This month, the Enforcement Directorate (ED) filed a case against the British Broadcasting Corporation (BBC) under the Foreign Exchange Management Act, 1999 (FEMA) for violation of Foreign Direct Investment (FDI) regulations issued by the Department for Promotion of Industry and Internal Trade (DPIIT).
Needless to say, this development created huge outrage among many media houses. Media houses are fully entitled to create outrage. At the same time, it is equally imperative for the citizens of India to know the facts of the case and the law under which the BBC is being investigated and would be prosecuted. Along with Indians, even foreigners, especially the citizens of the United Kingdom (UK), need to know this.
On September 18, 2019, the DPIIT issued a new set of regulations for FDI in various sectors. These regulations are always announced by virtue of Press Notes. These press notes stipulate various guidelines and regulations for FDI in the country. This includes sectoral limits for foreign investors, requirements that the investee company has to comply with or fulfil to allow FDI, minimum investment required in the sector, and most importantly, other criteria like the structure of the transaction, whether the investment is under automatic route or government approval route, etc. The regulation under question concerning the BBC was announced in Press Note No. 4 (2019 Series).
The said Press Note No 4 (2019 Series), dated September 18, 2019, stipulated a limit of a maximum of 26 per cent investment by foreign investors in Indian digital media companies. This was by adding a new clause 5.2.7.2.3 under para 5.2.7:2 of the Consolidated FDI Policy dated August 23, 2017. This new clause 5.2.7.2.3 dealt with “Uploading / Streaming of News and Current Affairs through Digital Media”.
The then-existing clause 5.2.7.2.3 was renumbered to 5.2.7.2.4. The intent of this FDI regulation was to bring Digital Media in line with Print Media. It is pertinent to note that foreign investors, including foreign media houses, can hold a maximum 26 per cent equity stake in any newspaper or magazine in India.
Before the announcement of these revised FDI Guidelines by Press Note No 4, media houses other than print media could get up to 49% FDI under the government approval route. This was for Electronic Media, i.e. Television Channels. Till then, the FDI Policy did not make any mention of Digital Media, and due to lack of clarity, many foreign Digital Media houses like the BBC, Yahoo News, Huffington Post, etc., operating in India as wholly owned subsidiaries of their foreign parent media houses. A wholly owned subsidiary means a company whose parent company owns all the shares, i.e. 100% stake in the said company.
When the DPIIT announced the sectoral limit for foreign investment in Digital Media, there was a requirement for clarification. The major confusion was regarding the definition of “Digital Media” and whether the said media house, i.e. a news website or a news aggregator or a news app, fell within the ambit of Digital Media. Hence, the Government came out with a clarification on October 16, 2020. The clarification dispelled those concerns and made it amply clear that Press Note 4 shall apply to the under-mentioned three types of media entities which are registered or domiciled within India:
1. Digital media entity streaming or uploading news and current affairs on websites, apps or other platforms;
2. News agencies which gather, write, and distribute or transmit news, whether directly or indirectly, to digital media entities and/or news aggregators; and
3. News aggregators use software or web applications that aggregate news content from various sources, such as news websites, blogs, podcasts, video blogs, user-submitted links, etc., in one location.
This clarification further instructed the Digital Media houses falling within the definition based on the criterion listed above that they will have to comply with the FDI Policy requirements stipulated by Press Note 4 within a period of one year from the date of the issue of the said clarification. In other words, foreign-owned digital media like the BBC, Yahoo News, etc., were required to either dilute their stake in their Indian arm to 26% by inviting investment of a minimum of 74 per cent by any local investor or media house or close down Indian operations. There was a third option available to foreign media houses. They could license the brand to an Indian media house and earn a royalty on income earned by the Indian media house from that brand. There are quite a few media houses, including a news channel and some magazines operating on this model in India.
Once the clarification was issued, digital media entities like Yahoo News and Huffington Post completely closed down their Indian operations. Both entities were owned by Verizon Media. Verizon Media felt it would be appropriate to close down Indian operations totally and exit India.
However, the BBC continued to operate without complying with the FDI Policy. A foreign holding of more than 26% in BBC India was in violation of Press Note 4 (2019 Series). The BBC was required to dilute its stake to 26% or exit India before October 2021. However, it continued operating in India to date without diluting its stake.
It is intriguing why the Government of India gave such a long rope to the BBC to continue operations in India in violation of the FDI Policy. Was it because the BBC is the Government Funded Media house of the UK, and the Government of India did not want to upset its relations with the Government of the UK or was its oversight by the Government officials? We may never know.
