Lok Sabha Question No. 377 (UNSTARRED), answered on 2018-02-05
Subject: Relaxation of FDI Norms
Ministry: COMMERCE AND INDUSTRY
Asked by: FAIZAL P.P. MOHAMMED, BHAIRON PRASAD MISHRA, E. T. MOHAMMED BASHEER, PRITAM GOPINATH MUNDE, SHRIKANT EKNATH SHINDE, ANANDRAO  ADSUL, KUNWAR PUSHPENDRA SINGH CHANDEL, DHARMENDRA YADAV, Shrirang Appa Barne, SANTOSH AHLAWAT, VINAYAK BHAURAO RAUT, SHIVAJI ADHALRAO PATIL

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION

## LOK SABHA

## UNSTARRED QUESTION NO. 377.

## TO BE ANSWERED ON MONDAY, THE 5 TH  FEBRUARY,  2018.

## RELAXATION OF FDI NORMS

## 377.   MOHAMMED FAIZAL:

SHRI BHAIRON PRASAD MISHRA: SHRI E.T. MOHAMMED BASHEER: DR. PRITAM GOPINATH MUNDE: DR. SHRIKANT EKNATH SHINDE: SHRI ANANDRAO ADSUL: SHRI KUNWAR PUSHPENDRA SINGH CHANDEL: SHRI DHARMENDRA YADAV: SHRI SHRIRANG APPA BARNE: SHRIMATI SANTOSH AHLAWAT: SHRI VINAYAK  BHAURAO RAUT: SHRI ADHALRAO PATIL SHIVAJIRAO:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state:

## वाणिज्य एवं उद्योग मंत्री

- (a) whether  the  Government  has  recently  relaxed  the  norms  for  Foreign  Direct Investment (FDI) in some key sectors including retail and construction sectors and if so, the details thereof, sector wise;
- (b) whether the FDI norms in various sectors would make it a much more attractive destination for overseas investors;
- (c) if  so,  the  details  thereof  and  the  provisions  and  guidelines  fixed  for  the  foreign investors  along  with  objectives  behind  the  decision  and  the  FDI  inflow  expected therefrom, sector-wise;
- (d) whether the Government has assessed the likely impact on the Indian industries and if so, the details thereof;  and
- (e) whether various think tanks and Indian industries have opposed this decision and if so, the details thereof along with the preventive steps taken by the Government in this regard?

## ANSWER

## वाणिज् य एवं उद्योग मंत्रालय में राज् यमंत्री श्ी सी.आर. चौधरी) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI C.R. CHAUDHARY)

- (a): Yes,  Madam.  The  recent  amendments  to  the  relevant  provisions  of  the Consolidated FDI Policy Circular of 2017 are detailed in Press Note 1(2018) dated 23.01.2018 (Annexure).
- (b) & (c): FDI  policy  reforms  have  been  carried  out  so  as  to  provide  ease  of  doing business  in  the  country  by  simplifying  the  FDI  policy  provisions  across sectors.  The  amendments  are  expected  to  make  India  more  attractive investment destination and thereby attract larger volume of foreign investment into the country. Nonetheless, FDI inflows in a sector cannot be anticipated  as  FDI  is  largely  a  matter  of  private  business  decisions.  FDI

inflows depend on a host of factors such as availability of natural resource, market size, infrastructure, political and general investment climate as well as macro-economic stability and investment decision of foreign investors.

- (d): These  measures  are  expected  to  increase  FDI,  which  complements  and supplements  domestic  investment.  Domestic  companies  are  benefited through  FDI,  by  way  of  enhanced  access  to  supplementary  capital  and state-of-art-technologies; exposure  to global managerial  practices  and opportunities  of  integration  into  global  markets  resulting  into  accelerated domestic growth of the whole country.
- (e): No  communication  opposing  this  decision  has  been  received  by  this Department.  Moreover,  FDI  Policy  on  different  sectors  are  formulated/ reviewed after intensive consultations with stakeholders including Ministries/ Departments concerned, apex industry chambers and other organizations.

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## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART    (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 377 FOR ANSWER ON 05 th  FEBRUARY, 2018.

## Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion FDI Policy Section

Press Note No. 1 (2018 Series)

## Subject:

Review of Foreign Direct Investment (FDI) policy on various sectors

The Government of India has reviewed the extant FDI policy on various sectors and made following amendments in the Consolidated FDI Policy Circular of 2017 (FDI Policy) , effective from August 28, 2017, and as amended from time to time.

2. Prohibition of restrictive conditions regarding audit firms

Para 5.2 (h) of FDI Policy is replaced with the following:

Wherever the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company, then audit of such investee companies should be carried out as joint audit wherein one of the auditors should not be part of the same network.

Existing Para 5.2 (h) shall be renumbered as 5.2 (i)

3. Foreign investment into an Indian company engaged only in the activity of investing in the capital of other Indian company/ies
2. (A)
3. Para 3.8.3.1 of FDI Policy is amended to read as under: Foreign Investment in Investing Companies registered as Non-Banking Financial Companies (NBFC) with the Reserve Bank of India, being overall regulated, would

be under 100% automatic route.

