Money & Banking

What does the 26% FDI cap mean for digital news media?

Nandana James Mumbai | Updated on November 19, 2020 Published on November 19, 2020

The imposition of a 26 per cent limit on foreign direct investment in the digital media sector can hamper its growth potential, be a disincentive to incorporating companies in India, and lead to an unfair advantage for global players, according to digital news companies and experts.

The Ministry of Information and Broadcasting, on November 16, issued a public notice asking “entities involved in uploading/streaming of news and current affairs through digital media, to comply with the decision of Union Government on September 18, 2019, which had permitted 26 per cent FDI under government-approval route”.

‘Licence Raj mentality’

“I think the current move (FDI limit) comes from a very Licence Raj mentality in a way, where the government wants to control the sector – and I am presuming good faith here – in a way where it can insulate it from foreign interest. But it poses a larger question – why will companies not just structure and register themselves abroad, register the website there, and pay people through consultancy contracts in India?” Apar Gupta, Executive Director at the Internet Freedom Foundation, a digital rights group, told BusinessLine. To be sure, the FDI limit is only applicable to Indian entities registered or located in India.

This could be a disincentive to growing the sector locally, while also having a negative impact in terms of collection of taxes and business activity within the country, said Gupta.

In a statement released by DIGIPUB News India Foundation – a consortium of digital news organisations – on November 17 regarding the government’s proposals on bringing digital news publishers under the ambit of the I&B ministry and the FDI cap, it said: “The government’s policy interventions and prescriptions could seriously limit that potential (of the digital news industry) rather than provide a conducive growth environment to Indian companies and the Indian digital sector. In addition, they put Indian companies at a serious disadvantage to foreign news brands, and disincentivise entrepreneurs from incorporating companies in India that could be a part of the India growth story.” DIGIPUB’s founder members include Alt News, Newslaundry, Scroll, News Minute, and The Wire.

Indirect threat

Factors such as print and broadcast media already complying with the FDI caps, as well as concerns that security could be compromised if media outlets are controlled by entities from certain countries that are opposed to India, could be the possible reasons for this move, said Rameesh Kailasam, CEO, IndiaTech.org, a think-tank for Indian start-ups.

Prior to September 2019, FDI caps had existed only for the print media at 26 per cent and news broadcast television companies at 49 per cent, with the digital media facing no such cap.

But the implications can be different for digital news platforms, say experts. Think of it more like a start-up kind of a scene where you will need some support initially, said Prasanth Sugathan, legal director of the digital rights organisation, SFLC.in. With the digital media being a “fledgling” sector, restricting FDI – consequently restricting access to funds – can hamper its growth, he said.

Bringing in ‘Licence Raj kind of restrictions’ are not only suited to the time and place we are in right now, but also to the underlying technicalities of the media ecosystem, and how investment happens today, Gupta pointed out.

In October, the government had clarified that this FDI norm will also apply to news aggregators thatuse software and aggregate content from various sources in one location. International news aggregation platforms are today multi-billion-dollar assets, and the move to restrict FDI for news aggregators can come in the way of similar Indian start-ups coming up in the space due to restrictions on capital sourcing, said Kailasam. “By restricting 26 per cent FDI to news aggregators from India, we are creating an uneven level playing field where it will advantage foreign news aggregators.”

The government needs to undertake a detailed consultation with stakeholders regarding this move, the statement from DIGIPUB urged. “Hastily issued policies and rules could prove disastrous to India’s right to stay informed,” it concluded.

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Published on November 19, 2020
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