2022 INVESTMENT POLICY AND REGULATORY REVIEW India © 2022 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 11 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 13 4. INVESTMENT PROTECTION 19 5. INVESTMENT INCENTIVES 21 6. INVESTMENT LINKAGES 23 7. OUTWARD FOREIGN DIRECT INVESTMENT 23 8. RESPONSIBLE INVESTMENT 25 9. CITY SPECIFIC REVIEW—MUMBAI 26 10. FDI IN THE DIGITAL ECONOMY 27 ENDNOTES 36 LIST OF REFERENCE MATERIALS 38 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA |1 ACKNOWLEDGEMENTS The report was prepared by a core team led by Legal research for the preparation of this report was Priyanka Kher comprising Peter Kusek and carried out by the international law firm Kilpatrick Maximilian Philip Eltgen. The report benefited Townsend & Stockton LLP, in collaboration with a from valuable inputs and support from Hideki country-based law firms. Mori, Mehnaz Safavian, Ruchita Manghnani, Andres Garcia, Harsh Jhanjaria and Gerlin May The team would like to thank Aichin Jones for U. Catangui. The team would like to thank Asya providing design, layout, and production services. Akhlaque, Gabi George Afram and Ivan Nimac for The report was prepared under the Analyzing their guidance. Barriers to Investment Competitiveness Project, supported with funding from the Prosperity Fund of the United Kingdom. | 2 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA GLOSSARY APEDB Andhra Pradesh Economic Development Board in Andhra Pradesh ASEAN Association of Southeast Asian Nations BIP Bureau of Investment Promotion in Rajasthan CCEA Cabinet Committee on Economic Affairs CSR Corporate Social Responsibility DPIIT Department of Promotion of Industry and Internal Trade DTAA Double Taxation Avoidance Agreements DSIIDC Delhi State Industrial and Infrastructure Development Corporation Limited FDI Foreign Direct Investment FDI Policy Consolidated Foreign Direct Investment Policy Circular dated October 15, 2020 FEMA Foreign Exchange Management Act, 1999 FET Fair and Equitable Treatment FIFP Foreign Investment Facilitation Portal FIND Foundation for Innovative New Diagnostics GATS General Agreement on Trade in Services ICMR Indian Council of Medical Research ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement iNDEXTb Industrial Extension Bureau in Gujarat Invest India National Investment Promotion and Facilitation Agency of India Invest Punjab Punjab Bureau of Investment Promotion IPICOL Industrial Promotion and Investment Corporation of Odisha IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review IRDAI Insurance Regulatory and Development Authority of India ISDS Investor-State Dispute Settlement 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA |3 MAITRI Maharashtra Industry, Trade and Investment Facilitation Cell MBRT Multi Brand Retail Trading MHA Ministry of Home Affairs MOCI Ministry of Commerce and Industry MoU Memorandum of Understanding MFN Most-Favored Nation NASSCOM National Association of Software and Service Companies NDI Rules Foreign Exchange Management (Non-debt instruments) Rules, 2019 NPD Non-Personal Data OI Regulations FEMA (Overseas Investment) Regulations, 2021 PLI Schemes Production Linked Incentive Schemes RBI Reserve Bank of India SBRT Single Brand Retail Trading SCM Agreement on Subsidies and Countervailing Measures SDS Step Down Subsidiary SEBI Securities and Exchange Board of India SEZ Special Economic Zone SOP Standard Operating Procedure TDRs Transferable Development Rights TIP Treaty with Investment Provisions TRAI Telecommunications Regulatory Authority of India TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization | 4 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 1. INTRODUCTION This Investment Policy and Regulatory Review In some cases, consultations with regulators were (IPRR) presents information on the legal and conducted to collect up to date information. regulatory frameworks governing foreign direct investment (FDI) in India. Since legal and The research was guided by a standardized regulatory frameworks are constantly evolving, a questionnaire, covering a limited set of cut-off date was set for the research. This country topics, including foreign investment entry, review therefore covers information available as of establishment, protection and select dimensions December 31, 2021, unless otherwise indicated in on FDI in digital economy related aspects. The the review. IPRRs are available for the following questionnaire focused on de jure frameworks as middle-income countries (MICs): Brazil, China, generally applicable to a foreign investor, not India, Indonesia, Malaysia, Mexico, Nigeria, located in any specialized or preferential regime Thailand, Turkey, and Vietnam. (such as special economic zones). It primarily focused on national, economy-wide (rather than The research for updating the IPRR was sector-specific) laws and regulations. For the undertaken by the international law firm purpose of the research, it was assumed that the Kilpatrick Townsend and designated local counsel, foreign investor is a private multinational company under the supervision of the World Bank Group. with no equity interest or management control by The research was primarily based on a review of the government of its home country (that is, not currently applicable policies, laws and regulations. state-owned enterprise). Figure 1. Overview of Topics Covered in IPRR ■ Key institutions for investment policy/rule making, implemention and FDI promotion ■ Key legal instruments ■ FDI Restrictions ■ Transparency/consultation in laws and ■ IPRs ■ Intermediate Liability Main Policy & regulations ■ Data Governance Legal Instruments ■ Content Access and Institutions ■ E-commerce ■ Prohibited and Restricted FDI in Digital Investment Entry Sectors ■ Equity ceiling Economy and ■ Minimum investment Sectors Establishment requiremeent ■ FDI approval IPRR ■ R&D, local sourcing, Questionnaire employment, quantitative, geographic, export ■ Schemes to Increase Other Areas Local Sourcing and (Linkages, OFDI, Investment Build Capacity of Local Responsible Protection Suppliers Investment) ■ Restrictions on OFDI ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of Tax and financial incentives ■ Accessibility of tax and financial incentives 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA |5 There are aspects that this IPRR does not cover. promotion, as well as the country’s foreign It is not a comprehensive review of the entire legal investment promotion strategy; it also delineates and regulatory framework affecting investment. the country’s international investment legal Information presented is not exhaustive, but framework, including the country’s commitments illustrative of the main topics and issues covered (for under the World Trade Organization (WTO) example, it does not exhaustively list all available and select international investment agreements tax and financial incentives in the country). It does (IIAs); not present recommendations on reform areas. Notably, it does not capture de facto implementation n Sections 3-6 cover the country’s policies and of laws and regulations in the country. Given these domestic legal framework concerning different limitations, information presented in this IPRR dimensions of the lifecycle of an investment: should be interpreted and used while keeping in entry and establishment (Section 3), protection view the overall country context and realities. (4), incentives (5) and linkages (6); Further, it contains information in summary form n Sections 7-8 explore emerging investment policy and is therefore intended for general guidance only. and regulatory areas — Section 7 considers It is not intended to be a substitute for detailed legal outward FDI, Section 8 responsible investment; research. n Section 9 focuses on city-specific investment This IPRR is organized as follows: policy and regulatory measures in the largest n Section 2 provides an overview of the country’s commercial center; and investment policy framework, including the n Section 10 focuses on FDI in the digital economy. legal instruments regulating foreign investment, key institutions involved in investment | 6 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments Trade (DPIIT), makes policy pronouncements Regulating Foreign Investment through press notes and press releases notified by India’s federal bank, the Reserve Bank of India While India lacks a single consolidated legislation (RBI), as amendments to the FEMA. that regulates foreign direct investment (FDI), FDI is regulated by codified foreign exchange Sector Specific Laws laws, sector specific laws and government policies as well as international agreements. In Foreign investors are subject to sector-specific addition, the general legal framework that applies laws and regulations, particularly in regulated to all businesses also applies to FDI. industries such as banking, insurance and telecommunications. For example, foreign FDI Law and Regulation investment in the insurance sector must comply with the applicable insurance regulations and India regulates foreign investment through the requires approval from the insurance authority, the Foreign Exchange Management Act, 1999, as Insurance Regulatory and Development Authority amended (FEMA), and rules/regulations issued of India, even if the investment is permitted without thereunder. The main objective of FEMA is to approval under the FDI Policy. consolidate and amend the law relating to foreign exchange to facilitate foreign investment, external Public Access to Foreign Investment trade and payments and promote the orderly Laws and Policies development and maintenance of the foreign exchange market in India. Specifically, the Foreign Public access to all laws and other legal Exchange Management (Non-debt instruments) instruments is mandated through publication Rules, 2019 (NDI Rules), Foreign Exchange in India’s official gazette (Gazette of India). Management (Debt Instruments) Regulations, 2019 Sections 46 and 47 of the FEMA empower the and the Foreign Exchange Management (Mode of Central Government and the RBI, respectively, to Payment and Reporting of Non-Debt Instruments) make rules and regulations and requires them to Regulations, 2019, as amended provide the detailed notify such rules and regulations, that is, publicize regulatory framework for FDI in the country. These them in the Gazette of India. 2019 regulations supersede the Foreign Exchange Legal instruments relating to foreign investment Management (Transfer of Issue of Security by can be accessed in different places. Both the DPIIT a Person Resident outside India) Regulations, (via its Foreign Investment Facilitation Portal, 2017 and the Foreign Exchange Management FIFP) and the RBI proactively disseminate, on their (Acquisition and Transfer of Immovable Property respective websites, India’s laws and regulations in India) Regulations, 2018. relating to foreign investment — including India’s current FDI policy framework is contained amendments, national policies, clarification in the Consolidated Foreign Direct Investment circulars, and press notes. Laws, regulations and Policy Circular dated October 15, 2020 (FDI policies are also available on the website of Make Policy). The FDI Policy is updated periodically to in India (the government’s flagship investment keep pace with the investment strategy, regulatory promotion program) and on the portal of the National changes, restrictions, and procedures for FDI in India. Investment Promotion and Facilitation Agency India’s government agency entrusted with the power of India (Invest India). State and local laws are to formulate and update the country’s FDI Policy, the typically available at the relevant state government’s Department of Promotion of Industry and Internal investment facilitation websites (for instance, Invest Karnataka) as well as on the Gazette of India. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA |7 Further, in 2014 the Ministry of Law and Justice overall construct of the investment regime has published the Pre-Legislative Consultation Policy largely remained stable and permissive in the that mandates every ministry and department to place country. Having said that, specific regulatory and a proposed law in the public domain for a minimum government actions have generated uncertainty period of 30 days, along with supporting documents for investors in recent years. The cancellation explaining the rationale, the broad financial of telecom allocations and retrospective tax implications, the likely impact and an explanation of applications are the most prominent among these. the legal provisions in simple language. B. International Legal Instruments Consultation with Stakeholders Regulating Foreign Investment Consultation with stakeholders is discretionary. India has undertaken legally binding Pursuant to the 2014 Pre-Legislative Consultation international investment commitments through Policy, the ministry or department concerned may a variety of international investment agreements hold consultations with all stakeholders at their (IIA) - signed at the bilateral, plurilateral discretion. The concerned ministry or department and multilateral level. These commitments may decide the degree of participation and mode mainly cover entry and establishment conditions, of consultations, which may vary according to the protection, as well as the legality of specific types nature of the subject and the potential impact on of incentives (see Table 1). It is important for India stakeholders affected by such legislation. to reflect these commitments in its domestic legal In practice, consultations often take place. framework to ensure consistency as well as to Consultations can range from the relevant monitor their compliance. government regulatory body formally seeking Having been a member of the World Trade industry input on detailed consultation papers Organization (WTO) since 1st of January 1995, to a less formal “call for comments” approach. India has commitments under several WTO For instance, India’s telecom regulator Agreements. Under the General Agreement on Telecommunications Regulatory Authority of Trade in Services (GATS), India grants rights India (TRAI) routinely issues detailed consultation to services suppliers from other WTO member papers and holds consultations with stakeholders to countries. This includes services supplied through seek industry views on myriad issues. These range commercial presence (defined as establishment of from the regulatory framework for promoting data a territorial presence), in other words through FDI. economy through establishment of data centers, These rights are granted through commitments content delivery networks and interconnect undertaken in “schedules”. The “schedules” list exchanges in India (consultation paper issued in sectors being opened, the extent of market access December 2021) to a roadmap to implement India’s being given in those sectors (for example, whether new telecom policies regulating spectrum issues there are any restrictions on foreign ownership), and over-the-top services. and any limitations on national treatment (whether some rights granted to local companies will not Predictability and Stability in Policies be granted to foreign companies). India has made and Rules commitments on market access and national treatment in 6 out of 12 services sectors in the There is no express requirement that laws, WTO Classification1: (i) Business services, (ii) regulations, or policies remain stable and Communication services, (iii) Construction predictable. However, in view of increasing and related engineering services, (iv) Financial investment promotion and other concerted policy services, (v) Health related and social Services, efforts to increase FDI, the stability and predictability and (vi) Tourism and travel related services. In of macroeconomic and investment