India Market Watch: India to Get New National Design Policy and Clarification on Impact of New FDI Norms in Aviation

July 11, 2016 Posted by India Briefing Reading Time: 5 minutes

New National Policy to Promote India as a Global Design Hub

The Department of Industrial Policy and Promotion (DIPP) will be drafting a new national design policy that will replace the current one from 2007. Complementing the Make in India program, the new policy will target the defense and electronics sectors. Financial incentives will be offered to convert new and innovative designs into mass market products.

According to government sources, the ‘India Design Mark’ will be granted to indigenously manufactured products after meeting established criteria as set by the DIPP and National Design Council (NDC). A range of products will be eligible for the design certification, including consumer electronics, computer and communication products, machine tools, construction machinery, lighting systems, white goods, household appliances, capital goods, medical equipment, toys, vehicles, and agricultural machinery, among others.

Subsequently, the government hopes that the India Design Mark will identify a product as being high-quality and export-worthy, improving its brand value in turn. This could then be leveraged in international and local markets as has been the case in Japan. Moreover, the new policy could enable India’s efforts at becoming a global design hub. Towards this, the government is already looking to establish new national design institutes, and promote the India Design Mark competition on a much larger scale.

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Impact of the New FDI Rules in the Aviation Sector

The government has clarified that the new foreign direct investment (FDI) norms will not impose restrictions on the management control of Indian airlines having a majority foreign stake. However, existing airlines like Vistara, AirAsia India, Jet-Etihad, and future carriers working through joint ventures will have to ensure that the substantial ownership and effective control (SOEC) rests with Indian nationals. This means that even if a foreign entity holds a 100 percent stake in an airline, it must ensure that the SOEC is with Indian nationals.

Since previous conditions remain unchanged by the liberalization of FDI rules, a domestic player that has up to 49 percent stake held by a foreign airline has to be registered and have its principal place of business within India. Such an airline must have an Indian chairman and at least two-thirds of its directors must be Indian nationals.

The SOEC clause could pose problems for new entrants into the sector regarding foreign ownership as most of the air service agreements (ASA) signed between countries maintain that the airlines’ SOECs must be vested with the citizens of their respective countries. These ASAs originate from the International Civil Aviation Organization and are considered to be within the bilateral rights of nations, even if they are not binding.

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Ministry of Corporate Affairs Announces New Funding Option for Startups

The Ministry of Corporate Affairs (MCA) announced an easier funding option for startups through the convertible note route. According to the new initiative, if a startup that receives more than US$ 3723 (Rs 25 lakh) by means of a convertible note, it will not be treated as a deposit. The note can either be converted into equity or repaid within a period of five years. Further, if the company follows the prescribed conditions defined by the department of industrial policy and promotion (DIPP), it is entitled to less stringent rules regarding informing the Registrar of Companies (ROC) or creating a deposit repayment reserve in the books of accounts.

This is the second new initiative encouraging startups in India after the removal of the angel tax provision on eligible startups. Also, if an entity is set up between April 1, 2016 and March 31, 2019, with approval of the inter-ministerial board set up by the DIPP, it is eligible to earn a tax holiday. The holiday is available for a period of three years in a block of the initial five years.

The DIPP is also reaching out to top companies requesting them to set up new incubators or scale up existing incubators in collaboration with educational institutions. An online learning module is to be made soon for entrepreneurs.

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