News Organisations In A Tizzy As Govt Reiterates 26% FDI Cap On Digital Media

The Indian government, on Friday (October 16), clarified its position on Foreign Direct Investment (FDI) in digital news entities. 

The Department for Promotion of Industry and Internal Trade (DPIIT) noted that digital news media entities would have to comply with the 26% cap on FDI. Further, FDI in digital news outlets would require government approval. 

In its clarification note released on Friday, the government said that the FDI cap would apply to digital media entities streaming or uploading news, agencies which gather, transmit and distribute news, and news aggregators, which collect news content from various sources and post them in one location. 

Digital media organisations which fall under any of the three categories mentioned above would have to comply with the 26% FDI cap within a year of the date of issuance of the clarification. 

Further, digital news media entities that fall under the purview of the FDI rules would have to ensure that the majority of directors on the boards of their companies are Indian citizens. The CEO of such a company would have to be an Indian citizen. Such companies would also have to gain security clearances before deploying any foreign citizen, who’s likely to be employed in a permanent, contract or consultancy role with the organisation for more than 60 days. 

Last year, the Union Cabinet had imposed the 26% FDI cap on digital news media, in line with a similar cap for print media and 49% FDI cap for television news channels. The government had pitched the move as “liberalisation of the FDI regime for digital news outlets” by allowing them to raise up to 26% of their requisite funds through FDI. However, many had slammed the move, calling it restrictive, as the extant policy until then hadn’t placed any cap on FDI for digital news media organisations. So effectively, from having the liberty to raise FDI up to 100%, digital news organisations have to now comply with the 26% limit. 

Evidence of the fact that there was no cap on FDI for digital news organisations can be found in that in 2015, American media mogul Rupert Murdoch-owned mass media and publishing company News Corp had bought Noida-headquartered digital media company Mosaic Media Ventures, which runs two news websites, VCCircle and TechCircle, for around $3 Mn (INR 22 Cr). 

Earlier this year, HT Media, which publishes newspapers like Hindustan Times and Mint along with digital publications of the same name, acquired Mosaic Media Ventures from News Corp for around INR 7 Cr, roughly a third of the price News Corp had paid to acquire it. News Corp offloading Mosaic at a reduced price to HT Media was seemingly motivated by the Indian government’s notification mandating a 26% cap on FDI in digital media entities. 

Founders Of News Outlets Say FDI Cap Will Harm News Media

The FDI cap on digital news media raises several questions, and answers are hard to find since the fine print on the policy is yet to be made available by the government.

Nikhil Pahwa, journalist and founder of digital news outlet Medianama alleged in a tweet that the FDI cap would allow the government to exercise a similar level control over digital media as it does on print media outlets. 

“It is unclear how will the policy be enforced in cases of foreign-owned news sites operated from outside India and will the policy be applied to news aggregators as well? Hence, the fine print of the policy will be important,” Rajat Prakash, managing partner at Athena Legal told Inc42 last year when the 26% FDI cap was approved by the Union Cabinet.

It is worth noting that the clarification note on the FDI cap floated by the government this week, which mentions that the rules would apply to news aggregators as well, would theoretically also apply to social media giant Facebook and YouTube as well. Both companies, though headquartered in the US, have India-based entities. The FDI cap may not apply to India bureaus of international newspapers and news agencies. 

“The Indian investors are not bullish and are most reluctant to invest in media portals, more so in the current economic situation. The new policy hurts smaller players like us and the ones who are looking to launch new projects. In future, when we have to look at investments to scale up our operations, this kind of cap will be very discouraging,” Vignesh Vellore, CEO of Bengaluru-headquartered digital media outlet The News Minute told Inc42 last year.