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The Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry, Government of India (DPIIT), through Press Note 4 of 2019 introduced foreign direct investment (FDI) policy for ventures engaged in news and digital media sector. As per the aforementioned Note, such ventures engaged in streaming or uploading of news or current affairs through digital media platforms are now permitted to receive up to 26% FDI under approval route. Due to some inadequacies and lack of clarity arising from the Press Note, the government issued clarification dated 16.10.2020, elucidating several issues perplexing the entities engaged in digital media sector. The cumulative effect on the FDI policy for digital media sector is discussed hereinafter.
First, the FDI policy applies to companies engaged in digital media space, registered or located in India, including digital media entities streaming/uploading news and current affairs on websites, apps or other platforms; news agency which gathers, writes and distributes/transmits news, directly or indirectly, to digital media entities and/or news aggregators; and news aggregator, being an entity which, using software of web application, aggregates news content from various sources, such as news websites, blogs, podcasts, video blogs, user submitted links, etc in one location. All entities engaged in aforementioned categories or sectors shall comply with the FDI policy.
Second, the Note provides that the companies falling under the ambit of this policy shall comply and align their shareholding with the 26% mandated FDI level in the policy within one (1) year from date of issue of clarification on Press Note 4, along with approval of the government. This applies to companies covered under this policy whose shareholding comprises of foreign shareholders in excess of 26%. Such companies need to comply with the policy latest by 16.10.2021 and obtain government approval. However, if the government rejects the approval, the investee company may be forced to return the investment raised from foreign investors. This may pose major problems considering the COVID-19 crisis and financial distress created by it. If entities are forced to return investment, many of them may not survive, risking liquidation.
Third, the policy entails several restrictions and conditions on the companies engaged in digital media sector having received, or expected to receive FDI. These restrictions create embargoes on human resources of an entity, compliance of which shall be the responsibility of the investee entity. These include:
Board of Directors: The majority of Directors on the Board of Directors shall be Indian citizens;
CEO: The Chief Executive Officer of the investee company shall be an Indian citizen; and
Security clearance: The entity shall be required to obtain security clearance of all foreign personnel likely to be deployed for more than sixty (60) days in a year by way of appointment, contract or consultancy or in any other capacity for functioning of the entity prior to their deployment. In the event of security clearance of any of the foreign personnel being denied or withdrawn by the government for any reasons whatsoever, the investee entity will ensure that the concerned person resigns or his/her services are terminated forthwith after receiving such directives from the government.
The FDI policy, cumulatively provided under the Press Note 4 along with the Clarification dated 16.10.2020, proffers that it shall include news aggregators along with entities supplying information to digital media platforms which upload or stream news and current affairs on their respective platforms. The ambit of this policy is therefore, quite wide. The plausible rationale behind the policy is to limit international interference or risk of monitoring for national security considerations in the light of recent developments concerning Chinese influence on digital media, fake news or news motivated by political agendas. The requirement of having Indian Directors on Board of Directors along with an Indian CEO and limited involvement of foreign personnel fortifies the national security considerations of the government. Cumulatively, this policy seems to be perfectly in line with the Government of India’s strong stance against involvement of foreign news agencies in India. It's compliance however, may be onerous for many.