Lok Sabha Question No. 101 (UNSTARRED), answered on 2016-07-18
Subject: Foreign Direct Investment
Ministry: COMMERCE AND INDUSTRY
Asked by: PARASURAMAN K., SHIVKUMAR CHANABASAPPA UDASI

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

## LOK SABHA

## UNSTARRED QUESTION NO.101. TO BE ANSWERED ON MONDAY, THE 18 TH  JULY, 2016.

## FOREIGN DIRECT INVESTMENT

## 101.   SHRI K. PARASURAMAN: SHRI SHIVKUMAR UDASI:

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

## वाणिज् यवव द्यग ं ्री

- (a) whether the Government has permitted Foreign Direct Investment (FDI) in various sectors of business in the country;
- (b) if so, the details thereof along with the expected investment through FDI and ratio of commerce development by FDI in various sectors;
- (c) whether the Government has fixed any ceiling for the inflow of FDI and if so, the details thereof;
- (d) whether the Government has taken up any new initiative to attract FDI in different sectors and if so, the details thereof;
- (e) whether the Government has recently reviewed FDI policy to bring various public sectors under its ambit and if so, the details thereof; and
- (f) the quantum of FDI attracted into the country during the two years and the current year?

## ANSWER

## वाणिज् यवव द्यग ााज् यं ्रीस् वतं ््रभााा(स्रींतंरीिरंमलााीरीतंाांि( THE MINISTER OF STATE (INDEPENDENT CHARGE) OF THE MINISTRY OF COMMERCE & INDUSTRY (SHRIMATI NIRMALA SITHARAMAN)

- (a): Yes Madam.
- (b) & (c): Detailed  FDI  policy  on  various  sectors  indicating  therein  sector-wise  FDI limits is provided in 'Consolidated FDI Policy Circular of 2016', as amended from time to time, through subsequent Press Notes, which is available at the website of Department of Industrial Policy and Promotion at www.dipp.nic.in.

FDI  is  largely  a  matter  of  private  business  decisions,  global  investors normally take time to assess a new policy and its implications in the context of a particular market before making investment. Further, no data regarding the ratio of commerce development by FDI in various sectors is maintained.

- (d): Review of FDI policy  is  an  ongoing  process  and  significant  changes  have been made in the recent past  in  a  calibrated  manner  to  ensure  that  India remains an attractive investment destination. The Government has recently

liberalised  FDI  policy  provisions  on  various  sectors  vide  Press  Note  No.  5 (2016 Series) on 24 th June, 2016. A copy of the Press Note is at Annexure.

- (e): No such decision  has been taken by the Government.
- (f): FDI inflow & FDI equity inflow for the last 2 years and current financial year is as under:

|   S.No. | Financial Year               |   FDI inflow (in US$ billion) |   FDI equity inflow (in US$ billion) |
|---------|------------------------------|-------------------------------|--------------------------------------|
|       1 | 2014-15                      |                         45.15 |                                30.93 |
|       2 | 2015-16                      |                         55.46 |                                40    |
|       3 | Current Year(upto May, 2016) |                          7.46 |                                 5.35 |

All figures are provisional subject to reconciliation with RBI.

*****

## ANNEXURE  REFFERED  TO  IN  REPLY  TO  PART  (d)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 101 FOR  ANSWER ON 18.07.2016

## Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (FC-I Section)

## Press Note No. 5 (2016 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 2016 issued on June 07, 2016 (FDI Policy) .

2. After para 3.7.1 of the FDI Policy, following new para 3.7.2  is added:
2. 3.7.1 bis: For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of Reserve Bank of India is not required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.
3. (i) Para 5.2.1 of the FDI Policy is amended to read as under:
4. (ii) Para 5.2.1.1 of the FDI Policy is amended to read as under:

| Sector/Activity                                                                                                                                                                                                                                                                                                                                                                                       | %of Equity/ FDI Cap   | Entry Route   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|---------------|
| a) Floriculture, Horticulture, and Cultivation of Vegetables & Mushrooms under controlled conditions; b) Development and Production of seeds and planting material; c) Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, Apiculture; and d) Services related to agro and allied sectors Note: Besides the above, FDI is not allowed in any other agricultural sector/activity | 100%                  | Automatic     |

The term 'under controlled conditions' covers the following:

'Cultivation under  controlled conditions' for the categories of floriculture, horticulture, cultivation  of  vegetables  and  mushrooms  is  the  practice  of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically.