- (B) Para 3.8.3.2 of FDI Policy is amended to read as under:

Foreign  Investment  in  Core  Investment  Companies  (CICs)  and  other  investing companies,  engaged  in  the  activity  of  investing  in  the  capital  of  other  Indian company/ies/LLP, is permitted under Government approval route. CICs will have to additionally follow RBI's regulatory framework for CICs.

4. Competent Authority for FDI proposals examining countries of concern Para 4.1.1 (ix) of FDI Policy is amended to read as under:
5. Civil Aviation
- A. Note  (iii)  at  Para  5.2.9  of  FDI  Policy  which  presently  reads  that  'the  policy mentioned at para (c) above is not applicable to M/s Air India Ltd.', stands deleted.
- B. Following new clause (d) is added to Other Conditions laid down at Para 5.2.9 of FDI Policy:
5. (d) In  addition  to  the  above  conditions,  foreign  investment  in  M/s  Air  India  Ltd. shall be subject to the following conditions:
6. (i)  Foreign  investment(s)  in  M/s  Air  India  Ltd.,  including  that  of  foreign airline(s), shall not exceed 49% either directly or indirectly.
7. (ii)  Substantial  ownership  and  effective  control  of  M/s  Air  India  Ltd.  shall continue to be vested in Indian Nationals.

| S.No.    | Activity/sector                                                                                                                                                                                                                         | Administrative Ministry/Department            |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|
| (ix) (a) | Applications involving investments from Countries of Concern falling under automatic route sectors/activities, requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, as amended from time to time | Department of Industrial Policy and Promotion |
| (ix) (b) | Cases pertaining to Government approval route sectors/activities requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, as amended from time to time                                               | Nodal Administrative Ministries/Departments   |

## 6. Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate Broking:

Following new clause (vi) is added after Note (v) at Para 5.2.10.2 of FDI Policy: Para 5.2.10.2 Note (vi):

Notwithstanding anything contained in Para 5.2.10 above, it is clarified that realestate broking service does not amount to real estate business and 100% foreign investment is allowed in the activity under automatic route.

## 7. Single Brand Product Retail Trading

Para 5.2.15.3 of FDI Policy is amended to read as under:

| Sector/Activity                     | %of Equity/ FDI Cap   | Entry Route   |
|-------------------------------------|-----------------------|---------------|
| Single Brand product retail trading | 100%                  | Automatic     |

- (1)  Foreign  Investment  in  Single  Brand  product  retail  trading  is  aimed  at attracting investments in production and marketing, improving the availability of such  goods  for  the  consumer,  encouraging  increased  sourcing  of  goods  from India,  and  enhancing  competitiveness  of  Indian  enterprises  through  access  to global designs, technologies and management practices.

(2) FDI in Single Brand product retail trading would be subject to the following conditions:

- (a) Products to be sold should be of a 'Single Brand' only.
- (b) Products  should  be  sold  under  the  same  brand  internationally  i.e. products should be sold under the same brand in one or more countries other than India.
- (c) 'Single  Brand'  product-retail  trading  would  cover  only  products  which are branded during manufacturing.
- (d) A    non-resident  entity  or  entities,  whether  owner  of  the  brand  or otherwise, shall be permitted to undertake 'single brand' product retail trading in the country for the specific brand, either directly by the brand owner  or  through  a  legally  tenable  agreement  executed  between  the Indian  entity  undertaking  single  brand  retail  trading  and  the  brand owner.
- (e) In  respect  of  proposals  involving  foreign  investment  beyond  51%, sourcing  of  30%  of  the  value  of  goods  purchased,  will  be  done  from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors,  from  the  duly  certified  accounts  which  the  company  will  be required to maintain. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the goods purchased, beginning 1 st April of the year of the commencement of the business i.e. opening of the first store. Thereafter, it would have to  be  met  on  an  annual  basis.  For  the  purpose  of  ascertaining  the sourcing  requirement,  the  relevant  entity  would  be  the  company, incorporated in India, which is the recipient of foreign investment for the purpose of carrying out single-brand product retail trading.
- (f)  Subject to the conditions mentioned in this Para, a single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.
- (g) Single  brand  retail  trading  entity  would  be  permitted  to  set  off  its

## Note:

(i)  Conditions  mentioned  at  Para  5.2.15.3  (2)  (b)  &  5.2.15.3  (2)  (d)  will  not  be applicable for undertaking SBRT of Indian brands.

(ii)  Indian  brands  should  be  owned  and  controlled  by  resident  Indian  citizens and/or companies which are owned and controlled by resident Indian citizens.

(iii)Sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail  trading of products having 'state-of-art' and 'cutting-edge' technology and where local sourcing is not possible. Thereafter, provisions of Para 5.2.15.3 (2) (e) will be applicable. A Committee under the Chairmanship of Secretary, DIPP, with  representatives  from  NITI  Aayog,  concerned  Administrative  Ministry  and independent  technical  expert(s)  on  the  subject  will  examine  the  claim  of applicants on the issue of the products being in the nature of 'state-of-art' and 'cutting-edge' technology where local sourcing is not possible and give recommendations for such relaxation.

