Lok Sabha Question No. 3918 (UNSTARRED), answered on 2020-03-18
Subject: FDI for Make in India
Ministry: COMMERCE AND INDUSTRY
Asked by: C.N. Annadurai

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

## UNSTARRED QUESTION NO. 3918.

TO BE ANSWERED ON WEDNESDAY, THE  18 TH   MARCH, 2020.

## FDI FOR MAKE IN INDIA

## 3918.  SHRI C.N. ANNADURAI:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state: वाणिज्य एवं उद्योग मंत्री

- (a) the details of the areas under the Make in India (MII) initiative where norms have been simplified to attract Foreign Direct Investment (FDI);
- (b) the names  of  the  global  giants that have  evinced  interest to set  up manufacturing plants in India;
- (c) whether any e-commerce company is violating FDI policy of the Government; and
- (d) if  so,  the  details  of  such  companies  and  action  taken  against  each  one  of them?

## ANSWER वाणिज्य एवं उद्योग मंत्री (श्री पीयूष गोयल) THE MINISTER OF COMMERCE & INDUSTRY (SHRI  PIYUSH GOYAL)

Make in India initiative was launched along with action plans prepared for various sectors with the objective of facilitating investment, fostering innovation, building best in class manufacturing infrastructure, making it easy to do business and enhancing skill development.  The initiative is  further  aimed  at  creating  a  conducive  environment  for  investment, modern and efficient infrastructure, opening up new sectors for foreign investment and forging a partnership between government and industry

- (a): through positive mindset.

Make in India initiative has been reviewed and is now focusing on 27 sectors under Make in India 2.0. List of 27 sectors under Make in India 2.0  is  annexed  as  annexure-I.  Department  for  Promotion  of  Industry and  Internal  Trade  is  coordinating  action  plans  for  15  manufacturing sectors  while  Department  of  Commerce  is  coordinating  12  service sectors.

The Government of India is making continuous efforts under Investment Facilitation including financial assistance to Invest India and for  implementation  of  Make  in  India  action  plans  to  identify  potential investors.  Support  is  being  provided  to  Indian  Missions  abroad  and State  Governments  for  organising  events,  summits,  road-shows  and other promotional activities  to  attract  investment  in  the  country  under the  Make  in  India  banner.  Investment  Outreach  activities  are  being carried out for enhancing International co-operation for promoting FDI and improve Ease of Doing Business in the country.

Further, Government has put in place a liberal and transparent policy for  Foreign  Direct  Investment  (FDI),  wherein  most  of  the  sectors  are open  for  FDI  under  the  automatic  route.  Further,  FDI  Policy  reforms made after 2014-15 in sectors related to Make in India is annexed as Annexure-II.

- (b) : No such information is available.
- (c) & (d): Representations have  been  received  in  this  Department  alleging  that some e-commerce platforms are engaged in predatory pricing and are providing  excessive  discounts.  The  extant  Foreign  Direct  Investment (FDI) policy on e-commerce sector, inter-alia, specifies that ecommerce marketplaces will not directly or indirectly influence the sale price of goods or services and shall maintain a  level playing field. eCommerce companies having  foreign  investment  can  operate  only  a marketplace  model  and  there  are  restrictions  on  the  inventory  based model  of  e-Commerce.  In  order  to  clarify  the  same,  Department  for Promotion of Industry and Internal Trade (DPIIT), vide Press Note 3 of 2016, issued guidelines for FDI in e-Commerce on 29 March 2016.

However, allegations were made against e-Commerce companies that the marketplaces were violating the norms laid down in Press Note 3 of 2016.  With  a  view  to  clarify  the  already  existing  policy  framework, Press Note 2 of 2018 was issued by DPIIT on 26 December 2018 to provide  further  clarification  on  FDI  Policy  in  relation  to  e-Commerce companies. Through the latest Press Note 2 of 2018, Government has reiterated the policy provisions to ensure better implementation of the policy in letter and spirit. Further, Clause (ix) of Press Note 2 of 2018, stipulates  that  e-commerce  entities  providing  marketplace  will  not directly or indirectly influence the sale price of goods or services and shall  maintain  level  playing  field.  Services  should  be  provided  by  ecommerce  marketplace  entity  or  other  entities  in  which  e-commerce marketplace entity has direct or indirect equity participation or common control,  to  vendors  on  the  platform  at  arm's  length  and  in  a  fair  and non-discriminatory manner. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing, etc. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory. Further, if any violation is reported necessary action may be taken by the competent authority.

