FDI in Brownfield Pharma – Will COVID-19 be the catalyst for policy reforms

The pharma sector has gained renewed global attention due to the crisis brought about by COVID-19, a pandemic having an unprecedented impact on health and wellbeing of citizens across geographical boundaries. It is estimated that around 76 pharma companies across the world are in a race to develop and mass-produce an effective vaccine in the fight against COVID-19[1]. Indian pharma companies too are playing a vital role in this search.[2] The Indian pharmaceutical industry has responded to the rapid challenges arising from disruption in supply chains and is working in an integrated manner to drive local expertise by production and export of essential formulation to countries across the globe, and live up to its title as the ‘Pharmacy of the World’.
Continue Reading FDI in Brownfield Pharma – Will COVID-19 be the Catalyst for Policy Reforms?

Single Brand Retail Trading A tale to harmonise NDI Rules with the FDI Policy

In an attempt to liberalise retail trading in India, the Government of India (“GoI”) has introduced intermittent reforms in the past decade, with a view to make the sector investor friendly and to ensure that India remains an attractive investment destination from the Foreign Direct Investment (“FDI”) perspective. The measures introduced have enabled foreign players to set up brick and mortar stores and operate in the e-commerce space to facilitate the transformation of the retail landscape in India.
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100% FDI allowed in insurance intermediaries - No more ‘peekaboo’!

The Government of India notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (“Non-Debt Rules Second Amendment”) on April 27, 2020, amending the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. With this amendment, foreigners can now look to acquire 100% stake in an insurance intermediary, subject to verification by the Insurance Regulatory and Development Authority of India (IRDAI). This amendment was much awaited by insurance intermediaries[1], which have in the past lobbied to be declassified from the same bracket as insurance companies, in so far as foreign investment was concerned.
Continue Reading 100% FDI allowed in insurance intermediaries – No more ‘peekaboo’!

GOODBYE CHINA; HELLO INDIA

The noise around large companies shifting their manufacturing bases out of China has gotten shriller with the advent of Covid-19 related disruption. The theme is not new. Since the trade war between the United States and China, much has been written about companies shifting their operations from China to other South East Asian countries such as Vietnam, Thailand and Taiwan. India is hopeful of getting it right this time around and is competing with other South East Asian countries in rolling out the red carpet to companies exiting China. In anticipation of any announcements that may be made by the Government in this regard, this article examines some of the key factors that are relevant for companies contemplating a shift to India.
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Non-Debt Instruments -The New Rules for Foreign Flows

In a quiet mid-October surprise, nearly four and a half years after the passage of the Finance Act 2015 (20 of 2015), the Government notified the effective date for implementation of the clauses that amended Section 6 of the Foreign Exchange Management Act, 1999 (FEMA). The notification defining debt and non-debt instruments followed suit and then of course the Non Debt Instrument Rules (NDI Rules) under FEMA, which superseded the extant FEMA 20R and 21R.
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Liberalisation of Foreign Investment in Insurance Brokers - Budget 2019

Around noon on Friday, July 4th, 2019, the Hon’ble Minister of Finance, in her budget speech to the nation, proposed revisions to the existing foreign investment caps applicable to insurance brokers and other insurance intermediaries in order to allow 100% foreign direct investment (“FDI”). This move was long overdue on the government’s part, particularly in relation to insurance brokers. In fact, a proposal for liberalising foreign investment caps for insurance brokers has been on the drafting table of the Government of India for close to two years now. In the past, a number of representations had also been made by market participants to the various departments of the government highlighting the need to differentiate foreign investment norms for insurance brokers and insurance companies, and to not treat insurance brokers in parity with insurance companies, in so far as foreign investment is concerned[1].
Continue Reading Budget Special : The Liberalisation of Foreign Investment in Insurance Brokers – A Shot in the Arm

 Toll Operate and Transfer model - NHAI

With a view to monetise the operational national highways, the National Highway Authority of India (NHAI) introduced the Toll Operate and Transfer (TOT) model for partnership with private developers in the road sector. Under this model, NHAI passes on the toll collection rights and operation and maintenance obligations for 30 years to the private developer against payment of upfront, one-time, lump sum concession fees quoted by the private developer as part of the comprehensive bidding process. Projects under this model are awarded as a bundle of operational national highways, which allows the investor to offset the risks of one project against another. Since existing and operational roads are auctioned under the TOT model, it does not need developers with construction skills to participate.
Continue Reading Toll Operate Transfer Model – Gateway to New Opportunities in Highway Sector

