Government Brings Clarity to the FDI Policy

On 14th March, 2022, the government released a Press Note issuing clarification and amendments to certain provisions of the Consolidated FDI Policy of 2020.

One of the significant changes was introduced to the definition of the ‘real estate business’ under the Policy. To bring more clarity in its FDI policy for the realty sector it has been clarified that FDI shall not be permissible for an entity that is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights. Additionally, earning of rent/income on lease of a property, not amounting to transfer, shall not amount to real estate business.

The note stated that “Real estate business means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential /commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships…”

The Press Note has also issued changes to the rules governing the acquisition of shares under the Scheme of merger/demerger/amalgamation.

Where a scheme of compromise or arrangement or merger or amalgamation of two or more Indian companies, or a reconstruction by way of demerger or otherwise of an Indian company …the transferee company or the new company, as the case may be, may issue capital instruments to the existing shareholders of the transferor company resident outside India.” However, the same shall be subjected to certain conditions.

The Press Note has also issued clarifications and changes to the definitions of ‘Capital’, ‘Convertible note’, ‘Foreign Investment’ and ‘Indian Company’ under the existing FDI Policy.