Japan and India have a long cultural relationship, which dates back to 752 AD. What started as a cultural exchange, has now come to a point where more than 7% of all Foreign Direct Investment (FDI) that has come into India in the last 20 years is attributable to Japan. While steel was the predominant area of focus of investment till recently, the information technology, the information technology enabled services (ITeS) sector has witnessed the highest deal value between 2015 and 2020.
In 2018, the two countries signed the Japan – India Start-up Initiative, with a plan to launch a common start-up hub to act as an interface between Japanese and Indian companies, under the aegis of India-Japan Digital Partnership.
More importantly, there are multiple opportunities of investment in the start-up and other strategic sectors such as data centers, artificial intelligence, education, commercial space, and healthcare, especially in the areas of telemedicine and digital health solutions.
Some recent developments in the technology space include (a) notification of the Telemedicine Practice Guidelines; (b) announcement of draft policies for satellite communication and remote sensing and technology transfer; (c) discussions around a data center policy; and (d) release of the national strategy notes for artificial intelligence (AI) and blockchain. There has been a lot of policy and investment in related development in the media sector including (a) delineation of the content and technology aspects of OTT platforms; (b) upto 100% investments in the DTH sector; (c) guidelines for regulation of fantasy gaming at the national level; (d) restrictions on news and news aggregator platforms.
With the phenomenal growth of the digital areas of entertainment, substantial investments are being channeled into the VFS, production, gaming, and e-sports. The emphasis on delivery of high-quality audio and video over telecom networks has led to the need for upgrading telecom infrastructure and the impending auctions of 5G spectrum.
The Government has been supporting considerable investment and has facilitated developments in the healthcare, agriculture, space research, digital space, and similar sectors. In terms of adoption of revolutionary technology, the Government in the past term has brought in the prominent sectors of AI, machine learning and similar avenues under some legal supervision, by a proposal to introduce all of this in social transformation, inclusion, and empowerment programs, as well as healthcare, agriculture, education, and smart mobility. Recently, the Government hosted a mega summit in October 2020, to exchange ideas related to implementation of AI in the defined areas.
The Information Technology enabled Services sector has also witnessed tremendous growth in terms of the regulatory framework which is undergoing revamp to keep up with the pace of technological advancements. There is also increased participation of the private sector in making submissions with respect to the proposed regulatory framework, and in them demonstrating the pain points of the sector, which require urgent government intervention, and support.
- In 2020, telehealth was included within the regulatory framework, and government policies aimed at homogenizing the ecosystem, building in interoperability measures were also brought to the fore for discussion with the stakeholders. The predictions for this digital transition are promising and are also inviting foreign investment from across the globe.
- There are no restrictions on the ITeS sector per se in terms of FDI, and the restrictions apply only whenever there is an overlap with any other restricted sector. For instance, in the event where there is an overlap with implementation of technology platform with respect to the digital commerce space, FDI is not permissible in inventory model. However, to increase the participation of foreign participants, and to welcome technological advancements, the Government has hiked the limit of FDI in e-commerce marketplace model to upto 100%, under the automatic route.
Restrictions pertaining to technology reliant ecosystems is mostly from the perspective of ensuring the privileges of the consumers, and in safeguarding their interests. There are no express limitations with respect to the investment opportunities presented in the sector, which is demonstrated by the ever-flourishing ITeS/ BPM sectors. With the increase in the dependence on internet and other telecom services, the private equity investment in the business of data centers have also increased. Noted household names like Nippon Telegraph and Telephone, in January 2020, announced its plans to invest a significant part of its USD 7 billion global commitments for data centers business in India over the next four years.
India has a captive audience across all demographics, and has various avenues such as television, films, out-of-home, radio, animation, and visual effect (VFX), music, gaming, digital advertising, and print. This sector is a sunrise sector of the economy and is making giant strides in creating opportunities across revenue streams, employment, and other ancillary entertainment industry verticals.
There are several reports which indicate that the Indian media sector is growing at a rate faster than the global average rate, and this is apparent from the content which is being made available on the digital/ over-the-top (OTT) platform/s. Owing to a spur in access to cheap smart devices, and fast internet over the past couple of years, there is a tremendous growth in the consumption of digital content, digital gaming services, music streaming services, and the likes.
