The new FDI policy: signs of progressive liberalization

The eagerly awaited new consolidated FDI policy was released by the Department of Industrial Policy & Promotion (DIPP) on 31 March. We round up the major highlights of this document, which is commonly known as circular 1 of 2011.

Foreign partners unfettered

Press note 1 of 2005 has often been the bane of foreign investors in India. It required foreign investors who had invested in India before 12 January 2005 to obtain prior governmental approval for any further investments in India (except in a few limited circumstances). To add to the difficulties, this approval, in practice, was only granted if a no-objection certificate was obtained from the existing Indian joint venture partners, which was more often than not used as a bargaining chip by the Indian partner.

However, as a sign of things to come, the government in late 2010 introduced a discussion paper on the eventual abolition of press note 1. The provision incorporating press note 1 (clause 4.2.2.2 of circular 1’s predecessor issued in October 2010) has been completely dropped from circular 1 of 2011, thereby abolishing the statutory non-compete of press note 1 of 2005.

This article has been co-authored by Arun Madhu, a senior associate at the Mumbai office of Phoenix Legal, and Hemant Krishna V an associate in the same office. They can be reached at arun.madhu@phoenixlegal.in and hemant.krishna@phoenixlegal.in.