Government's Decision to Cap FDI in ‘Digital Media’ Raises Questions

Official approval will be required on a case-by-case basis for each FDI project, which means the Modi government can cherry-pick which to approve.

New Delhi: The government on Friday announced that it would “permit” up to 26% foreign direct investment (FDI) under the “government route” for digital media companies that upload or stream news and current affairs.

This is a departure from existing policy, as until now only Indian print media and news broadcast television companies have had FDI caps – of 26% and 49% respectively. There have been no restrictions on foreign investors or entities running digital media ventures aimed at Indian consumers.

The existing FDI policy, in fact, permitted foreign investment in digital media up to 100%. Section 5.2 (a) of the DIPP guidelines on foreign investment listed sectors in which FDI was limited, and notes:

“In sectors/activities not listed below, FDI is permitted up to100% on the automatic route, subject to applicable laws/regulations; security and other conditionalities.”

No official circular or gazette notification containing the exact details of the new policy has been made public yet. A Press Information Bureau (PIB) release likens the new FDI restrictions for ‘digital media’ to the existing limits on news TV channels:

“The extant FDI policy provides for 49% FDI under approval route in Up-linking of ‘News & Current Affairs’  TV Channels. It has been decided to permit 26% FDI under government route for uploading/streaming of News & Current Affairs through Digital Media, on the lines of print media.”

‘Government route’ would mean official approval is required on a case-by-case basis for each proposed FDI project – which in effect means the Modi government can cherry-pick which proposals to green-light.

Until further clarity is available, the new policy could create large ripples in India’s digital media ecosystem.

Senior executives in the industry, whom The Wire spoke to but who declined to be identified, said the full FDI policy notification would have to clarify a range of issues:

1) Does this affect online intermediaries like Facebook and Google that technically ‘upload’ and ‘stream’ news and current affairs? Or digital news aggregators such as Flipboard, which have more specific relationships with online news publishers?

2) Will this impact foreign news websites, whose content can be accessed through online streams in India?

3) How will existing digital-only media ventures, which already have a foreign shareholding above 26%, be required to comply?

4) Will TV channels that have a significant digital presence be required to spin out their online verticals as a separate company compliant with the 26% FDI limit?

5) Because the PIB release appears to link TV and digital media, is this restricted only to online websites that stream content or also text-based websites that technically ‘upload’ news?

Jehil Thakkar, partner at Deloitte, told The Wire that the government’s move may spur larger media players into carving out their own digital media ventures, but it could also restrict smaller digital-only platforms. 

“It depends where you sit. If you are a newspaper or broadcaster with a digital media operation, you could view this positively. Because it helps you to carve out this business and seek FDI for it,” Thakkar said.

“If you are an existing digital media-only entity, then it obviously [is not positive]. If you haven’t raised your capital, it restricts it to only 26% [FDI].”

Several ‘digital media’ players in India – companies that primarily upload or stream content about news and current affairs – have foreign shareholding or have picked up substantial foreign investment. 

This includes financial news publisher VC Circle (acquired by Rupert Murdoch’s NewsCorp in 2015), general news website Huffington Post (which used to operate in India through a partnership with the Times Group but now does so independently with backing from its American parent) and online news aggregator DailyHunt (which has raised investment from foreign sources ).

Thakkar notes that the question of how existing players will have to comply is still open for debate and will have to be clarified.

“If you already have a foreign shareholder, with more than 26%, then it raises the question of whether there will be grandfathering or whether you have to divest or to restructure in some ways. That question seems open at this point,” he said.

In remarks to Mint, Eros Now group chief marketing officer Manav Sethi called the new policy “bad news”.

“Earlier there was no FDI restriction in digital media, so the current imposition of 26% is restrictive, and so bad news for the sector,” Sethi said

Other industry experts noted that it unnecessarily conflated digital media with TV channels.

“This is not permission, it is a restriction. Digital media did not have limits earlier. They’re equating digital media with TV, putting a limit equivalent of that of print. How does that make sense?” asked Nikhil Pahwa, founder of tech news website Medianama.

Note: The Wire is published by the Foundation for Independent Journalism, a not-for-profit Indian company registered under Section 8 of the Company Act. It does not have any foreign investor or shareholder but competes with digital media publications which do.