- The Government has taken several initiatives in digitizing the cable distribution sector to attract greater institutional funding, including bringing in reforms in the regulatory sphere. Additionally, the sector has several self-regulatory organizations which foster the growth in the sector, while ensuring the sector is not unregulated, and ensuring consumers’ interests and complaints are suitably addressed.
- The sector has also witnessed a rise from 74% to 100% allowance in terms of FDI in the DTh satellite service and sector.
- In 2001, the Government of India granted “Industry” status to the Indian Film Industry; institutional funding in the sector has increased ever since. For smoother transactions, even the financial regulator, the Reserve Bank of India, formulated guidelines for banks funding the film industry.
- All these initiatives also allowed multiplexes to flourish, and also allowed for resurgence of regional cinema (which is also being supported by OTT platforms now), growth of the VFX industry, and also the pay-per-view market.
- NITI AAYOG, the premier Indian thinktank of the Government of India, recently announced the draft guidelines for regulation of the digital sports platform, at the national level. Once enacted as law, this will change the existing disparities in compliance requirements, mandated at a state level.
India is the second largest telecommunications market in the world, in terms of its subscriber base. It has been growing in strength for the past decade, across all the service offerings typical to the sector. The Government has enabled market access to telecom equipment, the regulatory framework, and has also facilitated the deregulation of FDI in the sector.
- FDI Cap in the Telecommunications Sector has been increased to 100% from the erstwhile 74% cap; and, out of the 100%, investments upto 49% is allowed through the automatic route and the rest is to be done though the Foreign Investment Facilitation Portal (FIFP).
- FDI in telecom sector is subject to observance of licensing and security conditions by licensee as well as investors as notified by the Department of Telecommunications (DoT) from time to time, except “Other Service Providers”, which are allowed 100% FDI on the automatic route.
- FDI of up to 100% is permitted for infrastructure providers offering dark fiber, electronic mail and voice mail.
- On November 04, 2020, the Cabinet approved signing of the Memorandum of Understanding between India and United Kingdom on cooperation in the field of Telecommunication/ICTs.
- The Government has also been revamping the space communications sector, by bringing in empowering legislations to ensure that the telegraph services made available to the consumers elsewhere in the world, are also available to the Indian consumers. The Indian consumers can now avail in-flight entertainment and connectivity services (wireless voice or data or both type of telegraph messages) on ships within Indian territorial waters and on aircraft within or above India or Indian territorial waters.
- The relevant authority has also rolled out draft policies to govern the space communications, and the remote sensing segments.
These sectors are not just boosting the economy, they have also contributed towards several regulatory changes which recognizes and welcomes private participation, and also, values the self-regulatory models, which have allowed the sectors to grow. Also, the changes made by the Government in inviting foreign participation, by the constant updation of the FDI sectoral caps and approval routes, have allowed for foreign participation to rise and assist in culmination of the domestic market as a global leader.
Author: Mr. Abhishek Malhotra, Managing Partner, TMT Law Practice
Abhishek Malhotra, Founding Partner, TMT Law Practice (having offices in Delhi, Mumbai and Bangalore), has two decades of experience in the primary areas of expertise, including intellectual property, commercial dispute resolution, technology, media and telecommunications. He has advised clients in minimizing legal risks and devising strategies for safeguarding against civil and criminal liability. Mr Malhotra’s expertise in the media sector has resulted in a close alliance with production houses, broadcasters, and artists across the industry, and he is recognized as the “go to” professional for issues across broadcasting, music and sports.
He has contributed to the policy realm by providing inputs to the Governments and think tanks on copyright issues, sports and fantasy gaming, Digital Health; and as a Principal Advisor to the Broadband India Forum on issues relating, inter alia, to satellite communication and data protection.
Mr Malhotra is a member of the Bar Council of Delhi and the State Bar of California, and also holds memberships of national and international professional associations.
Mr Malhotra is a guest lecturer at Indian Institute of Information Technology, the National Law School of India University, NUJS, Kolkata. He regularly speaks at conferences and forums of repute, including the National Judicial Academy in Bhopal, US India Business Council, Indo-American Chambers of Commerce, World Intellectual Property Office, The Observer Research Foundation, MediaNama, FICCI and CII.
He has contributed to books and papers on intellectual property, commercial space and policy, sports and gaming, music business, Telehealth, Data Protection, Cybersecurity, Artificial Intelligence, Intermediary Liability and E-Commerce.