Further,  Competition Commission of India in one case (i.e. Case No. 40/2019)  filed  against  Flipkart  Internet  Pvt.  Ltd.  And  Amazon  Seller Services  Private  Ltd.,  vide  order  dated  13.01.2020,  passed  under section  26  (1)  of  the  Competition  Act  2002,  has  directed  the  DG  to conduct an investigation and submit its investigation report. The said order  passed  by  the  Commission  was  impugned  by  Amazon  Seller Services Pvt. Ltd. Before the Hon'be High Court of Karnataka in W.P. No 3363/2020 and the Hon'ble High Court vide order dated 14.02.2020 has stayed the operation of the order of the Commission

*****

********

## ANNEXURE I

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART  (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 3918 FOR ANSWER ON 18.03.2020.

List of 27 Sectors under Make in India initiative 2.0 (Manufacturing Sectors)

- (i) Aerospace and Defence
- (ii) Automotive and Auto Components
- (iii) Pharmaceuticals and Medical Devices
- (iv) Bio-Technology
- (v) Capital Goods
- (vi) Textile and Apparels
- (vii) Chemicals and Petro chemicals
- (viii) Electronics System Design and Manufacturing (ESDM)
- (ix) Leather & Footwear
- (x) Food Processing
- (xi) Gems and Jewellery
- (xii) Shipping
- (xiii) Railways
- (xiv) Construction
- (xv) New and Renewable Energy

(Service Sectors)

- (xvi) Information Technology & Information Technology enabled Services (IT & ITeS)
- (xvii) Tourism and Hospitality Services
- (xviii)  Medical Value Travel
- (xix) Transport and Logistics Services
- (xx) Accounting and Finance Services
- (xxi) Audio Visual Services
- (xxii) Legal Services
- (xxiii)  Communication Services
- (xxiv)  Construction and Related Engineering Services
- (xxv) Environmental Services
- (xxvi)  Financial Services
- (xxvii) Education Services

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART  (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 3918 FOR ANSWER ON 18.03.2020.

## FDI Policy Reforms in sectors listed under Make in India since May 2014-15

1. Defence sector: India incurs huge expenditure on imports of defence equipments as the domestic defence industry has not been able to meet the expectations of the present times. The sector is capital intensive and requires advance technologies. Earlier FDI regime permitted 49% FDI participation in the equity of a company  under  automatic  route.    FDI  above  49%  was  permitted  through Government  approval  on  case  to  case  basis,  wherever  it  is  likely  to  result  in access to modern and 'state-of-art' technology in the country. In this regard, the following changes have inter-alia been brought in the FDI policy on this sector:
2. (i) Foreign  investment  beyond  49%  has  now  been  permitted  through government  approval  route,  in  cases  resulting  in  access  to  modern technology in the country or for other reasons to be recorded.
3. (ii) FDI limit for defence sector has also  been made  applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.
2. Pharmaceutical: With  the  objective  of  making  the  sector  more  attractive  to foreign investors, 74%  FDI  under  automatic  route has been  permitted in brownfield  pharmaceuticals.  FDI  beyond  74%  is  allowed  through  government approval  route.  'Non-compete'  clause  would  not  be  allowed  in  automatic  or government approval route except in special circumstances with the approval of the Foreign Investment Promotion Board.