## 8. Power Exchanges

Para 5.2.24.2 regarding 'Other Conditions' for foreign investment Power Exchange sector/activity  the  present  clause  (i)  'FII/FPI  purchases  shall  be  restricted  to secondary market only;' stands deleted.

## 9. Pharmaceuticals

- (A) Definition of 'Medical Device' as contained at Para 5.2.27.3 Note (ii) of FDI Policy is amended to read as under:

Medical device means -

- (a) any instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including the software, intended by its manufacturer to be used specially for human beings or animals for one or more of the specific purposes of -
- (i) diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;
- (ii)  diagnosis,  monitoring,  treatment,  alleviation    or  assistance  for,  any  injury or disability;
- (iii)  investigation, replacement or modification or support of the anatomy or of a physiological process;
- (iv)  supporting or sustaining life;
- (v) disinfection of medical devices;
- (vi)  control of conception,

and which does not achieve  primary intended action in or on the human body or animals by any pharmacological or immunological or metabolic means, but which may be assisted in its intended function by such means;

- (b) an  accessory  to  such  an  instrument,  apparatus,  appliance,  material  or  other article;

incremental sourcing of goods from India  for global operations during initial  5  years,  beginning  1 st April  of  the  year  of  the  opening  of  first store, against the mandatory sourcing requirement of 30% of purchases from India. For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year from India over the  preceding  financial  year,  by  the  non-resident  entities  undertaking single brand  retail trading, either directly or through  their  group companies.  After  completion  of  this  5  years  period,  the  SBRT  entity shall be required to meet the 30% sourcing norms directly towards its India's operation, on an annual basis.

- (c) in-vitro diagnostic device which is a reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system, whether used alone or  in  combination  thereof  intended  to  be  used  for  examination  and  providing information  for  medical  or  diagnostic  purposes  by  means  of  examination  of specimens derived from the human bodies or animals.
- (B) Para 5.2.27.3 Note (iii) of FDI Policy which presently reads that 'the definition of medical device at Note (ii) above would be subject to the amendment in Drugs and Cosmetics Act', is deleted.
10. Para 6(iv) of Annexure-3 of FDI Policy is amended to read as under: Issue of  equity  shares  for  sectors  requiring  Government  approval  under  the  FDI policy is allowed under the Government route for the following:
- (I) import of capital goods/ machinery/ equipment (excluding  second-hand machinery), subject to compliance with the following conditions:
- (a)  Any import of capital goods/machinery etc., made by a resident in India, has to be in accordance  with the Export/Import Policy issued by Government  of  India/as  defined  by  DGFT/FEMA  provisions  relating  to imports.
- (b)  The application clearly indicating the beneficial ownership and identity of the Importer Company as well as overseas entity.
- (c)  Applications complete in all respects, for conversions of import payables for  capital  goods  into  FDI  being  made  within  180  days  from  the  date  of shipment of goods.
- (II)   pre-operative/pre-incorporation  expenses  (including  payments  of  rent  etc.), subject to compliance with the following conditions:
- (a)  Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred.
- (b)  Verification and certification of the pre-incorporation/pre-operative expenses by the statutory auditor.
- (c)  Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under FEMA Regulations.
- (d)  The  applications,  complete  in  all  respects,  for  capitalization  being  made within  the  period  of  180  days  from  the  date  of  incorporation  of  the company.

General conditions:

- (i) All requests for conversion should be accompanied by a special resolution of the company.
- (ii) Government's  approval  would  be  subject  to  pricing  guidelines  of  RBI  and appropriate tax clearance.
- (iii)  For  sectors  under  automatic  route,  issue  of  equity  shares  against  import  of capital goods/ machinery/ equipment (excluding second-hand machinery) and pre-operative/pre-incorporation expenses (including payments of rent etc.) is permitted under automatic route subject to compliance with respective conditions  mentioned  above,  and  reporting  to  RBI  in  form  FC-GPR  as  per procedure prescribed under the FDI policy.
11. The above decision will take effect from the date of FEMA notification.

(Rajiv Aggarwal)

Joint Secretary to the Government of India

D/o IPP File No.: 5/2/2018-FDI Policy, dated 23 rd January, 2018

## Copy forwarded to :

1. Press Information Officer, Press Information Bureau -  for  giving  wide  publicity  to  the above Press Note.
2. Joint Secretary(I&C), Department of Economic Affairs, North Block, New Delhi
3. Reserve Bank of India, Foreign Exchange Department, Mumbai

For  suitably  incorporating  the policy

changes

Exchange in

Foreign

Management

(Transfer  or  issue  of  security by  a  person  resident  outside

India)  Regulations,  2000  and the

relevant thereof.

4. NIC Section in the Department of Industrial Policy and Promotion - for uploading the Press Note on DIPP's website.
5. Hindi Section, DIPP - for providing Hindi version.

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