Ahead of Elon Musk’s Visit, Ministry of Finance Changes Rules in FDI

What’s in today’s article?

• Why in the News?
• What is FDI?
• How does FDI Enter in India?
• Sectors in which FDI is Prohibited
• News Summary
• 100% FDI for Manufacturing, Operation of Satellites

Why in the News?

• The Ministry of Finance has changed rules under the Foreign Exchange Management Act to allow up to 100 per cent foreign direct investment (FDI) for the space sector through three categories of liberalised entry routes.

What is FDI?

• Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest.
• With FDI, foreign companies are directly involved with day-to-day operations in the other country.

How does FDI Enter in India?

• Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA), 1999.
• FDI enters in India through either of the two routes:
  • Automatic route
  • Government-approval route
• Automatic route:
  • The non-resident or Indian company does not require prior nod of the RBI or government of India for FDI.
• Government route:
  • The government’s approval is mandatory.
  • The company will have to file an application through Foreign Investment Facilitation Portal, which facilitates single-window clearance.
  • The application is then forwarded to the respective ministry, which will approve/reject the application in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce.
  • DPIIT will issue the Standard Operating Procedure (SOP) for processing of applications under the existing FDI policy.

Sectors in which FDI is Prohibited

• There are a few industries where FDI is strictly prohibited under any route. These industries are:
  • Atomic Energy Generation
  • Any Gambling or Betting businesses
  • Lotteries (online, private, government, etc.)
  • Investment in Chit Funds
  • Nidhi Company
  • Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
  • Housing and Real Estate (except townships, commercial projects, etc.)
  • Trading in TDR’s
  • Cigars, Cigarettes, or any related tobacco industry

News Summary

• The Finance Ministry has notified amended rules under the Foreign Exchange Management Act to operationalise its earlier decision to allow up to 100 per cent foreign direct investment (FDI) for the space sector through three categories of liberalised entry routes.
• The notification comes ahead of Tesla chief Elon Musk’s visit to India early next week where he is expected to meet space startups, make a push for his space venture Starlink’s plans and announce his electric vehicle (EV) investment plans.
• Earlier in February, the Union Cabinet had approved the amendment to the FDI policy for the space sector, allowing up to 100 per cent investment in certain categories.

100% FDI for Manufacturing, Operation of Satellites

• As per the latest Finance Ministry notification, 100 per cent FDI has been allowed for the space sector category of manufacturing and operation of satellites, satellite data products, and ground segment and user segment.

Out of this, up to 74 per cent would be through the automatic route and government nod would be required for investment beyond 74 per cent. 

Under the earlier policy, any foreign investment in manufacturing and operating satellites is allowed only with government approval.

• Automatic FDI has also been permitted up to 49 per cent for launch vehicles and associated systems or subsystems, and creation of spaceports for launching and receiving spacecraft. Government approval would be required for investments beyond 49 per cent.

Manufacturing of components and systems or sub-systems for satellites, ground segment and user segment will be fully under the 100 per cent automatic route.

Q1. What’s the Difference Between FPI vs FDI?

Foreign Direct Investment (FDI) involves foreign investors directly investing in another nation’s productive assets. Conversely, Foreign Portfolio Investment (FPI) entails investing in financial assets, like stocks and bonds, of entities situated in a different country.

Q2. What is the International Astronomical Union?

The International Astronomical Union is a non-governmental organisation with the objective of advancing astronomy in all aspects, including promoting astronomical research, outreach, education, and development through global cooperation. It was founded in 1919 and is based in Paris, France.

Source: https://indianexpress.com/article/india/musk-india-visit-rules-fdi-space-sector-9276071/