1. FOREIGN DIRECT
INVESTMENT
RECENT CHANGES IN THE CONSOLIDATED POLICY OF 2015
conveyed through the PRESS NOTE 12 released in November 2015

2. FOREIGN DIRECT
INVESTMENT
IN THE RETAIL SECTOR

3. BACKGROUND
THE RETAIL TRADE IN INDIA

4. RETAIL TRADE IN INDIA
• Retail has always played a vital role in the Indian economy.
• Accounts for 22% of the GDP and contributes 8% of the total
employment.

5. 60%
8%
6%
5%
4%
3%
3%
11%
TOTAL RETAIL MARKET
FOOD AND GROCERIES APPAREAL MOBILE AND TELECOM FOOD SERVICES JWELLERY CONSUMER ELECTRONICS PHARMACY OTHERS

6. EVOLUTION OF RETAIL TRADE IN INDIA
Weekly Markets
Village fairs
Melas
Source of Entertainment
Availability/ Low Cost/
Distribution
Shopping Experience/
Efficiency
Convenience Stores
Mom and Pop / Kiranas
PDS Outlets
Khadi Stores
Cooperatives
Exclusive Brand Outlets
Hyper/Super Markets
Departmental Stores
Shopping Malls
Neighbourhood/ Store
Convenience
Historical/ Rural Reach
Traditional /Pervasive
Reach
Government Supported
Modern Formats/
International

7. STRUCTURE OF THE SECTOR
TRADING
ORGANISED
WHOLESALE/
CASH AND
CARRY SHOPS
SINGLE BRAND
RETAIL
MULTI BRAND
RETAIL
E-COMMERCE
DUTY FREE
SHOPS
UNORGANISED

8. ORGANISED v. UNORGANISED
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2016 2020
2%
6% 8%
15%
24%
98%
94% 92%
85%
76%
Shares of the sector
ORGANISED SECTOR UNORGANISED SECTOR

9. INDIAN RETAIL INDUSTRY AND FOREIGN
DIRECT INVESTMENT
THE EMERGENCE AND DEVLOPMENTS

10. WHY TO INVEST IN INDIAN RETAIL SECTOR
• Huge and dynamic market size
• Rising purchasing power
• Rapid Urbanisation and Increasing brand consciousness
• Rising Internet Penetration
• Conducive regulatory environment due to expected reforms
• Improved global ranking

11. • Expected increase in FMCG market
• Easement in credit availability
• Introduction of GST
• Rapid real estate and infrastructure development

12. FDI IN RETAIL
 World’s fourth largest retail market and still growing.
 Signatory to the World Trade Organisation.
 Started with reservation, now liberalising.

13. EVOLUTION OF THE ORGANISED SECTOR 1/2
INITIATION
PRE 1990s
1990-05
2010 onwards
CONCEPTUALISATION
EXPANSION
CONSOLIDATION
2005-10

14. EVOLUTION OF THE ORGANISED SECTOR 2/2
1991
1997
2006
2012
2015
LIBERALISATION
FDI up to 51% allowed
in selected priority
sectors
FDI 100% allowed in cash and
carry/ wholesale
FDI up to 51% allowed in
Single Brand Retail through
government route.
o FDI up to 100% allowed in
SBRTs through government
route.
o FDI in Multi Brand Retail
opened to 51% through
government route.
o 49% FDI in SBRTs allowed
through automatic route.
o Gates opened for the e-
commerce
o Introduction of Duty Free
Shops in the policy.

15. LATEST CHANGES………………………
• With Press Note no. 12 in November 2015, Department of Industrial Policy
and Planning notified certain changes and clarification in the consolidated
FDI Policy, 2015 published earlier in May.
• The changes in different sectors of the organised retail is consolidated
here.

16. I. WHOLESALE/ CASH & CARRY TRADER
• It would be permissible for a single entity to undertake activities of both,
wholesale trading and SBRT, with the condition that FDI policy conditions on
wholesale/ cash & carry and SBRT have to be complied with by both the
business arms separately.

17. • Illustration:
A foreign company SHOPSMART wants to expand its reach in various
countries. For shopsmart to come in India via the FDI route, it will have to
follow the regulations under sectorial regulator.
Now, suppose it enters India through the wholesale sector which allows 100%
FDI
SHOPSMART INC.
SHOPSMART WHOLESALE SHOPSMART RETAIL

18. II. SINGLE BRAND RETAIL TRADER
• The new notification has eased the norms for the ‘Indian Brands’
and allows them to sell their products in any manner.
• Relaxation of sourcing clause of 30% from MSMEs, for the ‘state of
art’ and ‘cutting edge’ technology.
• Relaxation in the period of reckoning of the sourcing.
• SBRTs with ‘brick and mortar stores’ allowed to e-commerce.