policies has these sectors, India has made partial commitments generally been a policy priority. Therefore, while on market access for specific services in 12 sub- policy nuances may change periodically (for sectors and on national treatment in 11 sub-sectors. example, amendment of investment caps), the | 8 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA Table 1. India’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions Plurilateral or May cover Entry and Establishment, (13 signed, 9 in force) Bilateral Protection, Incentives Bilateral Investment Treaties Bilateral May cover Entry and Establishment, (11 signed, 7 in force) Protection, Incentives Convention on the Recognition and Enforcement of Multilateral Protection (Dispute settlement) Foreign Arbitral Awards (New York Convention) IMF “Articles of Agreement” Multilateral Protection (Art. VIII Acceptance) Double Taxation Avoidance Agreements Bilateral Taxation (94 treaties in force) Source: World Bank Analysis “Partial” means that although commitments have certain types of export subsidies. Under the been made, there are still limitations/reservations, WTO Agreement on Trade-Related Aspects of which may differ in their restrictiveness. For Intellectual Property Rights (TRIPS), foreign example, they may be more restrictive by limiting investors’ intellectual property rights are the equity contribution of the foreign investor, or protected. In case of a violation of any of its WTO less restrictive by merely requiring foreign service commitments, India may be sued under the WTO suppliers to become a member of a union chamber. dispute settlement mechanism. In addition, under GATS every member is obligated to unconditionally extend to service suppliers of India has further entered into obligations through all other WTO members Most-Favored Nation international investment agreements (IIAs) — (MFN) Treatment. However, India has made it has signed 11 Bilateral Investment Treaties reservations in that regard in three services sectors: of which 7 are in force, and 13 Treaties with telecommunication services; recreation, cultural Investment Provisions (TIPs) of which 9 are in and sporting services; and transport services. For force. The latter category comprises treaties that example, India maintains the right to apply different include obligations commonly found in Bilateral accounting rates for telecommunication operators Investment Treaties (BITs) (for example, a free trade from different countries. agreement with an investment chapter). Table 2. provides an overview of select Agreements: India’s Under the WTO Agreement on Trade Related latest IIA (Brazil-India Investment Cooperation Investment Measures (TRIMS), India has and Investment Facilitation Treaty, 2020, not yet in committed to not apply certain investment force), its IIA with the largest home country measured measures that restrict or distort trade (local by that country’s share in India’s total FDI stock content requirements, trade balancing (India-Singapore CECA, 2005), as well as an IIA requirements, foreign exchange restrictions with expansive regional coverage (ASEAN - India and export restrictions). These measures are Investment Agreement, 2014, not yet in force). The prohibited both when the obligation for the reviewed IIAs contain the main protection guarantees foreign investors is mandatory, and when it is tied only to a limited extent. While they all provide for to obtaining an advantage (that is, an incentive). national treatment, protection against expropriation Incentives are further regulated by the WTO and a guarantee for the transfer of funds, none of Agreement on Subsidies and Countervailing them offers most favored nation treatment, and only Measures (SCM), which among others prohibits the ASEAN-India Investment Agreement includes 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA |9 a broad fair and equitable treatment clause. The only covering direct but not indirect expropriation, and Brazil-India CIFA instead features a provision on the by not including the possibility of dispute settlement treatment of investments that prohibits the parties through investor-State dispute settlement (ISDS). from subjecting investments to a clearly defined list of breaches that are commonly regarded as falling under Some of India’s reviewed IIAs contain the FET standard, such as denial of justice in judicial commitments to liberalize. Both the ASEAN- or administrative proceedings, fundamental breach India Investment Agreement and the India- of due process, targeted discrimination, or manifestly Singapore CECA include such commitments by abusive treatment. The agreement limits protection by providing national treatment in the pre-establishment Table 2. Comparison of India’s Sample IIAs Largest Home Country Latest IIA (date of signing): Expansive Regional IIA (% of total FDI stock): Brazil-India Investment Coverage IIA: ASEAN India-Singapore CECA Cooperation and Investment - India Investment (2005) (in force) Facilitation Treaty (2020) (not Agreement (2014) (not yet yet in force) in force) Scope of Application Covers Pre-establishment Yes No Yes Exclusions from Scope Subsidies or grants. Local government measures Government procurement, (exception for national subsidies or grants, treatment), taxation, issuance services supplied in the of compulsory licenses exercise of government granted in relation to IP rights, authority, taxation. government procurement, subsidies or grants, services supplied in the exercise of government authority. Standards of Treatment National Treatment (NT) Pre- and post-establishment Post-establishment Pre- and post- establishment Most-Favored-Nation No No No Treatment (MFN) Fair and Equitable No No, but list of measures Yes Treatment (FET) circumscribing principles equivalent to FET Full Protection & Security No No Yes Expropriation Direct and indirect Direct expropriation, payment Direct and indirect expropriation, payment of of compensation expropriation, payment of compensation compensation Rights to Transfer Funds Yes Yes Yes Prohibition of Incorporation of TRIMs No No Performance standard Requirements Dispute Resolution State-State Dispute Yes Yes Yes Settlement Investor-State Dispute Yes No Yes, but limited to post- Settlement establishment phase of an investment Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub | 10 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA phase. The agreements make reservations by investor-State arbitrations, ten of which have been featuring a schedule that lists measures that do settled, one decided in favor of the State, four not comply with the commitments included under decided in favor of the investor, two discontinued, the treaties, and a schedule which lists sectors and and 9 remain pending. activities in which countries may maintain existing or adopt new or more restrictive measures. Acceptance of Art. VIII of the IMF Articles Agreement requires India to maintain current India has in recent years overhauled its bilateral account convertibility, enabling investors to treaty commitments. In 2015, India revised its transfer certain payments related to their model BIT. Notably, the new model BIT features investments. India is also party to 94 Double a more limited “enterprise-based” definition of Taxation Avoidance Agreements (DTAAs) that investment, which means that there is a need for are in force, influencing its ability to tax foreign an incorporated legal entity to be considered as investors and investments. Notably, as part of “investment” under the treaty. It also explicitly an effort to curb tax avoidance, India in 2016 re- excludes specific investments, amongst others negotiated its DTAAs with Mauritius and Singapore. portfolio investments, intangible interests, or debt securities issued by a government. In addition, C. Key Institutions for Investment measures of local governments are excluded from scope of the model BIT, and access to investment Promotion arbitration is contingent upon exhaustion of local The National Investment Promotion and remedies. Following the revision of its model BIT, Facilitation Agency of India (Invest India) is the in 2016 India served notices to 58 countries to national-level agency charged with promoting withdraw existing BITs. This led to the termination foreign investment in the country. Various states of the majority of these from March 2017 onwards, have established their investment promotion agencies although many of the treaties are still in effect for and dedicated online portals to provide information 10-15 years (depending on the treaty) due to so- such as focus sectors and local incentives and to called sunset or survival clauses. These clauses serve as a single window facilitator for requisite extend treaty protection to foreign investors in the clearances to investors. case of treaty termination in respect of investments made prior to the termination. In 2019, 2020 and National Level Institutions 2021, India unilaterally terminated seven, six and one BIT in the respective years. Invest India, an independent body overseen by the DPIIT, is set up to serve as a single point India is currently not participating in WTO interface for foreign investors. It assists foreign negotiations on an agreement on investment investors with market entry strategy, expansion facilitation for development. The aim of the advisory, joint venture and strategic partners agreement is to improve the investment and business search, sector and state specific information, climate, by improving transparency, efficiency, and compliance advisory and so forth. At the ministerial effectiveness of investment-related administrative level the DPIIT is charged with foreign investment procedures. This agreement will not cover market promotion in India, and it functions under the access, investor protection and ISDS. In December administrative oversight of the Ministry of 2021, 112 other WTO members co-sponsored a Commerce and Industry (MOCI). Invest India was Joint Statement on Investment Facilitation for formed in 2009 as a public-private joint venture Development, stating the objective to conclude text between DPIIT, Federation of Indian Chambers of negotiations by the end of 2022. Commerce and Industry, Confederation of Indian Industries, National Association of Software and India is a member of the Convention on the Service Companies (NASSCOM) and the State Recognition and Enforcement of Foreign Governments, for promoting and facilitating Arbitral Awards of 1958 (New York Convention) investment in a more structured, focused and that facilitates enforcement of arbitral awards. It comprehensive manner. has to date been a respondent in 26 publicly known 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 11 Invest India is not tasked with any regulatory D. Foreign Investment Promotion functions, such as granting FDI approvals. Strategy While the DPIIT plays a proactive role in resolving problems faced by foreign investors, FDI approvals India’s foreign investment promotion strategy are granted by the concerned ministry. With was first stipulated in 2008 in the Scheme for progressive liberalization the DPIIT’s role and Investment Promotion launched under the function has consistently shifted from regulation XI Five Year Plan 2007-2012. The Scheme is and administration of the industrial sector to administered by the DPIIT to promote foreign formulating FDI Policy, facilitating investment and investment into the country and create a dedicated technology flows, and promoting and monitoring investment promotion agency (that is, Invest India). industrial development. In 2017 the government approved the continuation of the Scheme for 2017-2020, which was further Sub-National Investment Promotion extended in November 2021 for an additional five Agencies years, from 2021-2026. Several states have established their investment The Cabinet Committee on Economic Affairs promotion agencies and have appointed nodal (CCEA) is tasked with the responsibility of officers to deal with issues in relation to foreign driving foreign investment reforms in the investment. For example, the state of Odisha has country. The CCEA is chaired by the Prime set up the Industrial Promotion and Investment Minister and composed of cabinet ministers of Corporation of Odisha (IPICOL), which provides various ministries. It is charged with the mandate the necessary details an investor may require while to review the economic trends on a regular basis, making a decision to locate in the state. Another to develop a consistent and integrated economic example of such a sub-national investment promotion policy framework for the country and coordinate agency is the Maharashtra Industry, Trade and all policies at the highest level, including those Investment Facilitation Cell (MAITRI) set up by the concerning foreign investment. Further, FDI state government of Maharashtra. This organization proposals of more than INR 5,000 crore are subject was created with the objective of attracting to the CCEA’s approval. The members of CCEA investment and employment in the state. It is a meet on need basis to discuss these issues. single-point clearing house and interface for existing In addition to the CCEA, the government and prospective investors to receive industry-related periodically appoints ad hoc committees to approvals and consolidated information about the review and suggest policy reforms affecting process of investing in, or expanding their business foreign investors. For example, on July 31, 2017, operations in the state. It has a team of 41 nodal the Government of India appointed a 10-member officers appointed across 16 departments and acts as Committee of Experts to study and identify key data a grievance redressal forum for investors. protection issues in India and recommend methods Other similar state agencies are Industrial Extension of addressing them. The committee was chaired Bureau (iNDEXTb) in Gujarat, the Bureau of by Justice B.N. Srikrishna (former Judge of the Investment Promotion (BIP) in Rajasthan, the Supreme Court of India) and comprised members of Andhra Pradesh Economic Development Board in the government, academia and industry. On July 27, Andhra Pradesh (APEDB), the Punjab Bureau of 2018, the Committee submitted a detailed report and Investment Promotion in Punjab (Invest Punjab), a draft bill titled the Personal Data Protection Bill, and the Delhi State Industrial and Infrastructure 2018, which bill was tabled in the Indian Parliament Development Corporation Limited (DSIIDC) in in December 2019, and has been subject to long Delhi. Invest India coordinates with state promotion deliberations by the Joint Parliamentary Committee agencies, as part of their national investment set up by the government for the bill’s review. Under promotion functions, and it plays a central role the Prime Minister’s Office there is also the Project in ensuring that FDI is on the agenda of all state Monitoring Group (PMG), which is established to agencies, state governments and stakeholders. expedite resolution of investment bottlenecks for high impact project (>INR500 Crore). | 12 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations For example, sectors covered under the Automatic Route include hotels and restaurants, healthcare, India prohibits foreign investment in certain floriculture, mining and so forth. FDI in most of sectors contained in a “negative list” (Prohibited the sectors is covered under the Automatic Route. Sectors) and restricts foreign participation Activities under the Government Approval Route through equity caps and/or other restrictions in require prior approval by the concerned ministry certain others (Restricted Sectors). Other than or department. Examples of sectors under the the Prohibited and Restricted Sectors, the general Government Approval Route include public sector position is that 100% foreign equity participation is banks, private security agencies, and so forth. permitted in a sector or sub-sector. Generally, FDI can be routed into India via Prohibited and Restricted Sectors one of two ways: (i) the Automatic Route; and Listed below are the Prohibited and Restricted (ii) the Government Approval Route. Under Sectors based on the FDI Policy. Also listed below the Automatic Route FDI is allowed without are the sectors permitting 100% FDI but requiring a requirement to seek prior approval from the prior government approval. concerned government ministry or department. Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Lottery, Gambling n Lottery business, including government/private lottery, online lotteries n Gambling and betting, including casinos Legal Entities n Chit funds n Nidhi company Trading Trading in transferable development rights Real Estate Real estate business (but excluding development of townships, construction of residential /commercial premises, roads or bridges or REITs) or construction of farm houses Manufacturing Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes Activities Closed to Private Investment Activities/sectors not open to private investment, such as atomic energy and railway operations (other than permitted railway activities like mass rapid transport systems) Retail E-Commerce - Inventory Model Other Foreign technology collaboration in any form, including licensing for franchises, trademarks, brand names, management contracts for lottery businesses and gambling and betting activities Restricted Sectors Restrictions on Foreign Equity Automatic or Government Approval Insurance Up to 74% (100% for insurance intermediaries, Automatic including brokers) Petroleum Refining by PSUs Up to 49% Automatic Infrastructure Companies in Securities Up to 49% (stock exchanges, commodity Automatic Markets derivative exchanges, depositories and clearing corporations) 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 13 Restricted Sectors Restrictions on Foreign Equity Automatic or Government Approval Power Exchanges Up to 49% Automatic Pension Sector Up to 49% Automatic Up-Linking of News & Current Affairs Up to 49% (subject to Government Approval) Government Approval TV Channels Uploading/Streaming of News & Current Up to 26% Government Approval Affairs through Digital Media Terrestrial Broadcasting FM (FM Radio) Up to 49% Government Approval Multi-Brand Retail Trading Up to 51% Government Approval Banking Public Sector Up to 20% Government Approval Banking Private Sector Up to 74% Government Approval above 49% Private Security Agencies Up to 74% Government Approval above 49% Print Media Publication Up to 26% for newspaper and periodicals dealing Government Approval with news and current affairs Up to 26% for newspapers and periodicals Government Approval publication of Indian editions of foreign magazines dealing with news and current affairs Permitted Sectors (100% FDI) Government Approval Threshold Requiring Government Approval Mining and Minerals Separation of titanium bearing minerals & ores Retail Trading Including through e-commerce in respect of food products manufactured/ produced in India Publishing/Printing Scientific and technical magazines/specialty journals Publication Facsimile edition of foreign newspapers Satellites Establishment and operations Core Investment Companies Engaged in investment activities involving capital of other companies Defense Above 74% if likely to result in access to modern technology Pharmaceutical - Brownfield Above 74% Air Transport Services Above 49% for scheduled air transport service/domestic scheduled passenger airline; regional air transport service Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. Note: The table is based on a review of 32 specific sectors identified for the purpose of this research.2 The list of sectors is therefore not exhaustive. In recent years, the FDI caps in several sectors route (permitting up to 100% FDI), and 100% FDI have been liberalized. For instance, in February was permitted in the single brand retail sector. In 2021 FDI in the insurance sector was increased 2020, the DPIIT introduced an FDI regime for from 49% to 74% through the automatic route for entities engaged in the news digital media sector insurance companies and to 100% for insurance and allowed FDI up to 26% under the government intermediaries. In October 2021 FDI in the telecom approval route for entities engaged in uploading/ sector was increased from 49% to 100%, with streaming of news and current affairs through government approval required for FDI beyond 49%. digital media platforms (which is discussed in the Similarly, in 2020 FDI in the defense sector was section below on FDI in the digital economy). increased from 49% to 74% under the automatic | 14 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA There is no general requirement to form a joint Minimum Investment Requirements venture with a local partner to establish business in India, but in Restricted Sectors where less than While there are no overarching minimum 100% FDI is permitted, foreign investors are investment requirements, in certain sectors (by implication) required to form joint ventures minimum investment requirements for foreign with a local partner. For instance, since FDI in the investors exist. For example, pursuant to the FDI insurance sector is limited to 49%, the only way a Policy, foreign investment in multi-brand retail foreign insurance company can set up operations trading is conditioned on a minimum investment of in the country is by establishing a licensed local US$100 million. At least 50% of the first tranche insurer through a joint venture with one or more of US$100 million is to be invested in the “back local partners. A foreign investor may not bypass end infrastructure” within 3 years. Further, 30% the foreign equity caps in the Restricted Sectors by of the value of procurement of manufactured/ mergers and acquisitions. processed products purchased must be sourced from Indian micro, small and medium industries. Certain minimum capital requirements also apply to Restrictions on Non-Equity Contract investments in the Other Financial Services sector Based Investments (involving financial services entities not regulated Generally no special restrictions or conditions by any financial regulator). This comprises sectors are imposed on foreign investors relative to that are unregulated or are partially regulated by domestic investors, as regards non-equity financial sector regulators such as the RBI, the contract-based investments such as franchising, Insurance Regulatory and Development Authority outsourcing, licensing, and so forth. of India (IRDAI), the Securities and Exchange Board of India (SEBI) and so forth. The Ministry of Forms of Establishment Finance, per its Press Release dated 16 April 2018, prescribes the following capital requirements in Foreign investors can generally hold any type of this context: shares in a local entity and establish a commercial entity, such as a private limited company or n US$20 Million for Fund-based activities a limited liability partnership, subject to the (merchant banking, underwriting, portfolio applicable FDI restrictions (if any). management, stockbroking, asset management, venture capital, custodian services, factoring, Foreign investors may also choose to open a leasing & finance, housing finance, credit card liaison office, branch office, project office or a business, micro credit, rural credit), and representative office in India. Prior permission of the RBI is required to open a branch office, liaison n US$2 million is required for non-fund-based office, project office, or a representative office if: activities (investment advisory services, (i) the foreign investor is registered or incorporated financial consultancy, Forex broking, money in Pakistan; (ii) the foreign investor is registered in changing business and credit rating agencies). Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau and applies to open offices Quantitative Limits in areas such as Jammu and Kashmir, Andaman & There are generally no mandatory quantitative Nicobar Islands, North-East India; (iii) the principal limits on the number of foreign service providers, business of the foreign investor falls in four sectors enterprises or market players that can operate — defense, telecommunications, security and in a given sector. information and broadcasting; or (iv) the foreign investor is a non-profit organization, or department of a foreign government. Activities permitted Restrictions on Expatriate Appointments also vary based on the form of establishment. In certain regulated sectors restrictions may be For example, Branch offices are restricted from imposed on the constitution of the board and engaging in manufacturing or processing activities appointment of foreign citizens to serve on board in India directly or indirectly. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 15 or in key managerial positions. For example, However, FDI in certain sectors such as the retail scheduled operators in the civil aviation sector are trade sector is subject to local sourcing requirements. required to appoint an Indian citizen to the position In the Single Brand Retail Trading (SBRT) sector, of Chairman and Indian citizens to at least two- if FDI exceeds a 51% threshold in a SBRT entity, thirds of the board. Further, in the broadcasting the entity is required to source from India 30% carriages sector, the majority of the directors on of the value of goods purchased for resale to the board of the company are required to be Indian ultimate customers, preferably from micro-, small citizens. Similarly, pursuant to the Indian Insurance and medium enterprises. This mandatory 30% Companies (Foreign Investment) Rules of 2015 sourcing requirement can be offset by incremental (Insurance Rules) as amended on 19 May 2021, sourcing of goods from India for global operations insurance companies with foreign investment are during an initial 5 year period by the non-resident required to ensure that a majority of the board of entities undertaking the SBRT, either directly or directors, key management persons and at least their group companies. After the 5 year period the one person among the senior management of all SBRT entity would be required to meet the 30% insurance companies with foreign investments sourcing directly towards its India operations on an shall be resident Indian citizens within a year of annual basis. Foreign investors are exempted from the implementation of these rules. Further, Indian the above requirements for a certain period if they insurance companies with foreign investment engage in SBRT of products possessing ‘state-of- exceeding 49% are required to meet additional art’ and ‘cutting-edge’ technology, and where local requirements regarding the board being composed sourcing is not possible. The question of what is of certain independent directors. For companies considered to possess ‘state-of-art’ or ‘cutting edge’ operating in the defense sector and broadcasting technology is determined at the discretion of the carriage services sector, the key managerial government. In 2020, the Ministry of Commerce roles (such as Chief Security Officer and Chief and Industry issued a clarification that sourcing of Information Security Officer) may be offered only goods from SEZ units would qualify as sourcing to Indian citizens; expats cannot be appointed to from India for the purpose of 30% mandatory these positions. sourcing from India for proposals involving FDI beyond 51%. Similarly, in the Multi Brand Retail Work permits or employment visas are granted Trading (MBRT) sector, a MBRT entity is required to foreign nationals for technical and managerial to source at least 30% of the value of procurement of jobs. To obtain an employment visa, a foreign manufactured/processed products purchased from national is required to be a highly skilled and/ or Indian micro-, small and medium industries, which qualified professional and draw a gross salary have a total investment in plant and machinery not exceeding US $25,000 per year subject to certain exceeding US$2 million. exceptions. An employment visa is not granted: (i) for jobs for which qualified Indians are available; Foreign investors are generally not subject and (ii) for routine, ordinary, or secretarial/clerical to any overarching local R&D investment jobs. Further, employment visas are not granted to requirements to establish a business in India. citizens of Pakistan. Ministry of Home Affairs has However, FDI in certain sectors may be subject to published a handbook detailing the types of visas such requirements. For example, brownfield FDI in granted by India, as well as the process of obtaining the pharmaceutical sector is subject to a requirement employment visas (and other short-term visit visas). that R&D expenses be maintained in value terms for 5 years at an absolute quantitative level at the time There is no explicit requirement to hire local of induction of foreign investment. The benchmark staff for establishing business in India. The for this level is decided with reference to the highest position however can vary in States. level of R&D expenses incurred in any of the three financial years immediately preceding the year of Local Sourcing and R&D Requirements the FDI’s induction. Further, the administrative ministry may require complete information There are no overarching local sourcing pertaining to the transfer of technology, if any, obligations imposed on foreign investors. | 16 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA along with the induction of foreign investment DPIIT receives a proposal, it is circulated to the into the investee company. Similarly, FDI in the concerned administrative ministry within 2 days defense sector is conditioned on the investee firm for review. It is simultaneously circulated to the being self-sufficient in areas of product design and RBI for comments from the FEMA perspective. development. By implication, the recipient may Proposals in sectors requiring security clearances be required to own or acquire (even if through a (e.g., investments in broadcasting, telecom, and license) technical capabilities for product design civil aviation, or those originating from Pakistan and development. and Bangladesh) are sent to the Ministry of Home Affairs (MHA). All proposals are also forwarded to Foreign Investment Approval the Ministry of External Affairs and Department of Revenue. Comments from all relevant departments/ FDI approval is required from the concerned ministries must be provided within 4 weeks (or 6 ministry and the sectoral regulators (as weeks if a security clearance is required). The applicable) for investments that fall within the concerned administrative ministry will then have Government Approval Route (see Table 3). In 1-2 weeks to further scrutinize the proposal and the addition, government approval is also required for comments and seek any clarifications or additional transfer of stake from one non-resident to another information from the applicant. Once the proposal non-resident in sectors where FDI falls under the is complete in all respects, no later than 6 weeks Government Approval Route. The concerned (or 8 weeks in cases involving MHA review and ministries for FDI approval vary by sector. For security clearances) from the receipt of proposal, example, defense sector projects are subject to the concerned ministry is required to process the approval by Ministry of Defense, aviation projects proposal for decision within the next 4 weeks and by Ministry of Civil Aviation, and mining projects convey the same to the applicant. FDI proposals by the Ministry of Mines. Further, government involving total foreign equity inflow of more than approval is also required