Cabinet proposals on FDI: Good news for brands, digital media companies wait and watch

The union cabinet on Wednesday approved a proposal to review the foreign direct investment (FDI) policy to ease sourcing norms and allowing 100% FDI in the manufacturing sector under the automatic route. 

The proposal also permitted 26% FDI in digital media companies under government approval for uploading or streaming news and current affairs. This is on par with the print media where FDI is capped at 26% whereas TV channels are permitted to attract FDI of 49%, subject to approval.

Mixed bag for digital media companies

The proposal clarifies the ambiguity around FDI in digital media companies, according to industry observers.

“The cabinet’s proposal to permit 26% FDI (under government route) for uploading/streaming of news & current affairs through digital media has in a way removed the inevitable ambiguity surrounding the government’s stand with respect to permissibility of such activity within the ambit of digital media,” said Harish Kumar, partner designate, L&L Partners.

The final press note to be issued by the department for promotion of industry and internal trade (DPIIT) is likely to clarify queries around whether the move will impact publishers like Facebook and Google as well as the impact on the digital arm of print and broadcast houses.

“The scope of the impact will be determined by the wording of the provisions in the FDI policy. News and current affairs are present on social media platforms, on digital platforms that are subsidiaries of foreign brands etc. How would you differentiate between TV channels that have 49% FDI and their online streams that will effectively have 26% FDI?,” Manav Sethi, group chief marketing officer, Eros International, said in a statement.

Positive move for single brand retail

The wordings for single brand retail trading (SBRT) were more detailed and do away with the requirement for SBRT entities to set up brick-and-mortar outlets before going the ecommerce way.

"The current proposal is an enabler for brands and companies looking to enter India who can start with their online business before starting their offline stores for which they will have two years. The challenge previously was also the compliance with the 30% local sourcing norms,  which under the new regulation include global sales and eases the way for these brands to operate in India,” said Rajat Wahi, partner, Deloitte Consulting.

For a company like IKEA, which set up its first store in India in Hyderabad in 2018, the current relaxation in norms also counts global sales of products sourced from India and eases the 30% local sourcing burden. 

The current norms also ease the path for foreign brands like sports apparel brand Under Armour that have been looking at markets beyond the US for profits. The new norms will help these brands study the pricing challenges and demand online before they scale their operations in the country.