19. SHOPSMART RETAIL
SINGLE BRAND RETAIL MULTI BRAND RETAIL SHOPSMART.COM

20. III. DUTY FREE SHOPS
• IN THE NOVEMBER 2015 NOTIFICATION A NEW SECTION, DUTY FREE SHOPS
WAS ADDED TO THE FDI POLICY ON TRADING IN INDIA, 2015
• 100% FDI is permissible under automatic route in Duty-free Shops located and
operated in the Customs bonded areas.

21. PROBLEMS FACED………………………..
• Ambiguity created by the term ‘Single Brand’- Mark and Spencer Case
• Achilles' Heel: The sourcing clause- Case of Apple
• Single entity in both wholesale as well as the SBRTs- Case of Tommy Hilfiger
• Ambiguity over Multi Brand Retail.
• Less growth achieved in SBRT as compared to MBRT.

22. WHAT IS E- COMMERCE
• Not been defined under any statute.
• It is generally understood as a method of conducting business through
electronic means rather than through conventional physical means.
• This term takes into account not just the act of purchasing goods and/or
availing services through an online platform, but also all other activities
that are associated with any transaction such as delivery, payment
facilitation, supply chain and service management.
• Two types of commercial transactions are taken into consideration here-
(a)B2B
(b)B2C
1. Single brand retailing
2. Multi brand retailing

23. CHANGES BROUGHT IN THE FDI POLICY FOR E-COMMERCE
The consolidated policy lays down separate provisions for FDI in e-commerce in the-
• B2B segment:
The FDI Policy earlier used to allow the companies to engage only in Business to
Business (B2B) e-commerce and not in retail trading. India permitted 100% FDI in
B2B e-commerce under the automatic route. The policy regarding B2B transaction still
remains the same.

24. • B2C segment:
EARLIER NOW
1. Single Brand
Retailing
Retail trading in any
form by means of e-
commerce was not
permissible.
A single brand retail
trading entity
operating through
brick and mortar
stores is permitted.
2. Multi Brand
Retailing
Retail trading in any
form by means of e-
commerce was not
permissible.
• No change
• E-commerce in
multi brand retailing
is not permissible.

25. SHOPSMART.COM
BUSINESS TO BUSINESS BUSINESS TO CUSTOMER

26. MERITS OF BRINGING FDI IN E-COMMERCE
• Overall development
• Cost reduction
• Wider customer reach
• Boon for rural economy

27. DEMERITS OF BRINGING FDI IN E-COMMERCE
• Monopoly- Fear of creation of monopoly by the MNC’s.
• Harmful for small scale Indian retailers- Entry of large inventory-based
foreign e-retailers like Amazon, e bay will lead to shrinkage of Indian
entrepreneurship and MSME’s.
• Hit on Indian manufacturing sector

28. FOREIGN DIRECT INVESTMENT
THE CONSTRUCTION SECTOR

29. BACKGROUND
CONSTRUCTION SECTOR IN INDIA

30. INTRODUCTION
The construction industry is the second largest industry of the
country after agriculture accounting for 11 percent of India’s
GDP. Indian construction industry employs 32 million people
and its total market size is estimated at Rs. 2,48,000 crores.
The level of a country’s development is reflected by its
infrastructure and the desperate need for infrastructure
development has increased the demand of the construction
industry in India.

31. CHANGES IN NEW FDI REFORMS
I. Conditions for FDI
• Before amendment: FDI will be subject to the following conditions
• Minimum floor area of 20,000 sq. meters to be developed.
• Investee company will be required to bring minimum FDI of US$ 5
million.
• After amendment:
Both the above conditions have been removed. Hence FDI in
construction sector is not subject to the above conditions.

32. II. Each phase to be considered a separate project
• Large projects are usually completed in multiple
phases.
• The FDI policy now considers each such phase as a
separate project.

33. III. Exit of Foreign Investor
After amendment: The exit of foreign investor will now be allowed under the
following circumstances:
i) Foreign investors will be permitted to exit and repatriate foreign investment before
the completion of project under automatic route subject to a lock-in-period of
three years.
ii) The lock-in period would be calculated with reference to each tranche of foreign
investment.
iii) The transfer of stake from one non-resident to another non-resident without
repatriation of investment will neither be subject to any lock-in-period nor to any
government approval.
iv) Exit is permitted at any time if project is completed or trunk infrastructure is
completed before the lock-in-period.