for investments by entities INR 5,000 crore require additional approval by of a country, which shares a land border with India’s top-level ministerial cabinet, the Cabinet India or the beneficial owner of an investment in Committee on Economic Affairs (CCEA). India who is situated in or is a citizen of any such country. Pakistani citizens or entities incorporated FDI approvals are generally granted for the term in Pakistan can invest in India only under the of the project. However, the competent authority government route in sectors/activities other than may sometimes specify a validity period on a case- defence, space, atomic energy and sectors/activities by-case basis depending on the nature of the project prohibited for foreign investment. The Foreign and approval sought. Further, a subsequent approval Investment Facilitation Portal (FIFP) is the new may be required in some cases (for example, if online single point interface designed to facilitate there is a supplemental investment over and above the single window clearance of applications which the approved foreign equity amount). are through the government approval route. Upon receipt of the FDI application, the concerned On April 17, 2020, the DPIIT issued Press Release administrative ministry undertaking processing No. 3 for curbing opportunistic takeovers and of the application as per the Standard Operation acquisitions of Indian companies due to the Procedure (SOP). COVID-19 pandemic by amending the FDI Policy to state that: The FDI approval process is set out in the n An entity of a country, which shares a land border Standard Operating Procedure (SOP) published by the DPIIT in 2017. The SOP aims to simplify with India or where the beneficial owner of an and streamline the procedure for filing and investment into India is situated in or is a citizen processing FDI proposals. It sets accelerated of a country that shares a land border with India, timelines for grant of approval, with a maximum can invest only under the government route. time limit of up to 10-12 weeks if security n A citizen of Pakistan or an entity incorporated in clearance is required for a proposal. Once the Pakistan can invest, only under the government 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 17 route, in sectors and activities other than defence, to maximize retention within the country, subject space, atomic energy and sectors/activities to proper and adequate diversification of risks. prohibited for foreign investment. Similarly, under the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 n In the event of the transfer of ownership of the IRDAI mandates a control level of solvency any existing or future FDI in an entity in India, of 150% for all the insurers, but for insurance directly or indirectly, resulting in the beneficial companies with foreign investment, an additional ownership falling within the restriction/ requirement to meet 1.2 times of the control level purview of the covenants, such subsequent of solvency, i.e., a 30% higher solvency margin change in beneficial ownership will also require must be maintained. As to geographical limitations, government approval. FDI in retail sales outlets may be set up only in cities with a population of more than 10 lakh (as Other Restrictions per the 2011 Census) or any cities approved by state governments. Further, foreign law firms are In highly regulated sectors foreign investors not allowed to open offices in India, which sector may be subject to certain other discriminatory is reserved solely for Indian legal firms. Per the regulations or geographical restrictions. RBI’s notification dated November 23, 2020, For instance, the Indian insurance regulator’s this prohibition also applies to the opening of guidelines require that local Indian reinsurers be liaison and branch offices in India. Only licensed afforded mandatory first order of preference for advocates, i.e., practitioners registered with bar reinsurance business in India. More specifically, authorities in India, can practice law in the country. under the IRDAI (Re-Insurance) Regulations, In addition, the inability of domestic market actors 2018, Indian insurers underwriting the direct to provide products/services may be considered in insurance business and contractually transferring sensitive sectors/investment proposals requiring (that is, ceding) a portion of the risk are required government approval, such as those concerned with defense and mining. | 18 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 4. INVESTMENT PROTECTION Protection Against Expropriation Regulations for current account transactions are fully liberalized, but government approval is still India does not have a specific legislation on required for certain capital account transactions (for expropriation, but property rights are protected example, the acquisition and transfer of immovable through a number of legal instruments. India’s property in India). Constitution stipulates that no person will be deprived of property except by the authority of n Inflows: The FEMA regulations impose law. The term “property” is generally interpreted certain restrictions and reporting broadly to include both tangible and intangible requirements on inward remittances. For property. Indian courts have held that property instance, capital instruments must be issued may be expropriated for public interest on payment within 60 days from the day of receipt of inward of reasonable compensation. Foreign investors remittances, or else refunded within 15 days may also avail themselves of protections against from the date of completion of 60 days to the expropriation under the applicable bilateral non-resident investor by outward remittance. investment treaties. Such treaties typically require Inflows are also subject to periodic reporting the expropriation to be (i) for a public purpose; requirements. The FDI recipient is required to (ii) non-discriminatory; (iii) in accordance with make filings in the prescribed manner within 30- due process, and (iv) accompanied by prompt, 60 days of an inward remittance, depending on adequate and effective compensation usually whether subscription of securities or transfer is equivalent to fair market value of the expropriated involved. In case of transfer of shares between a investment (See Section 2.B — International Legal resident buyer and a non-resident seller or vice Instruments). India’s land acquisition laws also versa, no more than 25% of the consideration embody similar concepts of due process and fair can be paid by the buyer on a deferred basis compensation with respect to land expropriation, within a period not exceeding 18 months from requiring mandatory consultations with local the date of the transfer agreement between self-governments, public hearings, and a formal the buyer and the seller. Otherwise, the RBI’s social impact assessment before acquisition of approval is required. land. The government is also required to ensure that acquisition is for a bona fide public purpose; Foreign loans are governed by and subject to that potential benefits outweigh social costs; and the RBI’s new external commercial borrowing that only the minimum area necessary is acquired. (ECB) rules implemented in 2018 and 2021. The market value of land is a key criterion in The new framework considerably simplifies and determining payable compensation. Non-payment liberalizes the ECB regime in the country. Under of adequate compensation, and disregard for extant ECB rules all entities eligible for FDI are procedural safeguards may nullify the acquisition. permitted to borrow through the ECB route up to US $750 million or its equivalent per financial year (irrespective of specified activities or sector) Restrictions on Inflow and Outflow of Funds via the Automatic Route. ECB can be raised in Pursuant to FEMA, foreign investors may freely any freely convertible currency as well as in make inbound and outbound transfer of profits, Indian rupees by way of loans including bank capital gains, royalties, interest payments, and loans, securitized instruments (floating/fixed other investment related payments and funds, rate notes, bonds, non-convertible, optionally subject to standard compliances and net of convertible or partially convertible debentures applicable taxes (except where the investment and so forth). Loans from recognized foreign is made or held on non-repatriable basis). entities have to conform to various parameters 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 19 such as minimum maturity, permitted and non- Dispute Settlement permitted end use and maximum all-in cost ceiling. The end use of ECB funds cannot be to A variety of dispute settlement options are invest in capital markets, real estate activities, available to foreign investors — including equity investment, working capital purposes, international arbitration, domestic courts general corporate purposes and repayment of and domestic arbitration, unless otherwise rupee loans, except as mentioned in the ECB agreed upon in writing by the parties to an Rules. The all-in-cost (which includes rate of investment transaction. The Indian Arbitration interest, other fees, expenses, charges, guarantee and Conciliation Act, 1996 (Arbitration Act) is the fees and so forth), cannot be beyond the principal legislation governing arbitration in India. prescribed threshold. It is based on the Model Law on International Commercial Arbitration adopted by United n Outflows: Outflow of proceeds from sale, Nations Commission on International Trade capital gains, liquidation amount, technical Law, 1985. The Arbitration Act applies to both fees, wages, and dividends may be remitted international and domestic arbitrations. In addition, freely (net of applicable taxes and subject to special commercial courts were set up under the standard compliances). If the investment is Commercial Courts, Commercial Division and made on a repatriable basis, profits/sale proceeds Commercial Appellate Division of High Courts Act, can be repatriated, subject to tax clearance. 2015 and investors can also approach the National Similarly, dividends and interest are freely Company Law Tribunal, a quasi-judicial body set repatriable without any restrictions (net after up to adjudicate issues relating to companies. In taxes). Pursuant to the Companies Act, dividends practice, dispute settlement can be time-consuming can be paid only out of (i) profit of the current and costly. year after providing for the depreciation; or (ii) profit of the previous financial year or years after Reportedly, India is considering the enactment providing for depreciation for previous years; or of a domestic law for protection of foreign (iii) out of money provided by central or state investments in India with a robust and fast Government for payment of dividend. Certain track dispute resolution mechanism to settle sectors may impose limitations on outflows. disputes between investors and the government. For instance, a lock-in period of 3 years is A draft proposal is said to have been prepared by imposed on each tranche of foreign investment the Ministry of Finance for input from various in the construction development sector (with the regulators before it can be circulated for public exception of hotels & tourist resorts, hospitals, comment. SEZs, educational institutions, old age homes India does not have a codified administrative law, and investments by NRIs). The RBI from time but the principles of administrative law emanate to time releases notifications, circulars and from the Constitution, legislation, delegated clarifications in relation to conversion and legislation and judicial decisions. Due process is outbound transfer of currency. an intrinsic part of Indian administrative law and as such, any proceeding or trial requires that the arbiter adheres to principle of natural justice and rule of law. | 20 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 5. INVESTMENT INCENTIVES India does not have a centralized framework In 2020, the Government of India introduced for granting investment incentives to foreign the production-linked incentive schemes investors. Investment incentives (tax and (PLI Schemes) to make India a competitive financial) are generally available at the central player in global markets and boost domestic and state government levels, and apply to both manufacturing and exports. The benefit of domestic and foreign investors. While most tax these PLI Schemes can be availed by both foreign and financial incentives are provided under a investors and domestic players. To date, the specific law, notification, circular or other official Government of India has announced an outlay of announcements, discretionary, case-by-case INR 1.97 Lakh Crores (approximately US $26 incentives are also granted in some cases by both Billion) for the PLI Schemes across 14 key sectors: the central and state governments. 1. Key Starting Materials (KSMs)/Drug The incentives regime is designed to attract Intermediates (DIs) and Active Pharmaceutical investments to specific sectors, promote Ingredients (APIs) investments in underdeveloped geographic areas, and encourage exports of goods and 2. Large Scale Electronics Manufacturing services. For example, sector specific incentives are 3. Manufacturing of Medical Devices available for investments in sectors such as power, ports, highways, and electronics. The Modified 4. Electronic/Technology Products Incentive Package Scheme (M-SIPS) provides certain financial incentives to companies engaged 5. Pharmaceutical Drugs in manufacturing of electronic products such as 6. Telecom & Networking Products nano-electronic components, semiconductor, solar photovoltaics and so forth. Similarly, location 7. Food Products specific incentives are available for investments in northeast states such as Arunachal Pradesh, 8. White Goods (ACs & LED) Assam, Manipur, Meghalaya, Mizoram, Nagaland, 9. High-Efficiency Solar PV Modules Sikkim and Tripura. In February 2019, the DPIIT released the North East Industrial Development 10. Automobiles & Auto Components Scheme (NEIDS) offering a number of tax and non-tax incentives to industrial units operating in 11. Advance Chemistry Cell (ACC) Battery the north-east region. The government has also extended incentives to start ups under the Startup 12. Textile Products: MMF segment and technical India Scheme in the form of tax holidays for any textiles consecutive 3 years (from initial 5 years) in respect 13. Specialty Steel to 100% of their profits, including fast-tracking of patent applications with 80% rebate. Certain tax 14. Drones and Drone Components incentives schemes (such as Service Export from India Scheme (SEIS) and Merchandise Export Each state government has its own incentive from India Scheme (MEIS)) are based on exports policy offering various incentives based on the of goods and services. For example, the rewards priority industry, amount of investment, location under SEIS or MEIS are dependent on the export and/or employment generation, typically set performance and paid out as a percentage of forth in the state’s industrial policy. Some of realized exports value. these incentives may include stamp duty exemption for land acquisition, refund or exemption of value- 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 21 added tax (VAT), and exemption of payment of Generally, the objective behind extending a electricity duty. Other incentives include (i) tax particular incentive is stated in the relevant holidays, depending on industry and region; (ii) circular, incentive notification or budget while weighted tax deductions granted to companies for announcing these benefits. It is also mostly R&D expenses in an approved in-house facility; stated on the portal where the particular incentive and (iii) accelerated and additional depreciation scheme is made