France remains one of India’s most important economic partners. The Statement on Country-Wise FDI Inflows, issued by the Department of Industrial Policy and Promotion (DIPP), lists France as India’s 10th biggest investor in terms of FDI inflow with US$ 1.53 billion (cumulative total from January 2000 to February 2010). This is only one place less in the ranking compared to 2009 – when France was 9th biggest investor in India with a cumulative total of US$ 1.196 billion – despite the long aftershock of the economic and financial crisis that hit Europe’s export-oriented industries hard. In percentages, France contributed 1.1% to the total Indian FDI inflows in 2009, with US$ 296.92 million being invested in India.

These figures are very likely to rise in 2010. Already in January and February 2010, the French invested US$ 52.96 million in India, compared to only US$ 14.78 million in the first two months of 2009. One can be confident that not the better economic prospects in Europe will contribute to the continued French interest in India and bring more FDI into the country.

Furthermore, India has taken recent steps to improve the existing FDI policy by presenting a Consolidated Pressnote which brings out the entire FDI policy in one comprehensive document. The DIPP released Circular 1 of 2010 (Consolidated FDI Policy), subsuming 178 press notes, which were in force and effective until the end of March 2010. Effective from April 1, 2010, it has been decided that henceforth a consolidated circular would be issued every six months to update the FDI policy. This circular has been issued with a sunset clause of 6 months. This consolidated circular will, therefore, be superseded by a circular to be issued on September 30, 2010.

Some of the Salient Features of the new user friendly FDI policy:

The Circular has six chapters dealing with the issues related to (i) intent and objective (ii) definitions (iii) origin, type, eligibility, conditions and issue/transfer of investment (iv) calculation, entry route, caps, entry conditions of investment (v) policy on route and sectoral caps and (vi) remittance, reporting and violations related to FDI.

• Foreign Institutional Investors (Flls) are permitted to invest in the capital of an Indian company either under the FDI Scheme or under the Portfolio Investment Scheme. It has been specifically provided that 10% individual limit and 24% aggregate limit for Fll investment would be applicable even if the Flls investment is made under the FDI scheme.
• Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible debentures (FCD’s) and compulsorily and mandatorily convertible preference shares (CCPS) to non residents subject to pricing guidelines/valuation norms prescribed under FEMA. It has been specifically clarified that for FCD’s / CCPS, pricing of the instruments would need to be decided / determined upfront at the time of issue of these instruments.
• Also, issue of warrants, partly paid shares, etc. are not considered as capital and hence cannot be issued to a person resident outside India, without obtaining prior approval of Foreign Investment Promotion Board (FIPB).
•  Issue of non‐convertible, optionally convertible or partially convertible preference shares/ debentures would need to comply the External Commercial Borrowing (ECB) Guidelines. Since these instruments are denominated in Rupees, the rupee interest rate will be based on the swap equivalent of London Interbank offered Rate (LIBOR) plus the spread permissible for ECBs of corresponding maturity.
• It has been clarified that prior approval of FIPB followed by permission from RBI would be required for transfer of equity shares/FCD’s/CCPS, from residents to non residents by way of sale or otherwise, if the Indian company is engaged in any sectors falling under the Government route.
• Prior permission from RBI would also be required if the transfer of equity shares/FCD’s/CCPS, from residents to non residents, by way of sale is at a price which is not in accordance with the pricing guidelines specified by RBI; and also for transfer where the non‐resident acquirer proposes deferment of payment of the amount of consideration.
• Prior permission from RBI would also be required if the transfer of equity shares/FCD’s/ CCPS from residents to non residents of an Indian company engaged in financial services sector.
• FCCBs and DRs will be treated as FDI (but not included in definition of “capital”).
• FDI in Trusts is not permitted, with the exception of Venture Capital Funds registered with SEBI.

Sectoral caps and conditions:

Cash and Carry Wholesale Trading: Government has defined the term ‘Cash and Carry Wholesale Trading’ Wholesale trading would include resale, processing and thereafter sale, bulk imports with ex‐port/ex-bonded warehouse business sales and B2B e‐Commerce. Conditions have been prescribed for undertaking wholesale cash and carry trading activities like (i) Requisite licenses/ registration/permits, as prescribed by the State Government should be obtained.

Wholesale Trading (WT) of goods would be permitted among companies of the same group. However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture and the wholesale made to the group companies should be for their internal use only.

Addition to Sectors with FDI Cap