FDI Policy, 2017: Decoding ambiguities

By Dipti Lavya Swain and Srabanee Ghosh, Luthra & Luthra Law Offices
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One of the prime targets in policy making has always been attracting greater foreign investment into India. Accordingly, the country’s foreign direct investment (FDI) policy has been frequently amended, as and when required. On 28 August, the Department of Industrial Policy and Promotion (DIPP) issued the Consolidated Foreign Direct Investment Policy, 2017, incorporating all amendments made to the consolidated FDI policy notified in 2016 via notifications and press notes.

In addition to consolidating the amendments, the 2017 FDI policy also brings about the following changes:

Dipti Lavya SwainPartnerLuthra & Luthra Law Offices
Dipti Lavya Swain
Partner
Luthra & Luthra Law Offices

Limited liability partnership: FDI in limited liability partnerships (LLPs) saw a change in March this year, however, certain key clarifications, which were awaited, came only in August. The FDI policy now specifically allows conversion of an LLP having FDI into a company and conversion of a company having FDI into an LLP, so long as they are under the 100% automatic route and without any FDI-linked performance conditions. Also, in a welcome development, the term “FDI-linked performance conditions”, which was used at several places in the previous policy (including for LLPs as well as non-operating companies) creating some confusion, has been defined to mean “the sector specific conditions for companies receiving foreign investment”.

Single-brand retail trading: Pursuant to Press Note 5/2016, local sourcing norms in the policy do not apply for a period of three years from the date of commencement of business, i.e. opening of the first store for entities undertaking single-brand retail trading of products having “state-of-art” and “cutting-edge” technology and where local sourcing is not possible. After this period, local sourcing norms are applicable.

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Dipti Lavya Swain is a partner and Srabanee Ghosh is an associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.

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