COVID 19Hot Off The PressNews

The proposals presented today by the Finance Minister are designed to stimulate spending in a fiscally prudent manner as some of the proposals are for advancing or front-loading of expenditure with offsetting changes later while others are directly linked to increase in GDP. The present announcement by Sitharaman highlights the active intervention by the Government of India to combat the economic slowdown created by COVID-19.

The details are as follows: –


  1. Leave Travel Concession (LTC) Cash Voucher Scheme

While announcing the scheme, the Finance Minister said, “The biggest incentive for employees to avail the LTC Cash Voucher Scheme is that in a four-year block ending in 2021, the LTC not availed will lapse, instead, this will encourage employees to avail of this facility to buy goods which can help their families.”

Central Government employees get LTC in a block of 4 years in which air or rail fare, as per pay scale/entitlement, is reimbursed and in addition, Leave encashment of 10 days (pay + DA) is paid. But due to COVID-19, employees are not in a position to avail of LTC in the current block of 2018-21.

Therefore, the Government has decided to give cash payment in lieu of one LTC during 2018-21, in which:

  • Full payment on Leave encashment and
  • Payment of fare in 3 flat-rate slabs depending on class of entitlement
  • Fare payment will be tax-free

An employee, opting for this scheme, will be required to buy goods/services worth 3 times the fare and 1 time the leave encashment before 31st March 2021.

The scheme also requires that money must be spent on goods attracting GST of 12% or more from a GST registered vendor through digital mode. The employee is required to produce GST invoice to avail the benefit.

If Central Government employees opt for it, cost will be around Rs. 5,675 crore. Employees of Public Sector Banks (PSBs) and Public Sector Undertakings (PSUs) will also be allowed this facility and the estimated cost for them will be Rs. 1,900 crore. The tax concession will be allowed for State Government/Private Sector too, for employees who currently are entitled to LTC, subject to following the guidelines of the Central Government scheme. The demand infusion in the economy by Central Government and Central PSE/PSB employees is estimated to be Rs. 19,000 crore approx. The demand infusion by State Government employees will be Rs. 9,000 crore. It is expected that it will generate additional consumer demand of Rs. 28,000 crore.

2. Special Festival Advance Scheme

A Special Festival Advance Scheme for non-gazetted employees, as well as for gazetted employees too, is being revived as a one-time measure to stimulate demand. All Central Government employees can now get an interest-free advance of Rs. 10,000, to be spent by 31st March, 2021 on the choice of festival of the employee. The interest-free advance is recoverable from the employee in maximum 10 installments.

The employees will get a pre-loaded RuPay Card of the advance value. The Government will bear Bank charges of the card. Disbursal of advance through RuPay card ensures a digital mode of payment, resulting in tax revenue and encouraging honest businesses.

The one-time disbursement of Special Festival Advance Scheme (SFAS) is expected to amount to Rs. 4,000 crore; and if the SFAS given by all State Governments, another tranche of Rs. 8,000 crore is expected to be disbursed.


  1. Special Assistance to the States:

While announcing measures related to Capital Expenditure, Smt. Sitharaman said that money spent on infrastructure and asset creation has a multiplier effect on the economy. It not only improves current GDP but also future GDP. The Government wants to give a new thrust to Capital Expenditure of both States and Centre.

Giving a new thrust on Capital Expenditure, Smt. Sitharaman said that money spent on infrastructure and asset creation has a multiplier effect on the economy. It not only improves current GDP but also future GDP. The Government wants to give a new thrust to Capital Expenditure of both States and Centre. Smt. Sitharaman said that the Central Government is issuing a special interest-free 50-year loan to States of Rs. 12,000 crore Capital Expenditure. The Scheme consists of 3 Parts.

Part – 1 of the scheme provides for:

  • Rs. 200 crore each for 8 North East states (Rs. 1,600 crore)
  • Rs. 450 crore each Uttarakhand, Himachal Pradesh (Rs. 900 crore)

Part – 2 of the scheme provides for:

  • Rs. 7,500 crore for remaining states, as per 15th Finance Commission devolution.

The Finance Minister said that both Part 1 and Part 2 of interest-free loans given to States are to be spent by 31st March, 2021 and 50% will be given initially, the remaining 50% will be given upon utilization of first 50%. Unutilised funds will be reallocated by the Central Government.

Under Part – 3 of Rs. 12,000 crore interest-free loans to states, Rs. 2,000 crore will be given to those states which fulfill at least 3 out of 4 reforms spelled out in Aatma Nirbhar Bharat Package (ANBP) vide Department of Expenditure’s Letter F.No. 40(06)/PF-S/17-18 Vol. V dated 17th May 2020. Rs 2,000 crore is over and above other borrowing ceilings.