available. For example, the Startup for certain industries and assets. Typically, certain India portal notes that the incentive scheme is eligibility criteria and performance conditions apply “intended to catalyze startup culture and build to investors claiming incentives and exemptions. a strong and inclusive ecosystem for innovation and entrepreneurship in India.” Since its launch in India has recently implemented a new indirect tax 2016, Startup India has rolled out several programs regime on manufacture, sale and consumption with the objective of supporting entrepreneurs and of goods and services in the form of Goods and transforming India into a country of job creators Services Tax (GST). The GST replaces the VAT instead of job seekers. and other forms of indirect taxation to simplify the complex central and state tax norms into a unified Eligibility Criteria and Approval Process tax base that provides both transparency and certainty to investors. Indirect tax benefits (such as The granting of tax and financial incentives by custom duty exemption) are available for import the Indian government to foreign investors is of capital goods and inputs as well as domestic generally contingent upon the satisfaction of the procurement, including stamp duty exemption for relevant eligibility criteria. Often the incentive units in special economic zones. scheme will set out the eligibility criteria and the approval process to apply for the relevant incentive. There is no single portal that lists clearly all However, the central and state governments may tax and financial incentives available to foreign also offer discretionary, ad hoc incentives for investors. Various government websites such as the certain projects on a case by case basis, depending DPIIT, the Ministry of Finance, Invest India, and on the scope and size of the project and its potential Make In India, maintain information in relation to to create jobs in priority industries. the same. The websites of the relevant government departments are updated periodically. | 22 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 6. INVESTMENT LINKAGES For the purposes of this section, research was Schemes can be availed by both foreign investors focused on the availability of incentive schemes and domestic players. to increase local sourcing, technology transfer and measures to improve information exchange Similarly, the Government of India, through between foreign investors and domestic suppliers. its various agencies, regularly enters into India’s investment promotion agency, Invest India, Memorandums of Understanding (MoUs) or assists foreign investors in implementing market agreements with foreign investors or countries entry and expansion strategies, including helping to incentivize technology transfer. For instance, investors connect with viable business partners in in February 2021 the Indian Council of Medical India, conducting search for joint venture partners Research (ICMR) and Foundation for Innovative and strategic suppliers. New Diagnostics (FIND), Switzerland signed an MoU to strengthen the relation within the As noted in the previous section, since 2020 the framework of the international scientific and Government of India announced an outlay of technological collaboration and to promote INR 1.97 Lakh Crores (approx. US $26 Billion) cooperation in fields of mutual interest. Pursuant for the Production Linked Incentive (PLI) to the MoU, ICMR committed to make available Schemes across 13 key sectors to boost national funding up to US $100,000 while FIND agreed manufacturing and generate employment to make available funds up to US $400,000 to opportunities in India. The benefit of these PLI local partners and researchers identified through Request for Proposals (RFPs). 7. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on in a joint venture or wholly owned subsidiary whether there are any legal instruments for any bona fide activity. The RBI’s approval is specifically covering outward investment and if required if the total financial commitment exceeds there are, whether they impose any restrictions 400% or if the financial commitment exceeds on outward investment. In India, both state- US$1 billion. This applies even if the total financial owned and private sector enterprises can undertake commitment of the Indian party is within the eligible outward investments. The main legal instrument range of 400%. on outward foreign direct investment (OFDI) is the FEMA (Transfer or Issue of Any Foreign Security) While OFDI is allowed under the Automatic Regulation, 2004 (OFDI Regulations). The RBI Route for most sectors, it is prohibited in a has also released the Master Direction on Direct few sectors. These include a real estate business Investment by Residents in Joint Venture/Wholly involving the buying and selling of real estate or Owned Subsidiary Abroad, dated 1st January 2016. trading in Transferable Development Rights (TDRs) — but excluding the development of townships, Per the OFDI Regulations, an Indian entity can construction of residential/commercial premises, undertake OFDI under the Automatic Route up roads or bridges. It is also restricted in the banking to the prescribed limit of 400% of its net worth business. Indian banks operating in India can set up 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 23 joint ventures or wholly owned subsidiaries (JVs/ requires the RBI’s approval. Investments in Nepal can WOS) abroad subject to obtaining certain clearances be undertaken only in Indian Rupees. Investments in from the RBI. An overseas JV/WOS, having direct Bhutan are allowed in Indian Rupees and in freely or indirect equity participation by an Indian party, convertible currencies. cannot offer financial products linked to the Indian Rupee (for example, non-deliverable trades involving There are specific rules concerning the foreign currency, rupee exchange rates, stock indices repatriation of funds. An Indian party has the linked to the Indian market and so forth) without obligation to repatriate to India all dues receivable RBI’s approval. Only an Indian company engaged from the foreign joint venture or wholly-owned in the financial services sector can make investment subsidiary including dividends, royalties, technical in a JV/WOS abroad in the financial services sector, fees and so forth within 60 days of the due date. provided it fulfills certain additional conditions In case of disinvestment, sale proceeds of shares/ prescribed under the OFDI Regulations. securities must be repatriated no later than 90 days from the date of sale. An Indian Party may capitalize Further, OFDI proposals in certain sectors and the payments due from the foreign JV/WOS towards activities require the RBI’s prior approval. These exports, fees, royalties or any other dues from the include the following: foreign JV / WOS for supply of technical know-how, consultancy, managerial and other services within n Overseas Investments in the energy and natural the ceilings applicable. However, capitalization of resources sector exceeding the prescribed limit. n export proceeds remaining unrealized beyond the Investments in overseas unincorporated entities prescribed period of realization require the prior in the oil sector. approval of the RBI. n Overseas investments by proprietorship concerns The approach on OFDI restrictions has changed and unregistered partnership firms satisfying over the years. In 2012, to provide operational certain eligibility criteria. flexibility to the Indian party, the RBI liberalized n Investments by Registered Trusts/Societies the regulations pertaining to opening, holding (satisfying certain eligibility criteria) engaged in and maintaining the foreign currency account by the manufacturing/educational/hospital sector in an Indian party outside India, subject to certain the same sector in a JV/WOS outside India. conditions. In 2013, the RBI reduced the OFDI limit from the then-existing 400% of the net n Corporate guarantee by the Indian Party to worth of the Indian party to 100% of its net worth second and subsequent level of Step Down under the Automatic Route. However, in 2014, Subsidiary (SDS). the RBI reinstated the earlier limit of 400%. It also mandated RBI’s approval for any OFDI or n All other forms of guarantee offered by the Indian financial commitment of more than US $1 billion party to its first and subsequent level of SDS. in a particular financial year. n Restructuring of the balance sheet of JV/WOS The RBI intends to combine the OFDI involving write-off of capital and receivables Regulations and the FEMA (Acquisition and in the books of listed/unlisted Indian Company Transfer of immoveable property outside satisfying certain eligibility criteria. India) Regulations, 2015 into FEMA (Non-debt Instruments — Overseas Investment) Rules, 2021 n Capitalization of export proceeds remaining (NDI Rules) and FEMA (Overseas Investment) unrealized beyond the prescribed period of Regulations, 2021 (OI Regulations). The draft realization. Rules and Regulations introduce several procedural n Undertaking financial commitment without and conceptual changes to rationalize and liberalize equity contribution in JV/WOS. the regulatory framework and to promote ease of doing business in India. Accordingly, in August There are also certain geographical restrictions 2021 the RBI published on its website the draft prescribed by the RBI. Investment in Pakistan Rules and Regulations for public comments. | 24 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether and subsequently environmental clearance from there are any measures within the country’s in- the concerned regulatory authority for projects or vestment legislation that are specifically target- activities listed in the Notification Schedule which ed to ensure responsible investment. To promote is applicable to foreign investors and domestic responsible investment, India imposes corporate players. The Central Government may by notifica- social responsibility (CSR) obligations (on both tion amend the list to include or modify the activi- foreign and domestic investors). Every company ties that require prior environmental clearances. operating in India having a net worth of INR 500 crore or more or turnover of INR 1000 crore or a n Product compliance: To alleviate national se- net profit of INR 5 crore or more during the imme- curity and consumer safety concerns, imported diately preceding financial year must constitute a telecom and other high tech equipment is increas- CSR committee. The CSR Committee is required to ingly subject to local testing and certification formulate and recommend to the board of the com- requirements. The Ministry of Communications pany the CSR activities to be undertaken, as well as and Department of Telecommunications imple- to ensure that the company spends in every finan- mented a domestic testing policy (Mandatory cial year at least 2% of the average net profits made Testing and Certification of Telecom Equipment) during the three immediately preceding financial mandating certain telecom equipment, such as years of the company on CSR activities. core network systems, mobile switching centers and transmission devices imported into India be In addition, there are other recent rules that ap- subject to security screening at government-affili- ply to foreign investors as well, which are intend- ated laboratories. While these rules apply equally ed to preserve the environment and to ensure to domestic and foreign players, they appear to products produced comply with national and in- have a disproportionately adverse impact on for- ternational standards: eign entities by subjecting them to duplicative testing and potential registration delays. n Environment: In recent years, the rising levels of e-waste (discarded electrical and electronic equip- n Similarly, the Ministry of Electronics and ment) generation in the country has been a mat- Information Technology has implemented a ter of concern. To address this issue a regulatory compulsory registration requirement for cer- framework to manage e-waste has been created. tain categories of electronic and IT equipment. India’s E-Waste (Management) Rules, 2016 (as The manufacturers of these products are required amended in 2018) specify certain categories of IT to apply for registration from the Bureau of In- goods (such as mainframes and computers) that dian Standards (BIS) after getting their products must comply with concentration limits for certain tested by BIS recognized labs. This is done in or- specified substances, if they are to be imported into der to meet Indian product safety standards (even India. India has also enacted the Hazardous and if the listed products already meet international or Other Wastes (Management and Transboundary nation-of-manufacture standards certifications). Movement) Rules, 2016 (as amended in 2019), which govern the import and export of specified n Further, Ministry of Road Transport and hazardous goods (including electronic assembles Highways (MORTH) and Automotive In- consisting of metals and alloys, waste electrical and dustry Standards Committee (AISC) have electronic assemblies scrap) into and out of India. introduced regulations for ensuring safe and The Environmental Impact Assessment (EIA) No- high-quality automotive products, including tification dated September 14, 2006 (as amended) the AIS-140 standard which has ensured tremen- published by the Ministry of Environment and For- dous improvement in safety and emergency ser- ests prescribes environmental impact assessment vices to the citizens taking public transport for their daily commute or long-distance travel. