Foreign Investment Policy
Government of India facilitates Foreign Direct Investment (FDI) and investment from Non-Resident Indians (NRIs) including Overseas Corporate Bodies (OCBs), predominantly owned by them, to complement and supplement domestic investment. Foreign technology induction is encouraged both through FDI and through foreign technology collaboration agreements. Foreign Direct Investment and Foreign technology collaboration agreements can be approved either through the automatic route under powers delegated to the Reserve Bank of India (RBI) or otherwise by the Government.
Automatic Approval
In pursuance of Government's commitment to early implementation of the second phase of the economic reforms and with a view to further liberalising the FDI regime, all items/ activities have been placed under the automatic route for FDI/NR1 and OCB investment, except the following:
- All proposals that require an Industrial Licence which includes
- the item requiring an Industrial Licence under the Industries (Development andRegulation) Act, 1951;
- foreign investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries; and
- all items which require an Industrial Licence in terms of the locational policy notified by Government under the New Industrial Policy of 1991.
- All proposals in which the foreign collaborator has a previous venture/tieup in India.
- All proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor
- All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and /or whenever any investor chooses to make
an application to the FIPB and not to avail of the automatic route
All proposals for investment in public sector unit as also for EOU/EPZ/EHTP/STP units would qualify for automatic route subject to the above parameters.
The modalities and procedures for automatic route would remain the same and RBI would continue to be concerned agency for monitoring / reporting as per
existing procedure. FDI/NRI/OCB investment under the automatic route shall continue to be governed by the notified sectoral policy and equity caps.
Foreign Technology Collaboration Agreements
RBI also gives automatic permission for foreign technology agreement in all areas of electronics provided:
- Lumpsum payment of the price of the technology does not exceed USD 2 million and
- Royalty payments do not exceed 5% of domestic sales and 8% of exports. (The royalty rates are net of taxes).
The payments are subject to an overall ceiling of 8 percent of total sales over a period of 10 years from the date of agreement or over 7 years period from the date of commencement of commercial production, whichever is earlier.
Application for investment under the automatic process are to be made to the RBI and approval is generally granted within three weeks.
Investment Proposals under Hardware and software Technology Parks, Export Oriented Units and Export Processing Zones
Foreign investment upto 100 percent is welcome in electronics and software industries set up exclusively for exports. The units set up under these programes are bonded factories eligible to import, free of duty
Procedure for approval
- Once the investment in equity has been approved, the import of capital goods, components and raw materials or the engagement of foreign technicians for short durations do not require any additional approvals.
- Approval of the Ministry of Home Affairs is not needed for hiring of foreign nationalS holding avalid employment visa.
- Approval for setting up units in EPZs is given by the Board of Approvals in the Ministry of Commerce.
- Approval for setting up EOUs outside the Zones is given by the SIA, Ministry of Industry.
- Approval for setting up EHTP and STP units are cleared by the Inter Ministrial Standing Committee (IMSC) setup under the Chairmanship of the Secretary, Departmrnt of Electronics.
- Proposals involving foreign direct investment not coverd under automatic route are considered by the Foreign Investment Promotion Board (FIPB).
Government approval
The FDI/ Foreign technology collaboration agreement proposals which do not conform to the guidelines for automatic approval require Government approval through the Foreign Investment Promotion Board (FIPB). The Government has set up a special 'Foreign Investment Promotion Board' (FIPB) as a fast track mechanism to invite and facilitate foreign investments in large projects in India, which are considered beneficial to the Indian economy but are not covered by the automatic approval process and norms under which SIA is authorised to grant investment approvals.
Investment Proposals outside the Purview of the RBI
Other proposal including in services sectorwhich do not conform to the guidelines for automatic approval or sekking higher foreign equity investment are approved by the Secretariat for Industrial Assistance (SIA) in the Ministry of Industry.
Their entire requirement of capital goods, raw materials and components, spares and consumables, office equipments etc. Deemed export benefits are available to suppliers of these goods from the Domestic Tariff Area (DTA). A part of the production from such units is permitted to be sold in the DTA depending upon the level of the value addition achieved.
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Wednesday, 07th April 2010
