Foreign Direct Investment

The Government of India has been committed to promoting accelerated growth in the industrial sector. The role of FDI as a means to support domestic investment for achieving a higher level of economic development is well recognized.

FDI benefits the domestic industry as well as the Indian consumer by providing opportunities for technological up gradation, access to global managerial skills and practices, optimal utilization of human and natural resources, making Indian industry internationally competitive, opening up export markets, providing backward and forward linkages and access to international quality goods & services.

With a view to achieving these benefits, the Government over the past ten years has been liberalizing the FDI regime. In February, 2000 the Government decided that except in certain specified cases FDI can be made without any approval, which is considered as approval under the Automatic Route. How foreign direct investment can be made is explained briefly as under:

Fdi is Permitted Through two Rroutes :

1. FIPB Route (or Government Route)

   Under this route, prior approval from Foreign Investment Promotion Board (FIPB), Government of India is required for foreign investment.

Applications shall have to be submitted to the Secretariat for Industrial Assistance, Government of India for approval in respect of the following:

• All proposals that require an Industrial Licence which includes (a) the item requiring the Industrial licence under the Industries (Development and Regulation) Act, 1951; (b) foreign investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries; and (c) 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/tie up in India through investment in shares or debentures or a technical collaboration or a trade-mark agreement or investment by whatever name called in the same field or in allied field in which the Indian company issuing the shares is engaged.

• All proposals relating to acquisition of shares in an existing company in favour of a Foreign Investor /Non resident Indian (NRI)/Overseas Corporate Body (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 FIPB and not to avail of the automatic route. Refer Sector Specific Guidelines as notified by the Government of India and also Annexure A and B of Schedule 1 of Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as notified by Reserve Bank of India.

Sector Specific Guidelines

2. Automatic Route of Reserve Bank of India
   Under this route no prior approval for foreign investment is required. Investment by a person resident outside India in shares or convertible debentures of an Indian company is governed by the provisions of sub-regulation (1) of Regulation 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 and subject to the terms and conditions specified in Schedule thereunder.

   An Indian company which is not engaged in any activity, or in manufacture of item included in Annexure A of the aforesaid schedule , will be eligible for issue of shares or convertible debentures to a person resident outside India up to the extent specified in Annexure B of the aforesaid schedule

   Annexure A & Annexure B

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