|
India's Policy on Foreign Direct Investment
(FDI)
Policy on Foreign Direct Investment
India has among the most liberal and transparent policies on FDI among
the emerging economies. FDI up to 100% is allowed under the automatic
route in all activities/sectors except the following, which require
prior approval of the Government:-
1. Sectors prohibited for FDI
2. Activities/items that require an industrial license
3. Proposals in which the foreign collaborator has an existing
financial/technical collaboration in India in the same field
4. Proposals for acquisitions of shares in an existing Indian company in
financial service sector and where Securities and Exchange Board of
India (substantial acquisition of shares and takeovers) regulations,
1997 is attracted
5. All proposals falling outside notified sectoral policy/CAPS under
sectors in which FDI is not permitted
Most of the sectors fall under the automatic route for FDI. In these
sectors, investment could be made without approval of the central
government. The sectors that are not in the automatic route, investment
requires prior approval of the Central Government. The approval in
granted by Foreign Investment Promotion Board (FIPB). In few sectors,
FDI is not allowed.
After the grant of approval for FDI by FIPB or for the sectors falling
under automatic route, FDI could take place after taking necessary
regulatory approvals form the state governments and local authorities
for construction of building, water, environmental clearance, etc.
Manual for FDI brought out by the Department of Industrial Policy and
Promotion provides details about FDI Policy and Procedures and is
available at http://dipp.nic.in/manual/manual_11_05.pdf
Sectoral policy/equity caps in certain sectors could be seen in the
Manual for FDI in Annexure II at http://dipp.nic.in/manual/manual_11_05.pdf.
All Press Notes of Department of Industrial Policy and Promotion that
provides details about FDI policy are available at their website http://siadipp.nic.in/policy/changes.htm
.
FDI policy is also notified by Reserve Bank of India (RBI) under Foreign
Exchange Management Act (FEMA) and could be seen at www.rbi.org.in.
Procedure under automatic route
FDI in sectors/activities to the extent permitted under automatic route
does not require any prior approval either by the Government or RBI. The
investors are only required to notify the Regional Office concerned of
RBI within 30 days of receipt of inward remittances and file the
required documents with that office within 30 days of issue of shares of
foreign investors.
Procedure under Government Approval
FDI in activities not covered under the automatic route require prior
government approval. Approvals of all such proposals including composite
proposals involving foreign investment/foreign technical collaboration
is granted on the recommendations of Foreign Investment Promotion Board
(FIPB).
Application for all FDI cases, except Non-Resident Indian (NRI)
investments and 100% Export Oriented Units (EOUs), should be submitted
to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of
Finance.
Application for NRI and 100% EOU cases should be presented to SIA in
Department of Industrial Policy and Promotion.
Application can be made in Form FC-IL. Plain paper applications carrying
all relevant details are also accepted. No fee is payable. The
guidelines for consideration of FDI proposals by the FIPB are at
Annexure-III of the Manual for FDI.
Form FC-IL - COMPOSITE FORM FOR FOREIGN COLLABORATION AND INDUSTRIAL
LICENCE http://siadipp.nic.in/download/il-form.doc
IEM Form http://siadipp.nic.in/policy/policy/ip202.htm
Manual for FDI http://dipp.nic.in/manual/manual_11_05.pdf
Prohibited Sectors
The extant policy does not permit FDI in the following cases:
i. Gambling and betting
ii. Lottery Business
iii. Atomic Energy
iv. Retail Trading
v. Agricultural or plantation activities of Agriculture (excluding
Floriculture, Horticulture, Development of Seeds, Animal Husbandry,
Pisiculture and Cultivation of Vegetables, Mushrooms etc., under
controlled conditions and services related to agro and allied sectors)
and Plantations (other than Tea Plantations)
General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route
do no require any further clearance from RBI for receiving inward
remittance and issue of shares to the foreign investors.
The companies are required to notify the concerned Regional Office of
the RBI of receipt of inward remittances within 30 days of such receipt
and within 30 days of issue of shares to the foreign investors or NRIs.
Industrial Licensing
With progressive liberalization and deregulation of the economy,
industrial license is required in very few cases. Industrial licenses
are regulated under the Industries (Development and Regulation) Act
1951. At present, industrial license is required only for the following:
-
1. Industries retained under compulsory licensing
2. Manufacture of items reserved for small scale sector by larger units
3. When the proposed location attracts locational restriction
The following industries require compulsory license: -
I Alcoholics drinks
II Cigarettes and tobacco products
III Electronic aerospace and defense equipment
IV Explosives
V Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and
di-isocynates of hydro carbon and derivatives
Procedure for obtaining an industrial
license
Industrial license is granted by the Secretariat for Industrial
Assistance in Department of Industrial Policy and Promotion, Government
of India. Application for industrial license is required to be submitted
in Form FC-IL to Department of Industrial Policy and Promotion.
Form FC-IL - COMPOSITE FORM FOR FOREIGN COLLABORATION AND INDUSTRIAL
LICENCE http://siadipp.nic.in/download/il-form.doc
Small Scale Sector
An industrial undertaking is defined as small scale unit if the capital
investment does not exceed Rs. 10 million (approximately $ 222,222). The
Government has reserved certain items for exclusive manufacture in the
small-scale sector.
Non small-scale units can manufacture items reserved for the small-scale
sector if they undertake an obligation to export 50% of the production
after obtaining an industrial license.
Definition of Small Scale Industries http://www.laghu-udyog.com/ssiindia/definition.htm
List of items reserved for small-scale sector
Ministry of Small Scale Industries http://ssi.nic.in/
Development Commissioner, Small Scale Industries http://www.laghu-udyog.com/
Locational restrictions
Industrial undertakings to be located within 25 kms of the standard
urban area limit of 23 cities having a population of 1 million as per
1991 census require an industrial license. Industrial license even in
these cases is not required if a unit is located in an area designated
as an industrial area before 1991 or non-polluting industries such as
electronics, computer software, printing and other specified industries.
Environmental Clearances
Entrepreneurs are required to obtain Statutory clearances, relating
to Pollution Control and Environment as may be necessary, for setting up
an industrial project for 31 categories of industries in terms of
Notification S.O. 60(E) dated 27.1.94 as amended from time to time,
issued by the Ministry of Environment and Forests under The Environment
(Protection) Act 1986. This list includes petrochemicals complexes,
petroleum refineries, cement, thermal power plants, bulk drugs,
fertilizers, dyes, papers etc.,
However, if investment in the project is less than Rs.1 billion (appox.
$ 22.2 million), such Environmental clearance is not necessary, except
in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and
asbestos products, integrated paint complexes, mining projects, tourism
projects of certain parameters, tarred roads in Himalayan areas,
distilleries, dyes, foundries and electroplating industries.
Setting up industries in certain locations considered ecologically
fragile (e.g. Aravalli Range, coastal areas, Doon Valley, Dahanu etc.)
are guided by separate guidelines issues by the Ministry of Environment
and Forests.
Other approvals/clearances at State
level
Land, Water, Electricity, Registrations etc.
For further details please refer the website of Ministry of Environment
and Forests http://envfor.nic.in
Environmental Clearance (EC) Process in India: A new website - [http://www.ecprocess.nic.in]
|