On June 7th, 2018, the Reserve Bank of India (RBI) had introduced two new forms (namely Single Master Form and Entity Master Form) vide a circular[1] (RBI Circular), with the aim of simplifying reporting under the Foreign Exchange and Management Act, 1999 (FEMA). Our earlier blog post contained details of the two forms and our in-depth analysis of the same. On June 27th, 2018, RBI released a User Manual for Entity Master – FIRMS[2] (User Manual) which provides detailed instructions and the process for filing the Entity Master Form.
Continue Reading India Simplifies Foreign Investment Reporting Process: Update

From January 1, 2017 to May 31, 2018, the open offers launched under the SEBI Takeover Regulations for listed non-banking financial companies (NBFCs) constitute approximately 23.7% out of the total open offers during this period. In the calendar year 2018 (to May 31, 2018), the percentage of open offers for NBFCs out of the total open offers launched in this period is 23%, demonstrating significant interest in one particular sector in the listed space as opposed to others. As per our study, the following diagram illustrates the open offer activity from January 1, 2018 to May 31, 2018:

Open Offer Activitiy , Indian Sector Specific


Attractiveness of NBFCs

NBFCs are an important alternative source of financing. Given that banks are prohibited from funding M&A transactions, NBFCs fit in perfectly. In addition to this, that there have been few positive developments in the past couple of years that have increased the attractiveness of NBFCs. In August 2016, the Government extended the applicability[1] of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to 196 systemically-important NBFCs to enable them to enforce security interest in relation to secured debt of Indian Rupees one crore or more.


Continue Reading Takeover of Listed NBFCs: An Analysis of Current Trends

Do We Really Need the “Approval” Route?

The announcement in the Budget Speech that the Foreign Investment Promotion Board (FIPB) is going to be wound down in 2017-18, has led to speculation amongst consultants, lawyers, foreign investors and the media as to what will take its place. After all, the FIPB, an institution that has been around for more than two decades, epitomises, inter alia, the “government approval” route for foreign investment in sensitive sectors and has been the bedrock of the Foreign Direct Investment (FDI) Policy. It has been the “go-to” body for approvals, clarifications, waivers of conditions and post facto approvals of transgressions, etc.

After successive liberalisations, the “approval route “ now accounts for only 10% or so of the FDI inflows and, therefore, the real question to ask should not be as to how or which agency(ies) will give the required approval for FDI in the sensitive sectors, but whether approval is required at all. Following from my earlier blog piece on “FIPB – The Sunset Year”, I would like to make the case that in the sectors, currently still under the FIPB route as per the contours of the FDI policy, an FDI approval per se is not required at all.

FDI Approval an Additional Layer

First, it may be observed that in the approval route sectors, the FIPB approval forms only one layer of approval, even though the FIPB process is indeed “single window” (in the sense that it brings all the stakeholders to the table). There is another very vital approval required from the administrative ministry, the regulator or the licensor concerned, which gives the operating license/approval. This includes the allocation of the resource (spectrum/ airwaves/mine etc.) as per the laid down procedures. This is true for all the extant FIPB mandated sectors viz. mining, telecom, defence, media, etc, except single brand and multi-brand trading (this has been discussed later). The policy also prescribes follow-on FIPB approvals for changes in ownership, additional capital etc in these “licensed sectors”. The need for engagement by two separate government layers is clearly debatable.

Foreign Ownership is Not a Concern

Second, also as a result of the periodic liberalisation of the FDI Policy, the sectoral cap in nearly all the approval route sectors has gone up progressively along the usual pattern of 26% to 49% to 51% over the years and now stands at 74% or even 100%[1] in some cases. This clearly implies that in respect of these sectors, where the FDI sectoral cap is at 51% or above, there are no real concerns as regards to foreign ownership and control of entities from a sectoral perspective. In such a situation, therefore, the exact percentage of foreign investment in an entity becomes merely a matter of record, rather than one requiring a formal approval from a high powered government inter-ministerial body.


Continue Reading FIPB – The Rites of Passage