The Government has addressed the context of the restrictions on FDI in regards to enterprises that upload or update news and current events through digital media. Within its scope, the restriction encompasses enterprises which generate news and information as well as those which provide access to news content produced by third parties.
The Government issued directives and amended the FDI Policy 2017 on “FDI in digital media through Press Note 4 of 2019 (Press Note 4)” issued by the “Department for the Promotion of Industry and Internal Trade”, which was subsequently officially informed via the “Foreign Exchange Management (Non-Debt Instrument) Regulations, 2019”. The “NDI Rules” will allow FDI as per this notification up to 26 percent with approval of the government to be allowed in a corporation engaged in the upload/streaming of news and actual matters via the electronic platform. Previously digital media was not governed by FDI, and the limit on news-related FDI was restricted to 26% and 49% for broadcast media and content services respectively. The government’s restraint on digital media appears to be based on restricting the influence of foreign nationals on all news media and on governing digital media in a very similar way as broadcast media.
Nevertheless some dimensions of “Press Note 4” and the “NDI Rules” were vague, and the nature of the constraints created confusion among players in the industry. What defined “news and current affairs” is still unclear, and whether it was confined to particular material such as governance or the economy, or if it would include any dissemination of information that might result in limited use of a wide variety of material.
Although the Amendment came into force the previous year, there were many concerns concerning its incorporation. Provided that there was no clear entry for investment in digital media in the FDI Rules, it was assumed to be beyond the 100 percent automatic route even before the time of the Amendment.
The Amendment extends to all Indian entities, licenced or established in India, in which the entity is: (a) Websites/mobile apps/platforms broadcasting or uploading headlines and current events, b) A news outlet that, explicitly or implicitly, collects, writes, distributes and sends the news to online media entities or news aggregators; and (c) A news aggregator using a website or smartphone application to collect news and related content, such as videos, news articles, updates, user connections, etc., in one place.
The Clarification specifies that in addition, the entities shall comply with the following conditions: (a) Most of the board’s executives, as well as the CEO, must be an Indian citizen and (b) for every foreign personnel employed by the entity for longer than 60 days security clearance is required and such a security clearance shall be governed by the appointment and deployment of such people.
Within one year of the clarification date i.e. “before 16 October 2021”, the entities covered have to align their FDI to the 26 percent limit and obtain approval of the government. There were no specifications on the process of obtaining approval of the government for FDI.
Shortcomings in the Clarification
A news aggregator is one group of stakeholders who would be profoundly dissatisfied by the Clarifications. In contrast to ‘news creation’, they made multiple representations regarding exemption from the applicability of “Press Note 4” because of their tech-driven algorithmic business model. This clarification has, on the one side, re-enunciated the underlying principle that foreign investment in digital media is governed, however, on the other side, greatly widened the realm of the initial amendment to the FDI Regulations aimed at regulating the digital media.
The Clarifications do not make any distinction between an organization “registered” in India and an organization “located” in India and it can be interpreted very broadly to indicate an organization operating in India even if it is not registered in India. Furthermore, it does not differentiate between organizations that have new media as their primary activity and organizations that do not. A further explanation may be needed in this respect.
The clarification would not differentiate between digital media outlets that are primarily involved in ‘news’ in contrast to entities, like “OTT (Over The Top)” players that deal with ‘cultural’ and ‘digital entertainment’ in addition to ‘news’ content. It will have to be assessed if certain players, including OTT players, will be affected by news streaming or current events channels. In the broadcasting sector, non-news and current affairs TV outlets are forbidden from transmitting news content.
There is no clarification as to why the term news aggregators are exclusive to organisations that disseminate news as a primary activity and so it appears that all organizations that publish or disseminate news will be included, even though their news aggregation activity is peripheral. Furthermore, the Clarification does not resolve the complexity of the phrase ‘news and current events’ and this can have a particular effect on social media platforms that usually host a range of content.
Clarification gives much-needed explanations to some of the aspects of “Press Note 4”, and it is evident that the Government aims to control a wide variety of institutions through this restriction. In fact, it is likely that all companies engaging in news aggregation services, including as one of the services on their website, may be protected by this restriction. As a result of the clarification, these companies would be either required to reduce the present FDI to 26 percent and seek government approval for current investments for news distribution functions. This will lead to consolidation and development of many Indian organizations that have no FDI investors to their news-related activities. Indian entities owned and operated by Indians but obtained FDI could transfer this company into a subsidiary without triggering the above-mentioned FDI licencing requirements. Other organizations can choose to house their media outlets in foreign subsidiaries or group companies by hosting their applications/websites by those foreign entities.
The Clarifications have outlined the range of digital media. It is important to note that there has recently been a paradigm change, with a massive increase in dependency on online news/digital media outlets, especially among younger millennials. The Amendment and the Clarifications highlighted the need to control digital news and information. It needs to be seen if the need for government permission to invest in digital news media would impede the circulation of false news stories and the enforcement of regulatory oversight by the central government. However, digital media firms will certainly be required to show greater vigilance, provided that the government is supposed to exercise maximum scrutiny before granting investment approval. Digital media firms especially site acting as aggregators, and their stakeholders will need to quickly evaluate the effect on control and market processes and take the appropriate measures to ensure adherence effectively.
About Authors – This article has been authored by Aayush Akar & Aarushi Prabhakar. Both are third-year law student pursuing BA.LLB(Hons) from National Law University Odisha.
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