34. IV) The changed norms have brought in more clarity on the
definition of what constitutes real estate business.
Real estate business meant :-
dealing in land and immovable property with a view to earning profit or
earning income therefrom and does not include development of townships,
construction of residential/ commercial premises, roads or bridges,
educational institutions, recreational facilities, city and regional level
infrastructure, townships.
BEFORE AMENDMENT

35. Real estate business defined to exclude earning of rent/ income
on lease of property
It has now been clarified that:-
Earning of rent/ income on lease of property, not amounting
to transfer, Will not be regarded as real estate business that is
prohibited from receiving FDI under the FDI Policy.
AFTER AMENDMENT

36. Future Prospect
• Increased demand from real estate and infrastructure projects.
• An investment of USD 1 Trillion has been projected for the infrastructure sector until
2017, 40% of which is to be funded by private sector.
• USD 650 Billion will be required for urban infrastructure over the next 20 years.
• 100% FDI permitted through the automatic route for townships construction of
residential/commercial premises, roads or bridges , hotels, resorts, hospitals.

37. FDI POLICY
General Removal Of Restrictions

38. Limited Liability Partnership
• According to the changes in the FDI Policy, 100 per cent FDI is allowed in LLPs
through automatic route.
• Earlier, FDI was allowed through government route only in LLPs.
• Further, the terms ‘ownership and control’ with reference to LLPs have also
been defined.
• Earlier these terms were defined for Indian Companies, now ‘ownership and
control’ are separately explained specifically for LLPs by introducing the term
designated partners.

39. Non-Resident
Entities
Indian
Companies/LLPs
(with FDI)
Indian
Companies/LLPs
DOWNSTREAM INVESTMENT
• Downstream investment means indirect foreign investment
by one Indian company into another Indian company.

40. • Earlier, LLPs with FDI were not eligible to make any downstream investments.
• Now, in line with companies, an LLP having foreign investment will be
permitted to make downstream investment in another company or LLP.
• Downstream investment by an Indian company(not owned and/or controlled
by resident entity) into another Indian company, would be in accordance with
the relevant sectoral conditions.
• Downstream Investment by a banking company (which is owned and/or
controlled by non-residents/a non-resident entity) shall not count towards
indirect foreign investment. Their 'strategic downstream investment' shall
count towards indirect foreign investment.

41. Restrictions on Downstream investment imposed
on Indian Companies now applicable to LLPs
• Company is to notify SIA, DIPP and FIPB of its downstream investment within 30
days of such investment.
• Downstream investment by way of induction of foreign equity in an existing Indian
Co. to be duly supported by a resolution of the Boards of Directors.
• Issue/transfer/pricing/valuation of shares shall be in accordance with applicable
SEBI/RBI Guidelines.
• For the purpose of downstream investment, the Indian Co./LLPs would have to
bring in funds from abroad and not leverage funds from the domestic market. But
these downstream companies can raise debt from domestic market.
• Downstream investments through internal accruals are permissible and now it has
also been specifically defined.

42. Swap of Shares
• Earlier, approval of Government was required in transactions
involving swap of shares.
• Now, investments by way of swap of shares in sectors which
otherwise fall in the automatic approval route for foreign
investments, will no longer require specific government approval.
• For such transaction , the companies are not required to approach
to FIBP for approval.
• Now government approval is necessary for transactions involving
swap of shares only for those sectors where government approval is
required.

43. Companies Without Operations
• FDI in companies without any operations or downstream investment is
now permitted without the requirement for prior approval of the FIPB,
so as long as the activities which are proposed to be undertaken fall
under automatic route.
• Approval of Govt. will be required for such companies for infusion of
foreign investment for undertaking activities which are under
Government route.
• Earlier, these companies were not permitted without govt. approval.

44. Threshold Limit for Approval by Foreign
Investment Promotion Board
• As per the FDI policy, FIPB considers proposals having total foreign equity inflow up to
a certain limit and proposals above that are placed for consideration of Cabinet
Committee on Economic Affairs (CCEA).
• Earlier, this threshold limit was ₹ 2000 crore which was changed to ₹ 3000 crores and
now it has been raised to ₹ 5000 crores.
₹2000 crores In July ₹3000 crores In
November ₹5000 crores

45. THANK YOU