4. Para 5.2.5 of the FDI Policy is amended to read as under:

Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under automatic route. Further, a manufacturer is permitted to sell its products  manufactured  in  India  through  wholesale  and/or  retail,  including through  e-commerce  without  Government  approval.  Notwithstanding  the  FDI policy  provisions  on  trading  sector,  100%  FDI  under  Government  approval route is allowed for trading, including through e-commerce, in respect of food products manufactured and/or produced in India. Applications for FDI in food products  retail  trading  would  be  processed  in  the  Department  of  Industrial Policy & Promotion before being considered by the Government for approval.

5. Para 5.2.6.of the FDI Policy is amended to read as under:

| Sector/Activity                                                                                                                                                                           | %of Equity/ FDI Cap   | Entry Route                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 5.2.6.1 Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951; and Manufacturing of small arms and ammunition under the Arms Act, 1959 | 100%                  | Automatic up to 49% Government route beyond 49% wherever it is likely to result in access to modern technology or for other reasons to be recorded |

## 5.2.6.2 Other Conditions

- (i) Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking industrial license, resulting in change in the  ownership  pattern  or  transfer  of  stake  by  existing  investor  to  new foreign investor, will require Government approval.
- (ii) Licence  applications  will  be  considered  and  licences  given  by  the Department  of  Industrial  Policy  &  Promotion,  Ministry  of  Commerce  & Industry, in consultation with Ministry of Defence and Ministry of External Affairs.
- (iii) Foreign  investment  in  the  sector  is  subject  to  security  clearance  and guidelines of the M/o Defence.
- (iv) Investee company should be structured to be self-sufficient in areas of product  design  and  development.  The  investee/joint  venture  company along with manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.
6. Para 5.2.7.1 of the FDI Policy is amended to read as under:

| Sector/Activity                                                                                                 | Sector/Activity   | Sector/Activity      | %of Equity/ FDI Cap   | Entry Route   |
|-----------------------------------------------------------------------------------------------------------------|-------------------|----------------------|-----------------------|---------------|
| 5.2.7.1.1 (1) Teleports (setting up HUBs/Teleports); (2) Direct to Home (DTH); (3) Cable Networks (Multi System | of                | up-linking operators | 100%                  | Automatic     |

| (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability); (4) Mobile TV ; (5) Headend-in-the Sky Broadcasting Service (HITS)   |      |           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|-----------|
| 5.2.7.1.2 Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))                                                         | 100% | Automatic |

## Note:

Infusion  of  fresh  foreign  investment,  beyond  49%  in  a  company  not  seeking license/permission  from  sectoral  Ministry,  resulting  in  change  in  the  ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval

7. Para 5.2.9 of the FDI Policy is amended to read as under:

## 5.2.9 Civil Aviation 5.2.9.1 Airports

| Sector/Activity         | %of Equity/ FDI Cap   | Entry Route   |
|-------------------------|-----------------------|---------------|
| (a) Greenfield projects | 100%                  | Automatic     |
| (b) Existing projects   | 100%                  | Automatic     |

## 5.2.9.2  Air Transport Services

| Sector/Activity                                                                                                  | %of Equity/ FDI Cap   | Entry Route                                                                     |
|------------------------------------------------------------------------------------------------------------------|-----------------------|---------------------------------------------------------------------------------|
| (1) (a) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (b) Regional Air Transport Service | 100%                  | Automatic up to 49% (Automatic up to 100% for NRIs) Government route beyond 49% |
| (2)Non-Scheduled Air Transport Service                                                                           | 100%                  | Automatic                                                                       |
| (3)Helicopter services/seaplane services requiring DGCA approval                                                 | 100%                  | Automatic                                                                       |

There  is  no  change  in  Other  Conditions  mentioned  in  the  FDI  Policy  for  this sector and Note thereto.

