control and a controlling interest.

In the case of an Indian company, the largest Indian shareholder may include, a) the Indian company, or b) a group of Indian companies under the same management and ownership control.

Provided that a combination of all or any of the entities mentioned in the sub-clauses above are met, each of the parties may enter into a legally binding agreement to act as a single unit in managing the matters of the new entity, established for the production of news-based publications.

Scientific periodicals

The Indian government, through the Ministry of Commerce and Industry, issued revised guidelines on FDI including investments by non-resident Indians and overseas corporate bodies outlined in Press Note 1 of 2004.

In line with these amendments, FDI of up to 100% is permitted in the printing of scientific and technical magazines, periodicals and journals, subject to compliance with the legal framework, and the relevant guidelines issued periodically by the Ministry of Information and Broadcasting. FDI in this sector is, however, only permissible with prior government approval.

Reaction by anti-FDI lobbies

Various attempts were made to address the concerns of political parties which shared the view that FDI in India’s print media might lead to foreign control. Anti-FDI lobbies have participated in protests, expressing the fear that foreign forces might begin to dominate the content of Indian publications, which would be detrimental to national interests. These lobbies believe the safeguards implemented by the government to protect Indian interests are inadequate, since most multinational companies are expected to employ Indians who will be instructed to perform roles and execute services designed by foreign investors to the detriment of the nation’s interest.

Foreign participation welcome

Despite such controversies and disagreements, media houses have welcomed the government’s move to enhance FDI in print media. This policy will benefit small and medium-sized newspapers that have been experiencing financing setbacks. Investing in India is not only lucrative for foreigners but also for non-resident Indians who can acquire equity in print media ventures.

Initially it may appear that English publications are gaining momentum, but publications in other languages will gradually add an element of variety and diversity, leaving the reader with innumerable choices.

In addition, foreign equity in periodicals and newspapers will have a knock-on effect, and hence a naturally positive impact on the advertising industry, which in turn will generate revenue for the country.

There is little doubt about India’s market potential. Opening the door to FDI has already led some foreign publications to enter the Indian market. This healthy growth will be beneficial for the Indian media industry and eventually put to rest fears regarding the loss of autonomy and freedom of expression.

Gautam Khaitan is a partner at OP Khaitan & Co. He works mainly on corporate and commercial matters and has considerable experience over a wide range of corporate and commercial transactions.

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