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 25 9. CITY SPECIFIC REVIEW—MUMBAI As a federal country with 29 states, the task remains’. This can lead to a confusing and of formulating and implementing consistent sometimes inconsistent policy and regulatory investment policy and regulation across the framework on tourism, where state laws do not country is challenging. There is not just the need reflect the Central government’s intention of to strengthen the capacity of individual states, but allowing 100% FDI and promoting the sector. also to improve the coordination between national and subnational governments. As the largest recipient of FDI, Mumbai and more broadly the State of Maharashtra does Regarding policy and law formulation, Article not impose additional city specific regulatory 246 of the Constitution of India sets out the barriers to FDI. Rather, additional incentives areas in which the Union (Indian Parliament) are provided by the government of Maharashtra and the Legislature of states can, respectively, to attract investments in the State, pursuant to exercise their authority to make law. List I in the the Maharashtra Industrial Policy 2019. The state Seventh Schedule enumerates items on which only has also set up Maharashtra Industry, Trade and the Indian Parliament (and not state legislature) Facilitation Cell (MAITRI) to facilitate ease of can make laws on, while List II provides those on doing business. which state governments can draft laws. There is a List III (that is, the concurrent list), on which Maharashtra has launched sector specific policies both the Center and the state can draft laws. If and has announced several thrust sectors to be any provision of a state law conflicts with the accorded priority in land allotment and incentives. central legislation — with respect to the matters These include electric vehicles, aerospace, defense enumerated in List I or III — then the central manufacturing, robotics, nanotechnology and so legislation would prevail, unless the state law forth. A variety of incentives are made available for provision has received the President’s assent. FDI large scale investments in under-developed areas, falls within List I. However, FDI projects — and including industrial promotion subsidy on state their implementation — are impacted by a large tax, stamp duty exemption for acquiring land and number of laws and regulations that fall within term loans, exemption from payment of electricity the mandate of states. Thus it is important to duty during an eligibility period, with additional ensure that states are also aligned on the overall incentive for thrust sectors. Mega and ultra-mega objective of FDI attraction. By way of illustration, projects (that is, projects with investment above a 100% FDI is allowed in the tourism sector under specific value) can qualify for fiscal incentives up the automatic route. Tourism as a category is to 100% of the fixed capital investment. The state’s not listed in any of the lists — however, tourism special economic zones policy (SEZ Policy) also related areas fall within all the lists. For example, offers incentives such as exemption of all state List I includes ‘passports and visas’, ‘ancient and local taxes stamp duty and registration fees, and historical monuments and archaeological and an expeditious process for land acquisition sites of national importance’; List II includes and obtaining permits, among others. The state ‘land’, ‘markets and fairs’, ‘inns and innkeepers’, government may consider providing customized ‘theatres, entertainment and amusement’; List packages of incentives on a case-by-case basis, III includes all ‘other archaeological sites and which may lead to discretionary decision making, sometimes negatively impacting investors. | 26 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 10. FDI IN THE DIGITAL ECONOMY This section examines India’s legal and digital economy: intellectual property rights, data regulatory framework impacting investment in privacy, data localization, intermediary liability, digital activities and infrastructure. The first sub- content access, and e-commerce. section assesses FDI-specific restrictions that apply to 19 different digital economic sectors or activities FDI-Specific Restrictions (see Table 4). The following sub-sections review a number of legal and regulatory dimensions that may India’s extant FDI policy largely permits foreign affect both foreign and domestic investments in the direct investment in the key digital economy Table 4. FDI Equity Restrictions in India’s Digital Economy Sectors Digital Activity/Sector FDI Caps, if any Government or Automatic “100%” Means No Caps on Foreign Equity Approval Route 3D Printing 100% Automatic AI and Machine Learning 100% Automatic Big Data & Analytics 100% Automatic Blockchain 100% Automatic Cryptocurrency 100% Automatic Drones 100% Automatic E-Commerce 100% in Marketplace Model (B2B) Automatic Prohibited in Inventory Model (B2C) Prohibited Fintech 100% Automatic Gig Worker Platforms 100% Automatic Healthtech 100% Automatic Insurtech (Insurance Intermediaries) 100% Automatic IoT Devices 100% Automatic Logisticstech 100% Automatic Robotics 100% Automatic Social Network Platforms* 26% in digital media entity including OTT Government approval *Current policies unclear if social media uploading/ streaming of news & current affairs on intermediaries will fall under “digital media” websites, apps or platforms, news aggregators and thereby subject to the FDI cap using software or web to aggregate news* Cloud computing Infrastructure (e.g. 100% Automatic Datacenters) Telecom Services 100% Automatic Telecom Equipment to Enable Digital 100% in Category 1: duct space, towers and dark Automatic Infrastructure and Digital Connectivity fiber 100% in Other Service Providers (call centers, Automatic telemarketing, ITES) Traveltech 100% Automatic Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 27 areas identified in the Table 4. In 2020, a new FDI n Cryptocurrency: The RBI has released caution regime was introduced for entities engaged in the notes setting out the risks for holders and traders news digital media sector, allowing FDI up to 26% of virtual currencies including Bitcoin. On April under the government approval route for entities 6, 2018, the RBI restricted all regulated entities engaged in (i) uploading/streaming of news and under its purview from dealing in virtual cur- current affairs through digital media websites, apps rencies and providing services for any person or or other platforms, (ii) news agencies which gather, entity dealing with virtual currencies thereby es- write and/or distribute news to digital media entities sentially banning the trading in cryptocurrency. In or news aggregators, and (iii) news aggregators 2020, the Supreme Court in the case of Internet using software and web applications to aggregate and Mobile Association of India v. Reserve Bank news content from various sources in one location. of India struck down the curbs imposed by the RBI and asked the Central Government to frame Other than the equity ceilings noted in the policies for cryptocurrency. The Government of Table above, India has few specific restrictions India proposes to regulate the sector and the draft to FDI in the digital economy. There is no legislation on cryptocurrencies has been tabled separate screening process for digital FDI. There before the Cabinet and awaits its approval. are no minimum investment requirements or other discriminatory restrictions or quotas or local n Drones: Flying drones in India is legal but has sourcing requirements specifically for digital FDI. been recently regulated. The necessary legal Nor are there any requirements specifically imposed framework came into effect on December 1, on foreign investors in the digital economy sectors 2018 when the Ministry of Civil Aviation noti- to invest in local R&D, meet any export quotas, or fied the Drone Regulations with an aim to liberal- to transfer technology to local business partners. ize and ease the process of using drones in India Rather, the rules applicable to FDI in the traditional for various purposes, including non-commercial sectors described in sections above equally apply to use. Commercial drone operations require per- FDI in the digital economy. mits based on the weight of the drone and flight altitudes. This regulation has engendered greater No restrictions are placed on the appointment investor confidence by clarifying the legal status of expatriates on the board of directors or of drones in India. key managerial positions, except in the social media and insure-tech sectors. More specifically, n Fintech: In December 2020, the RBI released the significant social media intermediaries (described Enabling Framework for Regulatory Sandbox to in the section on Intermediary Liability below) encourage innovation and commercial testing of must ensure the majority of board of directors to be fintech industry solutions in a controlled environ- Indian citizens and the CEO to be an Indian citizen. ment with limited regulations and customer expo- Further, a social media entity with FDI is required sure. The Regulatory Sandbox aims to facilitate to obtain security clearance of all foreign personnel live testing of new products and services in a con- likely to be deployed for more than 60 (sixty) trolled regulatory environment with appropriate days in a year, by way of appointment, contract or safeguards and oversight to enable stakeholders consultancy in any capacity for functioning of the (the regulator, innovators, financial service pro- entity prior to deployment. Similarly, an insurance viders and customers) to assess the benefits and intermediary that has a majority shareholding of risks of new financial innovations before wider- foreign investors must ensure that at least one from scale launch. Further, it aims to provide a struc- among the chairman of the board of directors or the tured avenue for the regulator to engage with CEO or principal officer or Managing Director of the market participants and to develop innovation-en- insurance intermediary is a resident Indian citizen. abling or innovation-responsive regulations that facilitate delivery of safe and low-cost innovative Recent Policies in Digital Economy Sectors financial products in India. The Government of India has in recent years n Cloud computing infrastructure: While there is taken several measures to regulate specific no direct law in relation to cloud computing, the digital economy sectors: | 28 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA Government is taking steps to address the risks unauthorized disclosure. Civil remedies for breach involved in cloud computing and is trying to cre- of confidence include an injunction, the return of ate a clear regulatory framework. The RBI also all confidential and proprietary information, and constituted a working group on Cloud Computing compensation or damages. Criminal remedies are Options for small size urban cooperative banks. provided under the Information Technology Act, In November 2020, the Ministry of Electron- 2000 in case of cybercrimes or breach of secured ics and Information Technology (MeitY) issued access to any electronic information which has a draft Data Centre Policy 2020 with a vision to been disclosed without the consent of the person make India a global data center hub and to en- concerned. courage the development of in-country data cen- ter parks, assigning “infrastructure” status to this Further, there is no system to effectively protect sector, in par with the railways and power sector test data submitted to regulators for marketing to help with availing long term benefits available approvals for pharmaceutical products, which is to infrastructure investors. a significant gap for investors. Although some of India’s IP protection laws are generally at par with international standards, piracy and counterfeiting Intellectual Property Rights is a problem and IP enforcement is ineffective and Digital intellectual property (such as e-books, uneven in India. digital platforms, downloadable music, digital content, software, databases, chips designs, Data Privacy networking equipment and server technology to name a few) is afforded protection under India’s India’s current omnibus data protection law is intellectual property regime, subject to the various the Information Technology Act, 2000 (IT Act) criteria under applicable statutes such as the Patents and its implementing rules, the Information Act, 1970 and the Copyright Act, 1957. Statutory Technology (Reasonable security practices remedies for infringement include an injunction and procedures and sensitive personal data and, at the option of the plaintiff, either damages or information) Rules, 2011 (IT Rules). The IT or an account of profits. A court may also order the Rules impose certain obligations and compliance infringing goods to be seized, forfeited or destroyed, requirements on organizations that collect, process, as the court deems fit under the circumstances store and transfer “sensitive personal data” or without payment of any compensation. The information of natural persons, such as obtaining Copyright Act provides for both civil and criminal consent, publishing a privacy policy, responding to remedies for infringement. Courts may also direct requests from individuals, disclosure and transfer internet service providers (ISPs) to block infringing restrictions. The IT Rules apply only to the body websites. corporates that collect information from natural persons. Organizations that provide services The Patent Act permits “compulsory licensing” relating to collecting, storing, or handling sensitive and the Copyright Act provides for broad “fair personal data pursuant to a contractual relationship, use” exceptions (such as for “fair dealing” and such as outsourcing organizations, are exempt research) that can potentially undermine the from complying with the personal data collection protections afforded to inventors and authors and disclosure obligations in the IT Rules. The IT under these statutes. For example, the concept Act has extra-territorial reach and applies to any of “fair dealing” is not defined in the statute. offence or contravention committed outside India Consequently, the local courts have broad discretion by any person irrespective of nationality if the act in interpreting this legal doctrine depending on the or conduct constituting the offence or contravention specific facts of a case. involves a computer, computer system or computer network located in India. The IT Act does not There is no specific statute for protecting trade provide for a regulatory authority governing secrets, but they are afforded common law compliances with the data regime. The statute protection in Indian courts. Parties also use was primarily designed to regulate electronic data contracts to protect confidential information against 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 29 on computer or information technology systems criteria such as the volume, sensitivity, risk of without specific focus on data privacy issues, harm by processing of the personal data etc. hence it lacks the requisite safeguards required for undertaken by data fiduciaries. A data fiduciary an effective personal data regime. is an entity that alone or together with others determines the purpose and means of processing A new omnibus Personal Data Protection Bill, of personal data. If the significant data fiduciary 2019 (Bill) is currently being considered in intends to undertake any processing involving India which, if implemented, will change the new technologies or large-scale profiling or use country’s data privacy landscape, and focus on of sensitive personal data such as genetic data greater data localization requirements. The Bill or biometric data, or any other processing which provides for protection of the privacy of individuals carries a risk of significant harm to data subjects, relating to their personal data, stipulating norms for such processing cannot commence unless the data social media intermediary, cross-border transfer, fiduciary has undertaken a data protection impact accountability of entities processing personal assessment. The circumstances, or class of data data and remedies for unauthorized and harmful fiduciary, or processing operation where such data processing. It also provides for establishing a “data protection impact assessment shall be mandatory is protection authority.” Among other requirements, yet to be specified via regulations upon the setting “explicit consent” would be mandatory for the up of the “data protection authority” pursuant to cross-border transfer of sensitive personal data the Bill. and a copy of all “sensitive personal data” and “critical personal data” would need to be stored in The IT Act allows the government to access data India. The Bill has been drafted in line with the EU that is collected and stored by private entities. General Data Protection Regulation. It is currently This is especially the case when it is in the interest in the final stages of parliamentary review being or is necessary or in the interest of the sovereignty examined by a Joint Parliamentary Committee or integrity of India, defence of India, security of (JPC) on Personal Data Protection. Once the report the State, friendly relations with foreign States or of the JPC is finalized, the draft Bill and the report public order, or for preventing incitement to the by JPC will be tabled for approval before the Lok commission of any cognizable offence relating to Sabha and Rajya Sabha (the lower and upper houses the above or for investigation of any offence. The of the Indian Parliament). Thereafter, the Bill will IT Act empowers the government to issue directions be assented to by the President of India and become for interception or monitoring or decryption of any the law governing personal data protection in India. information through any computer resource, the procedure and safeguards for which are