Sourcing norms are exempted upto three years from the commencement of business, i.e from the opening of a first store or the start of online retail, whichever is earlier, for entities undertaking, single-brand retail trading of products having ‘state of art’ and ‘cutting edge technology’ and where local sourcing is not possible.

Online retail has been permitted to such entities vide amendment notified on December 5, 2019, in addition to brick and mortar stores. This move seems to be just and appropriate as the timeline for exemption of sourcing norms immediately begins as soon as the entity commences to operate commercially in Indian markets, whether by way of a physical store or online retail, as the case may be.

• Insurance Intermediaries have been segregated as a separate class for the purpose of receipt of foreign investments. However, the Insurance Company continues to be a sector in which 49% of foreign investment is allowed under the automatic route. These intermediaries include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, Surveyors and Loss Assessors, and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time. Subject to the FDI linked conditions, as detailed in the Amendment Rules, Foreign investments in such entities are allowed under a 100% automatic route.

• Foreign Investment in Insurance company i.e. upto 49% automatic route will be allowed subject to approval/ verification by the Insurance Regulatory and Development Authority of India.

• The insurance intermediary that has a majority shareholding of foreign investors is required to undertake/ comply with the specified set of parameters with respect to repatriation of dividends, disclosure norms, etc.

Due to the constant increase in foreign investment in the sector of insurance intermediaries in the past few years, MoF has recognized the need to liberalize the quantum of foreign investments in India and at the same time prescribed certain set of additional parameters to safeguard the interest of insurance holders to attain the twin benefit.

• Insurance Company and intermediaries formed part of the same sector with 49% foreign investment under the automatic route.

• No such approval or verification requirement under the automatic route.

• No such parameters were prescribed in the Principal Rules

At present, the FPIs investing in breach of the prescribed limit may divest their holding within 5 trading days from the settlement date. In case of its failure, entire holding by such FPI and its investor group shall be reckoned as foreign direct investment and restricting any further portfolio investment in the concerned company.

The Amendment Rules provide that the divestment of holdings by the FPI and the reclassification of FPI investment as FDI shall be subject to further conditions, if any, specified by Securities and Exchange Board of India (“SEBI”) and the Reserve Bank of India (“RBI”) in this regard.

This is an additional specification where MoF has referred the FPIs and its investor group to refer the conditions prescribed by SEBI or RBI, if any, providing for the disinvestment of the excess investments.