Opinion: How FDI restrictions are clamping down on digital news media

On August 26, 2021, Yahoo, an American online services company, closed its content publishing operations in India. According to the Yahoo website's FAQ section, the business has chosen to stop publishing any material in India as a consequence of revised Foreign Direct Investment (FDI) regulations that limit to 26% foreign ownership of media firms that operate and produce digital content in India in the ‘news and current affairs' space.' 

 

The Department of the Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry regularly releases legal updates and announcements governing FDI via policy circulars, press notes or releases, in the Indian market along with the Foreign Exchange Management Act, 1999 (FEMA) and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules). The NDI Rules impose sectoral limits and entry routes for FDI in an Indian entity.

 

Before 2019, there was flexibility in circulation of information online by digital media platforms, as there was no specified FDI sectoral cap. The FDI sectoral thresholds were applicable to only upload and stream activities of news and current affairs.   

 

However, on 18 September 2019, the DPIIT had released Press Note No. 4 (the 2019 Press Note), capping FDI in uploading and streaming of news and current affairs through digital media to 26%, subject to approvals by the government. It is noteworthy that FDI in print media has been limited to 26% since 2002, and since then, the limit for the same has not been increased by the Central Government.  

 

On 5 December 2019, the NDI Rules notified the changes brought about by the 2019 Press Note, creating further confusion since it failed to clearly define what it meant by digital media. Additionally, no time-period was provided for digital media entities to allow adherence to the new FDI norms.

 

On 16 October 2020, the DPIIT issued a clarification circular (the 2020 Circular) to dispel confusion surrounding the new FDI rules for the digital media sector by specifying the entities that would fall under the scope of digital media.

 

The 2020 circular very widely defined the type of entities that would fall under the ambit of digital media, as digital media entities that stream/upload news and current affairs on websites, apps and other platforms; news agencies which collect, collate, write, curate and distribute/transmit news to digital media entities and/or news aggregators, either directly or indirectly; and news aggregator entities which use software or web applications to aggregate news content from various sources like news websites, blogs, podcasts, video blogs, user-submitted links in one location.  

 

The 2020 circular was issued to shed light on the existing uncertainties; however, it brought its own host of problems – the key one being compliance within one year from the date of the circular, i.e. 15 October 2021, for all entities falling within the scope of the 2019 Press Note, with the responsibility for compliance resting with the investee entities.

 

The FDI Policy allows up to 49% FDI with prior approval of the Government in news channels. However, the scope of the applicability of the 2019 Press Note is broad and extends to cover all news aggregators as well as news agencies that supply information to digital media firms and companies which upload news and current affairs on their websites, apps and other online platforms. Hence, it is safe to say that the news channels that are also uploading the same ‘news and current affairs’ content over digital platforms will be required to restructure within the one year time period and bring their foreign holding to 26%.

 

There are additional conditions specifying that a majority of the board of directors of the investee company, including the CEO should be Indian citizens; and the requirement of prior security clearance for any foreign personnel who might associate with the investee company through appointment, contractual-basis or consultancy, for more than sixty days. 

 

It is not surprising that some platforms, such as Huffpost India, have exited the Indian market altogether, and others have decided to find buyers (for example, VCCircle, which was sold to HT Media). A possible ramification is that some platforms may also decide to pivot away from 'digital news' to entertainment content only, pursuant to this notification. For publications in India which are sustained by foreign funding, they would be required to conform to the 26% FDI levels, and take approval from the I&B Ministry. This would mean that they would need to pursue alternate funding models and ownership.  

 

While the new regulatory regime is proving to be challenging to implement and is responsible for companies like Yahoo and Huffpost relinquishing their India operations, various other digital media platforms are also facing the brunt due to the cap on funding through FDI. The problems faced by these platforms pursuant to the policy change are restructuring of capital structures and operations, and finding alternative funding. This is becoming more challenging due to the effect of the Covid pandemic, and it will be interesting to see how digital media houses cope. 

 

(The author is partner at L&L Partners. Associates Anirudh Singh, Tanushri Agarwal and Srijan Srivastava have also contributed to this article.)