contained Further, there is also a regime change envisioned within the IT Rules. for Non-Personal Data (NPD). In September 2019, the Ministry of Electronics & Information Intermediaries are also obligated to assist and Technology constituted a committee of experts to provide access to the government for these deliberate on issues related to NPD and suggest purposes. Under the Intermediary Guidelines, a suitable recommendations for its regulation. On “significant” social media intermediary (defined July 12, 2020, the Committee released its report for below) providing services primarily in the public consultation on inter alia the enactment of a nature of messaging has the obligation to enable legislation for regulation of NPD (NPD Statute) as the identification of the first originator of the well as establishment of an authority under NPD information on its computer resource, as may be Statute (NPD Authority). required by a judicial order passed by a court of competent jurisdiction or an order passed by the The IT Act does not impose any requirements central or state government. However, this power for data privacy impact assessments. However, is restricted and such order can only be passed if the PDP Bill adds this additional obligation on there is no less intrusive means for identifying the a “significant data fiduciary.” Such “significant originator and only for the purposes of prevention, data fiduciary” entities shall be notified by the detection, investigation, prosecution or punishment Government from time to time on the basis of of an offence related to the sovereignty and integrity | 30 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA of India, the security of the State, friendly relations The PDP Bill provides penalties and with foreign States, public order, or of incitement compensations for specific offences and for to an offence relating to the above or in relation contravening the provisions of the Bill such with rape, sexually explicit material or child sexual as failure to comply with data principal’s abuse material, punishable with imprisonment request. Under the PDP Bill, re-identification and for a term of not less than five years. Further, the processing of de-identified personal data is also an significant social media intermediary is not required offence. The residuary penalty for a breach of any to disclose the contents of any electronic message, requirements under the PDP Bill extends to INR any other information related to the first originator, one crore (INR10,000,000) in case of significant or any information related to its other users. data fiduciaries and a maximum of INR twenty five lakhs (INR 2,500,000) in other cases. The IT Rules also state that a body corporate is bound to share this information with the government upon receiving a request in Data Localization writing which states the purpose of seeking the There is no omnibus law imposing data information. There is no prior consent needed localization requirements in India, but there from the information provider as the government are certain regulatory bodies that have enacted agencies can obtain information including sensitive rules for data localization. For instance, effective personal data or information for the purpose April 6, 2018, the RBI mandated all payment of verification of identity, or for prevention, system providers and their intermediaries, third detection, investigation including cyber incidents, party vendors, service providers and so forth to prosecution, and punishment of offences. store their end-to-end transaction data on servers/ infrastructure located in India. In April 2021, the The IT Rules stipulate the pecuniary and penal RBI issued sanctions against a few global payment sanctions for non-compliances, which include processing companies penalizing them for failure the following: to comply with the RBI’s payment data localization (i) punishment for disclosure of personal informa- mandate. Similarly, as of April 2017, the insurance tion in beach of lawful contract can extend to a regulator of India mandates all insurance companies term of three years in prison and/or a fine which to store the data of their customers in India. The FDI may extend to INR five lakhs (INR 500,000). Policy 2020 prohibits all FDI-receiving entities in the broadcasting sector to transfer the subscribers’ (ii) damages to be paid by way of compensation for databases to any person/place outside India unless wrongful loss or gain caused to a person for fail- permitted by relevant law. ure to protect data due to negligence in imple- menting and maintaining reasonable security Under the current IT Act, there are also no standards and procedures set out in the IT Act statutory restrictions banning cross-border and the IT Rules. data transfers, except for certain conditions for transfer of sensitive personal data and except (iii) if an intermediary does not preserve and retain for certain sector specific exceptions as noted such information as may be specified for such above. A body corporate or any person on its behalf duration and in such manner and format as the may transfer sensitive personal data or information central government may prescribe, the conse- to any other body corporate or person located in quence is imprisonment for three years includ- any other country so long as the recipient ensures ing liability for a fine. the same level of data protection that is adhered to by the transferring body corporate pursuant to (iv) a residuary penalty may be imposed for contra- the IT Rules. Further, the transfer may be allowed vention under the IT Act or IT Rules for which only if it is necessary for the performance of the no penalty has been separately provided, which lawful contract between the body corporate or any may be compensation to a person affected or a person on its behalf and the data subject or where penalty which shall not exceed INR twenty-five such subject has consented to the data transfer. The thousand (INR 25,000). 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 31 extant regime does not make a distinction between der Section 12 of the PDP Bill which contains the transfer and processing. grounds for processing of personal data without consent; or The pending PDP Bill, however, imposes data localization requirements for sensitive personal n to a country or, any entity or class of entity in a data and critical personal data sub-categories, country or, to an international organization, where noting that critical data cannot leave the country. the central government has deemed such trans- At the same time, it does not define the term. fer to be permissible under the above clause and More specifically, Section 34 (1) of the PDP Bill where such transfer in the opinion of the central allows conditional transfer of sensitive personal government does not prejudicially affect the secu- data outside India for the purposes of processing rity and strategic interest of the State. upon explicit consent being given by the data principal for the transfer and where: The extant law does not regulate or mandate data storage in India. However, the PDP Bill n the transfer is made pursuant to a contract or strives to bridge that gap. Section 33 (1) of the PDP intra-group scheme approved by the regulatory Bill states that while the sensitive personal data may authority. This scheme has to entail provisions be transferred outside India subject to fulfillment for effective protection of the rights of the data of certain conditions (as explained above), such principal under the PDP Bill, including in relation sensitive personal data shall continue to be stored to further transfer to any other person and provi- in India. Hence, when the PDP Bill comes into sions of the liability of the data fiduciary for harm force there will be mandatory local data storage caused due to non-compliance of the provisions requirements for sensitive personal data. of such contract or intra-group scheme by such transfer; or Intermediary Liability n the central government, after consultation with Intermediaries are governed under the IT Act the regulatory authority, has allowed the transfer and the Information Technology (Guidelines to a country or, an entity in a country or, an inter- for Intermediaries and Digital Media Ethics national organization on the basis of its finding Code) Rules, 2021 (Intermediary Guidelines). that the sensitive personal data shall be subject to Section 2 (w) of the IT Act defines intermediaries an adequate level of protection, having regard to with respect to particular electronic records as “any the applicable laws and international agreements; person who on behalf of another person receives, and grievance redressal by data fiduciary. Further, stores or transmits that record or provides any such transfer should not prejudicially affect the service with respect to that record”. This term enforcement of relevant laws by authorities with includes telecom service providers, network service appropriate jurisdiction; or providers, internet service providers, web-hosting service providers, search engines, online payment n the regulatory authority has allowed transfer of sites, online-auction sites, online-market places and any sensitive personal data or class of sensitive cyber cafes. personal data necessary for any specific purpose. The Intermediary Guidelines mandate the Further, Section 33 (2) of the PDP Bill restricts intermediaries to adhere to certain due diligence processing of certain types of data, termed obligations and compliances in order to avail “critical personal data”, to only within India. of the “safe harbor” immunity granted under This term means personal data as may be notified Section 79 of the IT Act (see further below). The by the central government to be deemed critical due diligence obligations include (i) prominently personal data. However, Section 34 (2) provides publishing – on its website or application or both exemptions and permits such transfer abroad: – the rules and regulations, privacy policy and n to a person or entity engaged in the provision user agreement for access or usage of its computer of health services or emergency services where resource by any person, (ii) informing the users such transfer is necessary for prompt action un- of prohibited content, (iii) removing offending | 32 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA content, (iv) complying with notice and take down by the appropriate Government or its agency that and prescribed record preservation requirements, any information, data or communication link and (v) expeditiously furnishing information residing in or connected to a computer resource regarding verification of identity and other pertinent controlled by the intermediary is being used to information for investigation or cybersecurity commit the unlawful act, the intermediary fails activities to law enforcement agencies on request. to expeditiously remove or disable access to that material on that resource without vitiating the The Intermediary Guidelines distinguish evidence in any manner. between social media intermediaries and their respective obligations based on various factors, There are no user identity requirements imposed sub-categorizing them into a “social media on intermediaries. An intermediary has no intermediary” or a “significant social media obligation to ensure users supply accurate personal intermediary” (SSMI). The Government of India information. Rule 5 of the Information Technology via its notification dated 26 February, 2021 specified (Reasonable Security Practices and Procedures and fifty lakh registered users in India as the threshold for Sensitive Personal Data or Information) Rules, 2011 a social media intermediary to be considered a SSMI. states that a body corporate shall not be responsible SSMIs must comply with substantially more onerous for the authenticity of the personal information or due diligence obligations to claim the protections sensitive personal data or information supplied by available under the Guidelines, such as appointing the provider of information to the body corporate. an Indian resident as chief compliance officer, a nodal officer for coordination with law enforcement An intermediary (other than an SSMI) agencies, and a resident grievance officer, and has no obligation to proactively monitor publishing a monthly compliance report of users’ activities. However, it is obligated to complaints filed and decided. Further, additional due address complaints received via the grievance diligence obligations also apply to online publishers, redress mechanism established pursuant to the including digital news media and OTT providers, in Intermediary Guidelines, and to inform its users relation to news and current affairs content, subject not to share certain types of restricted information. to oversight by the central government. An SSMI, on the other hand, is subject to onerous due diligence obligations and it must deploy The “safe harbor” protection (i.e., immunity technology-based measures, including automated from liability) under Section 79 of the IT Act tools or other mechanisms to proactively identify grants a conditional immunity to “passive” objectionable content, and some of these measures intermediaries from liability for objectionable to comply with agencies’ demands to provide user-generated content on their platform, subject information about their users’ activities raise to the following conditions: (i) the intermediary’s privacy concerns and data security concerns. function must be limited to providing access to a communication system over which information The IT Act and the Intermediary Guidelines made available by third parties is transmitted or provide for a notice and takedown regime. An temporarily stored or hosted, (ii) the intermediary intermediary must comply with a “takedown” notice must not initiate the transmission, select the within 36 hours of receiving “actual knowledge.” As receiver of the transmission, and select or modify such, an intermediary on whose computer resource the information contained in the transmission, and the information is stored, hosted or published, upon (iii) the intermediary must exercise due diligence receiving actual knowledge in the form of an order while discharging its duties under the act. by a court of competent jurisdiction or on being notified by the government or its agency, must not The “safe harbor” protection will not extend host, store or publish any unlawful information to an intermediary in two scenarios: (i) the which is prohibited under any law in relation to the intermediary has conspired or abetted or aided or interest of the sovereignty and integrity of India; induced, whether by threats or promise or otherwise security of the State; friendly relations with foreign in the commission of an unlawful act; or (ii) upon States; public order; decency or morality; in relation receiving actual knowledge, or on being notified to contempt of court; defamation; incitement to an 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 33 offence relating to the above, or any information within seventy two hours of receiving a government which is prohibited under any law for the time or court order, all information under its possession being in force. An intermediary must also establish or control, or otherwise assist the government a grievance redressal mechanism in accordance agency undertaking the investigation or cyber with the Intermediary Guidelines, but take down security activities. These requirements for content of content from complaints received through this control and access are burdensome because of the private system is voluntary. very short time window provided to intermediaries to comply with the orders of take down or content A breach of the Intermediary Guidelines access issued by the government or a court. may