8. Para 5.2.13 of the FDI Policy is amended to read as under:

| Sector/Activity           | %of Equity/ FDI Cap   | Entry Route                                                   |
|---------------------------|-----------------------|---------------------------------------------------------------|
| Private Security Agencies | 74%                   | Automatic up to 49% Government route beyond 49% and up to 74% |

## 5.2.13.1 Other Conditions

- (1)  FDI  in  Private  Security  Agencies  is  subject  to  compliance  with  Private Security Agencies (Regulation) (PSAR) Act, 2005, as amended from time to time.
- (2)  For  the  purposes  of  FDI  policy  on  the  sector,  terms  'Private  Security Agencies',  'Private  Security'  and  'Armoured  Car  Service'  will  have  the same meaning as provided under PSAR Act, 2005, which is reproduced as under:

"Private Security Agency" means a person or body of persons other than a government agency, department or organisation engaged in the business of providing  private  security  services  including  training  to  private  security guards  or  their  supervisor  or  providing  private  security  guards  to  any industrial  or  business  undertaking  or  a  company  or  any  other  person  or property;

"Private Security" means security provided by a person, other than a public servant,  to  protect  or  guard  any  person  or  property  or  both  and  includes provision of armoured car service;

"Armoured  Car  Service"  means  the  service  provided  by  deployment  of armed  guards  along  with  armoured  car  and  such  other  related  services which may be notified by the Central Government or as the case may be, the State Government from time to time.

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

| Sector/Activity             | %of Equity/ FDI Cap   | Entry Route                                     |
|-----------------------------|-----------------------|-------------------------------------------------|
| Single Brand Retail Trading | 100%                  | Automatic up to 49% Government route beyond 49% |

(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, directly or through a legally tenable agreement with the brand owner for undertaking single brand product retail trading. The onus for ensuring compliance with this condition will rest with the Indian entity carrying out singlebrand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the

licensing/franchise/sub-licence agreement, specifically indicating compliance with the above condition. The requisite evidence should be filed with the RBI for the automatic route and SIA/FIPB for cases involving approval.

- (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 singlebrand 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.

(3)  Application  seeking  permission  of  the  Government  for  FDI  exceeding  49%  in  a company  which  proposes  to  undertake  single  brand  retail  trading  in  India  would  be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy  &  Promotion.  The  applications  would  specifically  indicate  the  product/product categories which are proposed to be sold under a 'Single Brand'. Any addition to the product/product  categories  to  be  sold  under  'Single  Brand'  would  require  a  fresh approval  of  the  Government.  In  case  of  FDI  up  to  49%,  the  list  of  products/product categories proposed to be sold except food products would be provided to the RBI.

(4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval.

## 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) An Indian manufacturer is permitted to sell its own branded products in any manner i.e. wholesale, retail, including through e-commerce platforms.
- (iii)  Indian  manufacturer  would  be  the  investee  company,  which  is  the  owner  of  the Indian  brand  and  which  manufactures  in  India,  in  terms  of  value,  at  least  70%  of  its products in house, and sources, at most 30% from Indian manufacturers.
- (iv)  Indian  brands  should  be  owned  and  controlled  by  resident  Indian  citizens  and/or companies which are owned and controlled by resident Indian citizens.
- (v) 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.

## 10. Para 5.2.27 of the FDI Policy is amended to read as under:

| Sector/Activity     | %of Equity/ FDI Cap   | Entry Route                                     |
|---------------------|-----------------------|-------------------------------------------------|
| 5.2.27.1 Greenfield | 100%                  | Automatic                                       |
| 5.2.27.2 Brownfield | 100%                  | Automatic up to 74% Government route beyond 74% |

## Pharmaceuticals

- (i)  '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.
- (ii)  The  prospective  investor  and  the  prospective  investee  are  required  to provide a certificate along with the FIPB application as per Annexure-10 of FDI Policy.
- (iii)  Government  may  incorporate  appropriate  conditions  for  FDI  in  brownfield cases, at the time of granting approval.
- (iv)  FDI  in  brownfield pharmaceuticals, under both automatic and government approval routes, is further 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.

## Note :

- i. FDI up to 100%, under the automatic route is permitted for manufacturing of  medical  devices.  The  above  mentioned conditions  will,  therefore,  not be applicable to greenfield as well as brownfield projects of this industry.
- ii. 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-
4. (aa)diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;
5. (ab) diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or handicap;
6. (ac)  investigation,  replacement  or  modification  or  support  of  the anatomy or of a physiological process;
7. (ad) supporting or sustaining life;
8. (ae) disinfection of medical devices;
9. (af)  control of conception,

and which does not achieve its 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. a device which is 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 in  vitro  examination  of  specimens  derived  from  the  human  body  or animals.
- iii. The definition of medical device at Note (ii) above would be subject to the amendment in Drugs and Cosmetics Act.
11. The above decision will take immediate effect.

## (Atul Chaturvedi)

## Joint Secretary to the Government of India

D/o IPP File No.: 5/4/2016-FC-I dated: 24 th

June, 2016

## 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.

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