Problems relating to Trade and Investment on India
1. Restrictions on entry of foreign capitals |
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Issue |
Issue details |
Requests |
Reference |
| (1) Discriminatory Share Transfer Pricing: Domestic vs. Foreign | - On share transfer, where non-resident investor transfers shares to resident investor, the share price must be less than the price worked out by any internationally accepted pricing methodology on arm's length basis (evaluated price, in the case of unlisted companies). Conversely, where resident investor transfers shares to non-resident investor, the share price must be more than the evaluated price. | - It is requested that GOI takes step to allow determination of the share transfer pricing by mutual consultation between the parties. | - Foreign Exchange Management Act - Reserve Bank Of India Notification of 15 July 2014, Foreign Direct Investment (FDI) in India - Issue/Transfer of Shares or Convertible Debentures - Revised pricing guidelines. |
| (2) Restricted Foreign Capital Participation into the Retail Business Sector | - Up to 100% foreign capital contribution was made possible in 2012 for retail business, distributing single brand products, however, with a caveat of restricted procurement (whereby 30% of purchase must be procured domestically from small-scale enterprises). Furthermore, foreign capital contribution of up to 51% was also made possible in 2012 for general retail business such as super markets and convenience stores, however, with a caveat of: minimum investment amount of USD100 million, minimum 50% of investment amount invested within 3-years into the back-end infrastructure (logistics, warehouse, manufacture, etc.), 30% of procurement made from small-scale enterprises, targeting cities with the minimum population of 1 million. Thus, foreign capital investment into retail sector has hardly made any progress. Especially, Japanese affiliated enterprises drag their feet in entry, blocking the project progress with the local business partners. |
- It is requested that Government of India (GOI): -- deregulates various terms and conditions on the left column, and -- removes the restrictions as soon as possible. |
- FDA Policy Notification of DIPP |
| (Action) - On 24 November 2011, The Cabinet of India approved new foreign direct investment (FDI) policy in the retail sales sector, liberalising FDI in the single brand and multiple brand retail sales sectors. Especially, the new FDI has raised the cap on the foreign capital contribution to the equity shares from the current 51% to 100% in the single brand retail sales sectors, while up to 51% capital contribution is granted as regards multiple brand retail sales sector under the new FDI policy. Heated discussions have taken place to this date between the parties over the issue concerning liberalisation of FDI in the retail sales sectors, delaying the liberalisation. However, on 14 September 2012, the Cabinet once again affirmatively decided upon the liberalisation of FDI in the retail sales sectors. On 20 September, the Department of Industrial Policy & Promotion (DIPP) of Ministry of Commerce and Industry announced through official gazette, regulation providing the practical procedures, which was enforced on the same day. However, certain conditions must be satisfied on FDI in multiple brand retail sales sector, including the following, requiring approval of state government or the Union Territory, before opening the retail stores: (1) The minimum capital amount: USD 100-million, (2) 50% of the invested amount must be deployed for infrastructure overhaul within 3-years of the initial investment, (3) 30% of the procurement must be sourced from the Indian domestic small enterprises (with invested capital of USD 100 million on less), (4) Retail stores must be located in the urban area with population of 1 million or more, and (5) Agricultural/fishery products sold by the retail stores must not bear any fixed brand names. As regards single brand retail sales sector, certain conditions must be satisfied, such as, where foreign capital contribution ratio exceeds 51%, at least 30% of the sales amount must be procured locally in India. - In the Election Manifest 2014 of the Bharatiya Janata Party (BJP), the governing party since lower house election in May 2014, expressly re-prohibits foreign direct investment (FDI) in multi-brand retailing business for protection of the domestic small to medium retailers. On 8 September Minister of Commerce and Industry under Modi Administration reconfirmed its policy to prohibit FDI investment in multi-brand retailing business. - "Indian BUDGET 2016-2017" incorporates provisions: "100% FDI to be allowed through FIPB route in marketing of food products produced and processed in India." - On 29 March 2016, Indian Ministry of Commerce and Industry allowed 100% FDI for marketplace based model of E-Commerce, under automatic route, without inventory ownership of business to consumer (B2C) Electronic Commerce (E-Commerce (EC)). (Press Note No 3(2016 Series)). |
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| (3) Director's Residence Requirement | - Whether listed or unlisted, "Every company shall have a Board of Directors (BOD) consisting of individuals as directors and shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year." Should MFS appoint a Japanese Director on BOD, including the need for prior despatch of a succeeding director, it frustrates member firm's personnel arrangements. - Upon selection/appointment of a new director, in addition to acquisition of Director Identification Number (DIN), and Digital Signature Certificate (DSC), GOI rigorously demands residential permit/certificate of registration. However for the new director, who initially stays at a hotel, it is impossible to complete the requisite documents, such as receipt for the electric bill, etc. It takes much time to complete preparation of the requisite documents. Thus, FRO/FRRO refuses acceptance of the application, attaching certificate of registration/ residential permit, which is (are) GOI's official document(s). |
- It is requested that GOI deregulates the restrictions. - It is requested that GOI accepts the application attaching residential permit/certificate of registration. |
- The Companies Act |
| (Action) - The Article 149 (3) of the new Companies Act provides: "Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year." |
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| (4) Restricted Minimum Number of Shareholders under the New Companies Act, Notifications | - Under the new companies act, and notifications, the provisions remain to exist, requiring at least two (2) shareholders in a private company, forcing MFS into unnecessary expenses and work-time, in the case MFS is a fully owned subsidiary of a member firm. As of today, an MFS is established by only one share held by the parent company, which in substance is meaningless. Legislative revision is desirable. | - It is requested that GOI approves establishment of a company with minimum one (1) shareholder. | - The Companies Act, & Notifications |
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