result in the intermediary losing its “intermediary” status and the “safe harbor” protection accorded as a result of this status. In E-Commerce certain instances, an intermediary may also be held E-commerce is regulated by a combination of directly liable for the information hosted by its users laws, regulations and policies: (i) the Consumer under the IT Act and the Indian Penal Code 1860, Protection (E-commerce Rules 2020, that govern which contain both penal and financial penalties. e-commerce entities and their conduct (ii) the FDI Policy that regulates FDI in e-commerce, and (iii) Content Access the IT Act 2000 that provides legal recognition to e-commerce transactions. Section 69A of the IT Act and Rule 16 of the Intermediary Guidelines authorize the Secretary, FDI in e-commerce is also regulated. These rules Ministry of Information and Broadcasting, and regulations refer to two types of e-commerce to issue directions for blocking public access models: (i) inventory based model of e-commerce, to any information through any computer which means the inventory of goods and services source for several reasons: in the interest of (i) is owned by e-commerce entity and is sold to the sovereignty and integrity of India, (ii) defence consumers directly; and (ii) marketplace based of India, (iii) security of the State, (iv) friendly model of e-commerce, which means providing relations with foreign States or (v) public order, or of an information technology platform by an (vi) for preventing incitement to the commission e-commerce entity to facilitate contact between of any cognizable offence relating to above. These buyers and sellers. provisions potentially bestow expansive powers on the executive regarding oversight over digital The FDI Policy of 2020 (as indicated in Table 4 media services in India, including social media, above) permits 100% FDI under the automatic digital news media and OTT on-demand services. route in the marketplace model of e-commerce. But no FDI is permitted in the inventory-based During June 2020 through September 2020, model. While the purpose of this policy is primarily the Ministry of Electronics and Information to check the predatory pricing and deep discounting Technology, in exercise of such powers, issued offered by behemoth global online retailers to the directions banning 267 mobile apps upon receiving detriment of local retailers, this policy disrupted complaints about misuse of such apps for stealing the standard industry practice in the e-commerce and surreptitiously transmitting users’ data in an business. More specifically, under this policy the unauthorized manner to servers located outside RBI prohibits any entity (i) from having equity India. contribution from an e-commerce marketplace or its group companies or (ii) allowing its inventory The Intermediary Guidelines also establish a new to be controlled by an e-commerce marketplace process by which government officials can issue entity or group companies, or to sell its products on directions to delete, modify or block content to a platform run by such a marketplace entity. intermediaries and publishers, either following a grievance process or including procedures of The FDI Policy also imposes certain restrictions on “emergency” blocking orders which may be FD in e-commerce, including the following: passed ex-parte. An intermediary must provide, | 34 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA n E-commerce entities which provide a marketplace valid under the country’s laws. Further, are not permitted to exercise ownership or control e-commerce retailers engaged in payment systems over the inventory or goods purported to be sold. are required to obtain the RBI approval and are The inventory of a vendor would be deemed to subject to compliances under the Payment and be controlled by e-commerce marketplace entity Settlement Systems Act, 2007. On August 23, 2016 if more than 25% (twenty five per cent) of pur- (prior to the demonetization exercise in November chases of such vendor are from the marketplace 2016), a Committee on Digital Payments headed by entity or its group companies. the Ministry of Finance was tasked by the Union Government to recommend proper measures for n An entity having equity participation by an e- encouraging digital payments (and discourage commerce marketplace entity, or its group com- cash transactions) and the regulatory framework panies, or having control on its inventory by an for digital payments in India. In 2019, the RBI set e-commerce marketplace entity or its group com- up another high level Committee on Deepening of panies, will not be permitted to sell its products on Digital Payments with the vision of encouraging the platform run by such marketplace entity. digitization of payments and enhancing financial n An e-commerce marketplace entity will not man- inclusion through digitization. The two committees’ date any seller to sell any product exclusively on findings and recommendations subsequently led to its platform only. updating the Payment and Settlement Systems Act and the creation of regulatory sandbox mechanism n Services should be provided by e-commerce among other initiatives to promote digital payments marketplace entity or other entities in which e- in India. Starting July 2022, under the new RBI commerce marketplace entity has direct or indi- guidelines issued in 2021, only card issuers and card rect equity participation or common control, to networks would be permitted to store card details vendors on the platform at arm’s length and in of customers, but all merchants and payment banks a fair and non-discriminatory manner. Such ser- and aggregators would be required to remove these vices will include but not limited to fulfilment, lo- details from their e-commerce platforms in order to gistics, warehousing, advertisement/ marketing, boost security of payment card data. payments, financing etc. The Consumer Protection (E-Commerce) n Cash back provided by group companies of mar- Rules, 2020 (E-Commerce Rules), promulgated ketplace entity to buyers must be fair and non- under the Consumer Protection Act, govern discriminatory. For the purposes of this clause, e-commerce entities and their conduct and list provision of services to any vendor on such terms the duties and liabilities of e-commerce entities which are not made available to other vendors in and sellers. In June 2021, the Ministry of Consumer similar circumstances will be deemed unfair and Affairs published the draft amendments to the discriminatory. E-Commerce Rules, which propose a much stricter regime than the one currently in place, and if passed, The FDI Policy permits single brand product they would require all e-commerce firms intending retail trading, who are operating through brick and to operate in India to obtain a registration from the mortar stores, to undertaking retail trading through DPIIT, impose fallback liability on e-commerce e-commerce. However, if these entities undertake entities in case of non-delivery of goods or services retail trading through e-commerce prior to opening by a seller, and regulate flash sales. of a brick and mortar store, then the entity must ensure that they open a brick and mortar store India has implemented the UNCITRAL within 2 years from the date of starting online retail. model laws on Electronic Commerce and on Electronic Signatures. The Preamble to the IT The IT Act recognizes and validates online Act 2000 references the Model Law on Electronic transactions concluded through electronic Commerce. The Information Technology Act, 2000 means, provided such contracts are otherwise gives validity to electronic signatures. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 35 ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. It was 1. Business services compiled by the WTO in July 1991 and its purpose 2. Communication services was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability and 3. Construction and related engineering services consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate 4. Distribution services of the more detailed categories contained in 5. Educational services the United Nations provisional Central Product Classification (CPC). The list can be accessed 6. Environmental services under the following link: http://www.wto.org/ english/tratop_e/serv_e/mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere | 36 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 2 For the purposes of this research, the following 32 sectors have been identified. This is not an exhaustive list of all sectors of the economy. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy 20. Construction Manufacturing: 21. Wholesale and Retail Trade 3. Agroprocessing, Food Products, and Beverages 22. Hotels and Restaurants 4. Textiles, Apparel, and Leather 23. Other Travel and Tourism-related Services 5. Chemicals and Chemical Products 24. Logistics, Transport, and Storage 6. Rubber 25. Telecommunications 7. Plastic Products 26. Computer and Software Services 8. Pharmaceuticals, Biotechnology, and Medical Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical Services (Engineering, Architecture, and 12. Furniture so forth) 13. Paper and paper products 31. Health Services 14. Printing and publishing 32. Media and Entertainment 15. Automobiles, Other Motor Vehicles, and Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 37 LIST OF REFERENCE MATERIALS Primary Sources 18. Standard Operating Procedure, under the FDI Policy 1. The Consolidated FDI Policy, October 15, 2020 19. Liberalized Remittance Scheme 2. Foreign Exchange Management Act, 1999 Foreign Exchange Management (Borrowing 20. 3. Foreign Exchange Management (Non-Debt and Lending) Regulations, 2018 Instrument) Rules, 2019 The Government of India (Allocation of 21. 4. The Companies Act, 2013 Business) Rules, 1961 5. The Constitution of India 22. Government of India Transaction of Business 6. The Competition Act, 2002 Rules, 1961 7. The Competition Commission of India (Lesser 23. Insurance Act, 1938 Penalty) Regulations, 2009 24. Press Note 7 (2012 Series) 8. The Competition Commission of India 25. Notification No. FEMA.368/2016-RB (Procedure in regard to the transaction of business relating to combinations) 26. Notification on Pricing Guidelines Regulations, 2011 27. External Borrowing Framework 9. The Arbitration and Conciliation Act, 1996 28. The Personal Data Protection Bill, 2019 The Right to Fair Compensation and 10. Transparency in Land Acquisition, 29. The Foreign Exchange Management Rehabilitation and Resettlement Act, 2013. (Establishment in India of a branch office or a liaison office or a project office or any other 11. Income Tax Act, 1961 place of business) Regulations, 2016 12. Foreign Trade Policy, 2015-2020 30. Press Release dated 16 April 2017 13. Model text for the Bilateral Investment Treaty 31. Guidelines on Indian owned and controlled 14. List of restricted items for import by Directorate 32. Passport (Entry into India) Act, 1920 General of Foreign Trade 33. The Foreigners Act, 1946 15. Central Goods and Services Tax Act, 2017 34. IRDAI (Re-Insurance) Regulations, 2018 16. Notification by RBI on “Prohibition on dealing in virtual currencies” 35. Lawyers Collective vs Bar Council of India, 2009 SCC Online Bom 2028 17. Notification by Director General of Civil Aviation on “Requirements for operation for 36. Bar Council of India vs AK Balaji, (2018) 5 civil piloted aircraft system’ SCC 379 | 38 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA 37. Tata Cellular vs Union of India, 1994 SCC (6) Department for Promotion of Industry and 58. 651 Internal Trade 38. Entertainment Network (India) Pvt. Ltd vs M/s 59. Make In India Super Cassette Industries Ltd., (2008) 13 SCC 30 60. Invest India 39. Shiv Singh and Ors. vs State of Himachal 61. Start-Up India scheme Pradesh, Civil Appeal No. 4414 of 2018 Master Direction on Direct Investment by 62. 40. State of U.P. vs Manohar & Ors., Civil Appeal Residents in Joint Venture/Wholly Owned No. 1058 of 2000 Subsidiary Abroad 41. RBI/2017-18/194 Circular No. 30 63. RBI Circular No. 23 dated August 14, 2013 42. Hindustan Petroleum Corpn. Ltd. and Ors. vs 64. RBI Circular No. 1 dated July 3, 2014 Super Highway Services and Ors. 2010 65. Mandatory Testing and Certification of Telecom 43. The Damodar Valley Corporation Act, 1948 Equipment 44. The National Highways Act, 1956 Ministry of Electronics and Information 66. Technology Compulsory Registration The Coal Bearing Areas Acquisition and 45. Requirement Development Act, 1957 67. RBI circular dated April 6, 2018 The Petroleum and Minerals Pipelines 46. (Acquisition of Right of User of Land) Act, 68. Drone Rules, 2021 1962 69. RBI Draft Enabling Framework for Regulatory 47. The Metro Railways (Construction of Works) Sandbox Act, 1978 70. RBI Notification on Storage of Payment System 48. The Railways Act, 1989 Data dated 6th April 2018 49. RBI/2017-18/194 Circular No. 30 71. IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 50. Notification No. FEMA.368/2016-RB 72. Guidelines for Government Departments on RBI relaxes FDI regulations by permitting 51. Contractual Terms Related to Cloud Services optionality clause 73. India’s Public Records Act 52. FDI in India - Issue/Transfer of Shares or Convertible Debentures - Revised pricing The Information Technology (Reasonable 74. guidelines security practices and procedures and sensitive personal data or information) Rules, 2011 North East Industrial Development Scheme 53. (NEIDS 2017) 75. Companies (Accounts) Rules, 2014 54. Special Economic Zones 76. FDI Report for the period of April, 2000 to June, 2021 55. Income Tax Department – Rate of tax 77. Maharashtra Industrial Policy 2019 56. Modified Special Incentive Package Scheme (M-SIPS) 78. Maharashtra Industry, Trade & Facilitation Cell (“MAITRI”) 57. Biotechnology Policy of Gujarat 79. Maharashtra State’s SEZ policy 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA | 39 Secondary Sources 96. Working group report on “Cloud Computing Option for Small Size Urban Cooperative Website of Foreign Investment Facilitation 80. Banks”. Portal 97. Website of “Doing business in Maharashtra”. 81. Website of Make in India 98. Website of Maharashtra Industry, Trade and 82. Website of Invest India Investment Facilitation Cell (“MAITRI”) 83. Website of Reserve Bank of India 99. Biotechnology Policy of Gujarat (2016-21) 84. Website of Start Up India 100. Guidelines for Operation of the Modified 85. Handbook on Visas by Ministry of Home Special Incentive Package Scheme For Affairs. Electronics System Design and manufacturing Sector. 86. Website of Bureau of Indian Standards. Security Manual for Licensed Defence 101. 87. World Bank Report on ‘Doing Business 2019’ Industries. 88. Website of Central Board of Direct Taxation 102. DPIIT webpage 89. Advocacy booklet of Competition Commission Website of Industrial Promotion 103. and of India on lesser penalty. Investment Corporation of Odisha 90. Notification by the Competition Commission of 104. Industrial Extension Bureau (iNDEXTb) India on Target Exemption. 105. Bureau of Investment Promotion webpage 91. Notification by the Competition Commission of India regarding exemption from notifying a Andhra Pradesh Economic Development 106. combination within 30 days Board webpage 92. KPMG report titled “India Soars higher”. Punjab Bureau of Investment Promotion 107. webpage 93. EY report titled “Doing Business in India 2018- 19” 108. Maharashtra Industry, Trade and Investment Facilitation Cell webpage 94. Website of Indian Government for GST. 109. Guidelines for Government Departments on 95. Website of India Budget. Contractual Terms Related to Cloud Services | 40 2022 INVESTMENT POLICY AND REGULATORY REVIEW – INDIA This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of December 31, 2021, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.