FDI in brownfield pharmaceuticals, under both automatic  and  government approval routes, is subject to compliance of following conditions:

- a) The  production  level  of  National  List  of  Essential  Medicines  (NLEM)  drugs and/or  consumables and their supply to the domestic market at the time of induction  of  FDI,  being  maintained  over  the  next  five  years  at  an  absolute quantitative  level.  The  benchmark  for  this  level  would  be  decided  with reference to the level of production of NLEM drugs and/or consumables in the three financial years, immediately preceding the year of induction of FDI.  Of these,  the  highest  level  of  production  in  any  of  these  three  years  would  be taken as the level.
- b) R&D expenses being maintained in value terms for 5 years at  an  absolute quantitative level at the time of induction of FDI.  The benchmark for this level would be decided with reference to the highest level of R&D expenses which has been incurred in any of the three financial years immediately preceding the year of induction of FDI
- c) The administrative Ministry will be provided complete information pertaining to the transfer of technology, if any, along with induction of foreign investment into the investee company.
3. Medical  Devices :  India  has  achieved  an  eminent  global  position  in  pharma sector. However, same has not been replicated in the medical devices industry. The country has huge pool of scientists and engineers who have potential to take medical device industry to a very high level. Domestic capital market is not able to provide  much  needed  investment  in  the  sector.  The  government  has  therefore permitted FDI up to 100% under the automatic route for manufacturing of medical devices, without any distinction of greenfield or brownfield and such FDI will not be subjected to other conditions of the FDI policy on the pharmaceutical sector.
4. Food Product Retail Trading: 100% FDI under government approval route has been  permitted  for  trading,  including  through  e-commerce,  in  respect  food products  manufactured  and/or  produced  in  India.  This  will  benefit  farmers,  give impetus to food processing industry and create vast employment opportunities.
5. Rail Infrastructure: The modernization of Railways requires very large amount of capital investment.  This makes foreign investment imperative in rail infrastructure especially in highly capital and technology intensive areas like suburban corridors, high speed train systems, train sets, railway rolling stock including locomotives/coaches,  railway  electrification,  signaling  systems  dedicated  freight line projects. Accordingly the Government with view to attract foreign investment in the sector has opened following activities of Rail infrastructure to 100% under automatic route:

Construction, operation  and maintenance of  (i)    Suburban  corridor  projects through PPP, (ii)  High speed train projects, (iii) Dedicated freight lines, (iv) Rolling  stock  including  train  sets,  and  locomotives/coaches  manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii) Freight  terminals,  (viii)  Passenger  terminals,  (ix)    Infrastructure  in industrial  park  pertaining  to  railway  line/sidings  including  electrified  railway lines and connectivities to main railway line and (x)  Mass Rapid Transport Systems.

However,  FDI  beyond  49%  of  the  equity  of  the  investee  company  in  sensitive areas from security point of view, will be brought before the Cabinet Committee on Security (CCS) for consideration on a case to case basis.

6. Construction Development sector: Investment in the construction development sector remains a priority of the Government as it results in infrastructure creation; employment generation from unskilled workers to engineers, architects, designers as  well  as  financial  and  other  supporting  services.  FDI  policy  on  Construction Development permits 100% foreign investment under automatic route subject to certain conditions. In order to liberalize and bring pragmatism in the policy so as to attract  more  foreign  investment  in  the  country  not  only  in  large  infrastructure projects  but  also  in  held-up  and  smaller  projects  following  amendments  have introduced in the FDI policy on the sector:
- a) Removal of conditions of area restriction of floor area of 20,000 sq. mtrs in construction  development  projects  and  minimum  capitalization  of  US  $  5 million to be brought in within the period of six months of the commencement of business.
- b) Exit  and repatriation of foreign investment is now permitted after a lockin-period  of  three  years.  Transfer  of  stake  from  one  non-resident  to another non-resident, without repatriation of investment is also neither to be subjected to any lock-in period nor to any government approval.
- c) Exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period.
- d) 100%  FDI  under  automatic  route  is  permitted  in  completed  projects  for operation and management of townships, malls/ shopping complexes and business centres.
- e) It has been clarified that 'real-estate broking service' does not amount to real  estate  business  and  is  therefore,  eligible  for  100%  FDI  under automatic route.
7. Civil  Aviation  Sector: Foreign  equity  cap  of  activities  of  Non-Scheduled  Air Transport Service, Ground Handling Services have been increased from 74% to 100%  under  the  automatic  route.  With  a  view  to  aid  in  modernization  of  the existing airports to establish a high standard and help ease the pressure on the existing  airports,  100%  FDI  under  automatic  route  has  been  allowed  in Brownfield Airport projects.

