Winds of change: a look at some recent FDI reforms in India

On 1 August 2013, the Indian central government’s cabinet committee on economic affairs formally ratified the decision taken by the prime minister, on 16 July, to introduce the latest set of foreign direct investment (FDI) reforms in India.

FDI limits

These measures impact a number of sectors in which the sectoral cap for foreign investment and the approval mechanism have been liberalised. Some of the important changes in FDI limits announced are summarised in the graphic below.

Definition of control

The cabinet also approved a proposal for modifying the definition of control under the FDI policy. Earlier, the FDI policy provided that an Indian company would be considered as “controlled” by resident Indian citizens if resident Indian citizens, and Indian companies, which are owned and controlled by resident Indian citizens, had the power to appoint a majority of the directors in that company.

The revised definition of control includes the right to appoint a majority of directors or to control the management or policy decisions, including by virtue of their shareholding or management rights, or shareholders agreements, or voting agreements.

This new definition is more consistent with the definition of control under the Indian Takeover Code and the Companies Bill 2012, which received presidential assent on 29 August 2013. The new definition will have far-reaching impact on foreign investments in key sectors such as aviation, defence and media.

Santosh Pai and Vikas Kumar are partners at D H Law Associates. D H Law Associates is the only full-service Indian law firm with an active China practice since 2010