Policy on Foreign Direct Investment
FDI
Policy
Procedure under automatic route
Procedure under Government Approval
Prohibited Sectors
General permission of RBI under FEMA
Industrial Licensing
Procedure for obtaining an industrial license
Small Scale Sector
Locational restrictions
Environmental Clearances
Other approvals/clearances at State level
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://www.dipp.nic.in/manual/fdi_manual_11_2006.pdf
Sectoral policy/equity caps in certain sectors could be seen in the Manual for
FDI in Annexure II at http://www.dipp.nic.in/manual/fdi_manual_11_2006.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.
back to top
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.
back to top
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://www.dipp.nic.in/manual/fdi_manual_11_2006.pdf
back to top
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)
back to top
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.
back to top
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
back to top
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
back to top
Small Scale Sector
Ministry of Agro and Rural Industries and Ministry of Small Scale industries have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises.
http://msme.gov.in/
back to top
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.
back to top
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.
back to top
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]
back to top
|
