Lok Sabha Question No. 7 (STARRED), answered on 2016-07-18
Subject: Liberalisation of FDI Policy
Ministry: COMMERCE AND INDUSTRY
Asked by: ASHOK SHANKARRAO CHAVAN, BHARTRUHARI MAHTAB

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

## LOK SABHA

STARRED QUESTION NO. 7. TO BE ANSWERED ON MONDAY, THE 18 TH  JULY, 2016.

## LIBERALISATION OF FDI POLICY

7. SHRI ASHOK SHANKARRAO CHAVAN: SHRI BHARTRUHARI MAHTAB:

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

## वाणिज् यवव द्यग ं ्री

- (a) whether  the  Government  has  recently  relaxed  the  Foreign  Direct  Investment  (FDI) rules and opened up multiple sectors including Defence, Civil Aviation, Food Retails and Private Security Firms in the country;
- (b) if  so,  the  details  thereof,  Sector-wise along  with the objective behind this move and the total quantum of FDI expected therefrom;
- (c) whether there have been concerns/ objections raised over liberalisation of FDI regime in the country and if so, the details thereof along with the reaction of the Government thereto; and
- (d) whether the said move is likely to affect domestic companies in these sectors and if so, the corrective steps taken by the Government in this regard?

## 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) to (d): A Statement is laid on the Table of the House.

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## STATEMENT  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK  SABHA STARRED QUESTION NO. 7 FOR ANSWER ON 18 TH  JULY, 2016

| (a) & (b):   | Yes Madam. With a view to liberalise and simplify the FDI policy so as to provide ease of doing business in the country and increase foreign investment inflows, 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. Global investors normally take time to assess a new policy and its implications in the context of a particular market before making investment. Further, Government does not fix targets for FDI inflows as FDI is largely a matter of private business decisions.   |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c):         | Review of FDI policy is an ongoing process and changes are made in the FDI policy in a calibrated manner after having intensive consultations with stakeholders including concerned Ministries/ Departments, apex industry chambers and other organizations. In addition, Government regularly receives suggestions/views from various stakeholders and public on liberalization of FDI regime. These are examined in the Ministry and thereafter suitable action is taken. Some of these suggestions/views form as valuable input for FDI policy.                                                                       |
| (d):         | Foreign investments supplement and complement domestic capital. Further, such investments in various sectors are expected to bring international best practices and latest technologies in the country.                                                                                                                                                                                                                                                                                                                                                                                                                  |

*****

## ANNEXURE

## ANNEXURE  REFFERED  TO  IN  REPLY  TO  PART  (a)  &  (b)  OF  THE  LOK  SABHA STARRED QUESTION NO. 7 FOR ANSWER ON 18.07.2016 REGARDING LIBERALISATION OF FDI POLICY

## 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 ecommerce 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 single-brand 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 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.

(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:

## Pharmaceuticals

| 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% |

## 5.2.27.3 Other Conditions

- (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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