Following are the features of this Scheme:

  • It can be used for new or ongoing capital projects needing funds and / or settling contractors’/ suppliers’ bills on such projects
  • CAPEX to be spent by 31st March 2021
  • This funding will be over and above all other additional borrowing ceilings given to states
  • Bullet repayment after 50 years, no servicing required for 50 years
  1. Enhanced Budget Provisions:

The Finance Minister said that additional budget of Rs. 25,000 crore, in addition to Rs. 4.13 lakh crore given in Union Budget 2020, is being provided for Capital Expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.

To allow smooth conducting of Government business, allocations will be made in forthcoming Revised Estimate discussions of Ministry of Finance with concerned ministries.

It may be recalled that a package of Rs 1.70 lakh crore under Pradhan Mantri Garib Kalyan Package (PMGKP) was announced on 26th March, 2020 and the Aatma Nirbhar Bharat Package (ANBP), a Special economic and comprehensive package of Rs 20 lakh crore – equivalent to 10% of India’s GDP – was announced on 12th May, 2020 by Hon’ble Prime Minister Shri Narendra Modi. He gave a clarion call for आत्मनिर्भर भारत अभियान or Self-Reliant India Movement and also outlined five pillars of Aatmanirbhar Bharat – Economy, Infrastructure, System, Vibrant Demography and Demand.

Ministry of Finance

[Press Release dt. 12-10-2020]

[Source: PIB]


The Government of India recently made changes to its Foreign Direct Investment Policy (FDI Policy/FDI) given the COVID-19 pandemic and the ongoing market volatility, sell offs etc., and the general economic turndown. Responding to fears that foreign investors rake up on shares of ailing companies with diminished valuations during this period, the changes seek to regulate investments from certain identified countries.

In this article, we explore the regulatory setup of FDI in India, effect of the present changes and compliance requirements that arise due to these changes.

Regulatory Framework of FDI in India

FDI is a policy decision of the Government of India, under the aegis of the Department for Promotion of Industry and International Trade (‘DPIIT’), Ministry of Commerce & Industry.

FDI policies are introduced and modified through Press Notes/Press Releases, as notified by Reserve Bank of India (RBI). Essentially, these are amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (‘the TISPRO Regulations’) or the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. These notifications take effect from the date of issue of Press Notes/Press Releases, unless specified otherwise therein.

In case of any conflict, the relevant Foreign Exchange Management Act, 1999 (“FEMA”) notification will prevail. The procedural instructions are issued by RBI by way of circulars. The regulatory framework, over a period, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

Sector wise Regulations

FDI in India is prohibited for activities which fall under the Prohibited Sector (atomic energy, railway operations, gambling and betting, chit funds, real estate, manufacture of tobacco products etc.). The intention behind such prohibition is to ensure FDI is restricted for sensitive sectors that concern national security, defence etc.

FDI is permitted in certain sectors under Automatic Route up to 100% (for e.g. IT sector). Under this route, no prior permission is required from the Government of India, before investments are brought in.

The other route is Government Approval Route, wherein permission from the DIPP or relevant regulator is required to bring in FDI. Permitted sectoral caps are also provided in the

Policy for any FDI which falls under the category of Approval Route. For instance, in the banking sector, 49% FDI is permitted under Automatic Route and FDI up to 74% is permitted under Government Approval Route.

Changes implemented vide Press Note 3 (2020 Series) dated April 17, 2020

The DPIIT, issued a Press Note (No. 3) on April 17, 2020 (‘PN3’) which alters Para 3.1.1 of the Consolidated FDI Policy, 2017. The extant FDI Policy was reviewed with an intention to curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.

The Consolidated FDI Policy, 2017 (“Con FDI Policy”) earlier restricted Bangladesh and Pakistan from investing in India. Any person from these countries could invest in India only after obtaining prior permission of the Government of India, through the Government Approval Route.

Para 3.1.1 as it stood till Press Note 3 (2020 Series)

A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

Press Note 3, dated 17-4-2020 extends the Government Approval route to all countries that share a land border with India. In effect, five other nations, i.e. Afghanistan, Bhutan, China, Myanmar and Nepal, in addition to Pakistan and Bangladesh, are also subject to restrictions under the FDI Policy, through Government Approval Route. In effect, investment from these seven nations can be made in India only by obtaining prior permission with the Government of India, and is subject to the Sectoral Cap under extant FDI Policy. 

Revised Position: Press Note 3 (2020 Series)

Para 3.1.1: 3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

Beneficial Ownership (‘BO’)

Through PN3, the Government has also introduced the aspect of transfer of BO of any existing or future FDI in an entity in India. It provides that where the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly results in BO, which falls under the restrictions imposed in Para 3.1.1(a) of the FDI Policy (i.e. if the investor belongs to any one of the seven countries), such change in the BO will also require Government approval.

