Lok Sabha Question No. 91 (UNSTARRED), answered on 2019-02-04
Subject: FDI Policy
Ministry: COMMERCE AND INDUSTRY
Asked by: SHRIKANT EKNATH SHINDE, KUNWAR PUSHPENDRA SINGH CHANDEL, VINAYAK BHAURAO RAUT, PRITAM GOPINATH MUNDE, DHARMENDRA YADAV, Shrirang Appa Barne

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY

## DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

UNSTARRED QUESTION NO. 91. TO BE ANSWERED ON MONDAY, THE 4 TH  FEBRUARY, 2019.

## FDI POLICY

91. DR. SHRIKANT EKNATH SHINDE:

SHRI KUNWAR PUSHPENDRA SINGH CHANDEL:

SHRI VINAYAK BHAURAO RAUT:

DR. PRITAM GOPINATH MUNDE:

SHRI DHARMENDRA YADAV:

SHRI SHRIRANG APPA BARNE:

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;
- (b) if  so,  the  details  and  the  objective  thereof  along  with  the  provisions  and guidelines framed therefor, sector-wise;
- (c) whether there  is  specific  plan  of  FDI  for  Bundelkhand  region  and  if  so,  the details  thereof  including  the  industries  likely  to  be  benfited  therefrom  in  the region;
- (d) whether  various  think  tanks  and  Indian  industries  have  opposed  the  said relaxation in FDI and if so, the details thereof; and
- (e) the  corrective  steps  taken/proposed  to  be  taken  by  the  Government  in  this regard?

## ANSWER

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

(a)&(b): The  norms  for  Foreign  Direct  Investment  (FDI)  have  not  been  relaxed recently. The  last  such  relaxations  to  the  relevant  provisions  of  the Consolidated  FDI  Policy  Circular  of  2017  are  detailed  in  Press  Note 1(2018) dated 23.01.2018 (Annexure). These relaxations to the FDI Policy were  carried  out  to  provide  ease  of  doing  business  in  the  country  by simplifying the FDI policy provisions across sectors.

- (c): FDI policy is an enabling policy which is applicable across the country. No specific provisions are made for a particular region/state.

(d)&(e): Do not arise.

******

## ANNEXURE REFERRED TO IN REPLY TO PARTS (a) & (b)  OF  LOK  SABHA UNSTARRED QUESTION NO. 91 FOR ANSWER ON 04.02.2019.

## 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) 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:

| 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   |

## 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:
3. (d) In  addition  to  the  above  conditions,  foreign  investment  in  M/s  Air  India Ltd. shall be subject to the following conditions:
4. (i) Foreign investment(s) in M/s Air India Ltd., including that of foreign airline(s), shall not exceed 49% either directly or indirectly.
5. (ii) Substantial  ownership  and  effective  control  of  M/s  Air  India  Ltd. shall continue to be vested in Indian Nationals.

## 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 real-estate 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:
3. (a) Products to be sold should be of a 'Single Brand' only.
4. (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.
5. (c) 'Single  Brand'  product-retail  trading  would  cover  only  products  which are branded during manufacturing.
6. (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.
7. (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.
8. (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.
9. (g) Single  brand  retail  trading  entity  would  be  permitted  to  set  off  its 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.

## 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;
- (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 in Foreign Exchange Management (Transfer  or  issue  of  security by  a  person  resident  outside India)  Regulations,  2000  and the relevant schedules 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.

******