FDI limit for Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline  and  regional  Air  Transport  Service  raised  to  100%,  with  FDI  upto 49% permitted  under  automatic  route  and  FDI  beyond  49%  through  Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route. However,  foreign  airlines  would  continue  to  be  allowed  to  invest  in  capital  of Indian companies operating scheduled and nonscheduled air transport services up  to  the  limit  of  49%  of  their  paid  up  capital  and  subject  to  the  laid  down conditions in the existing policy.

As  per the earlier policy, foreign airlines were  allowed to invest under Government  approval  route  in  the  capital  of  Indian  companies  operating scheduled  and  nonscheduled  air  transport  services,  up  to  the  limit  of  49%  of their paid-up capital. However, this provision was not applicable to M/s Air India Ltd.,  thereby  implying  that  foreign  airlines  could  not  invest  in  Air  India.  Now, foreign  investment(s)  in  Air  India  has  been  allowed,  including  that  of  foreign airline(s),  up  to  49%  either  directly  or  indirectly.  Substantial  ownership  and effective control of Air India shall continue to be vested in Indian Nationals.

Further,  Union  Cabinet  in  its  meeting  on  March  4,  2020;  permitted  foreign investment(s) in M/s Air India ltd. By NRIs, who are Indian Nationals, upto 100% under automatic route.

8. Manufacturing Sector: In order to provide boost to the manufacturing sector and give  impetus  to  the  'Make  in  India'  initiative,  the  Government  has  permitted  a manufacturer to sell its product through wholesale and/or retail, including through e-commerce under automatic route.
9. Contract Manufacturing: In order to provide clarity on contract manufacturing, it has been  decided  to allow 100%  FDI  under  automatic  route in contract manufacturing in India as well. Subject to the provisions of the FDI policy, foreign investment  in  'manufacturing'  sector  is  under  automatic  route.  Manufacturing activities  may  be  conducted  either  by  the  investee  entity  or  through  contract manufacturing  in  India  under  a  legally  tenable  contract,  whether  on  Principal  to Principal or Principal to Agent basis.
10.  Other  Financial  Services: Government  has  reviewed  FDI  policy  on  Other Financial  Services  and  NBFCs  to  provide  that  foreign  investment  in  financial services  activities  regulated  by  financial  sector  regulators  such  as  RBI,  SEBI, IRDA etc. will be 100% under the automatic route. In financial services, which are not regulated by any financial sector regulator or where only part of the financial service activity is regulated or where there is doubt regarding regulatory oversight, foreign  investment  upto  100%  will  be  allowed  under  the  government  approval route.
4. 11 . Insurance & Pension Sectors: FDI Policy on Insurance sector was reviewed in view of amendment to the Insurance Laws (Amendment) Act 2015 to increase the sectoral cap of foreign investment from 26% to 49%. Further it has been provided that FDI in the sector would be permitted under automatic route. Similar changes have also been brought in the FDI Policy on Pension Sector.
12. Banking-Private sector: Government introduced full fungibility of foreign investment  in  Banking-Private  sector.  Accordingly,  FIIs/FPIs/QFIs,  following  due procedure, can now invest up to sectoral limit of 74%, provided that there is no change of control and management of the investee company.
13.  Insurance Intermediaries: Vide Press Note 1(2020)100%  FDI has been permitted in Intermediaries or Insurance Intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, Surveyors and Loss Assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority from time to time.
14.  Digital Media: The extant FDI policy provides for 49% FDI under approval route in Up-linking of 'News & Current Affairs' TV Channels. However, the policy does not have any specific  provision  pertaining  to  broadcasting  of  content  through  digital media. In the background of free mushrooming of news/ other content over the internet and possibly over the mobile, it is important that this gap in the FDI policy is  addressed and the provisions governing foreign investment in the activity are clearly  spelt  out.  Accordingly,  26%  FDI  under  government  route  has  been permitted  for  uploading/  streaming  of  News  &  Current  Affairs  through  Digital Media.

******