Revised Position: Press Note  3 (2020 Series)

3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of Para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.

Concept of Beneficial Ownership, Beneficial Interest and Significant Beneficial Ownership

BO is not defined under the FDI Policy. The term ‘Beneficial Ownership’ is only defined under Section 2(fa) of the Prevention of Money Laundering Act, 2002 and reads as under:

An individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person.”

Further, Section 89 of the Companies Act, 2013 read with the Companies (Management and administration) Rules, 2014 (2018 amendment) provides for the distinction between legal owners and beneficial owners of shares having Beneficial Interest (“BI”),  to include any direct or indirect right or entitlement in a share through any contract or arrangement or otherwise to the rights attached with the share or receive dividend on its distribution. Any change in BI needs to be reported by the Company to the regulator, Ministry of Corporate Affairs (“MCA”).

Additionally, Section 90 of the Companies Act, 2013 read with the Companies (Significant Beneficial Owners) Rules, 2018, brings out the concept of the Significant Beneficial Ownership (‘SBO’) and states that whenever there is change in SBO, the Companies need to report to the MCA about the SBO. In order to ascertain the SBO, the following points need to be considered to ascertain if there is any reporting requirement or not:

  1. Identify if there are any indirect holding through a body corporate, LLP, Partnership, Trust, HUF;
  2. If individual holding is 10% or more in the Company, the company needs to report to the MCA;
  3. If individual shareholding, voting rights, dividend right exceeds 10%, SBO needs to be reported to MCA.

On examination of the records available on MCA, RBI and the regulatory authority, will have a fair idea about the investments made by the neighbouring country through Automatic Route. Any changes in the SBO or the BI will now require in addition to reporting to MCA, an in-principle approval from the DPIIT or the approval from the relevant authority under the  Government of India.


Indian entities have been significantly benefited by the investments made by or neighbouring countries, especially FDI from China. According to sources[1], Chinese FDI into India is approximately $6.2 billion, there is significant investments in start-ups.

This policy of the Government does not impact the existing investments made in India. There will be closer look at the investments that the country receives from the neighbouring countries due to the volatility in the market as a result of the COVID-19 pandemic.

These amendments will be effective once the requisite amendments are made to Rule 6 of the FEMA (Non-Debt Instruments) Rules, 2019. Any direct or indirect transfer of ownership of any existing FDI in the Indian entity which is more than 10% will have to be reported both to the MCA and to the exchange control regulator, RBI.

The impact on the economy, especially with this pandemic COVID –19, particularly on the start-ups is unknown. It is possible that that there will be closer inspection on the all FDIs. In respect of FDIs from neighbouring nations, since such investments now require prior approval from the Government i.e. Approval Route, and since Government Approval for FDI will requires significant amount of time, it is expected that the Companies expecting such FDI should be prepared for delays in receiving investments which is likely to have implications for future investments by venture capital funds, especially the start-ups that have seen significant investments from Chinese investors. The impact on the country’s GDP in view of this policy decision is very unclear at this stage. 

*Advocate, Shivadass & Shivadass (Law Chambers)


Business NewsNews

Meaning of Economic Survey and its significance:

Economic Survey is succinct of the annual economic development of the economy keeping all the aspects in the account. The Chief Economic Advisor in the Ministry of Finance is responsible for preparing the economic survey. It provides detailed statistical data of the survey. It has details of various sectors and also is a source to implement and modify policy decisions.

Finance Minister, Nirmala Sitharaman tabled the Economic Survey 2019-2020 in the parliament today.

Following are the key heads under which the economic survey has been laid down:

  • Wealth Creation: The Invisible Hand Supported by the Hand of Trust
  • Entrepreneurship and Wealth Creation at the Grassroots
  • Pro-business versus Pro-markets
  • Undermining Markets: When Government Intervention Hurts More Than It Helps
  • Creating Jobs and Growth by Specializing in Network Products
  • Targeting Ease of Doing Business in India
  • Golden jubilee of bank nationalisation: Taking stock
  • Financial Fragility in the NBFC Sector
  • Privatization and Wealth Creation
  • Is India’s GDP Growth Overstated? No!
  • Thalinomics: The Economics of a Plate of Food in India
  • India’s Economic Performance in 2019-20
  • Fiscal Developments
  • External Sector
  • Monetary Management and Financial Intermediation
  • Prices and Inflation
  • Sustainable Development and Climate Change
  • Agriculture and Food Management
  • Industry and Infrastructure
  • Services Sector
  • Social Infrastructure, Employment and Human Development

To read the detailed Highlights of the Economic Survey, Please follow the link given below:

Economic Survey 2019-20

Ministry of Finance

[Press Release dt. 31-01-2020]