|
Since 1991, the Government has embarked on a liberalization and economic reforms programme with a view to bring about rapid and substantial economic growth and move towards globalisation of the economy. The new policies have substantially relaxed provisions related to foreign investment, industrial licensing, foreign exchange controls etc. The Capital market has been opened up to foreign investment and restrictions on imports have been largely removed. The Industrial Policy reforms have reduced the industrial licensing requirements to a select list of hazardous and environmentally sensitive industries (Annex II), abolished restrictions on investment and expansion by MRTP Houses, reduced the number of industries reserved from Public sector from 17 to 6 (Annex I) and facilitated easy access to foreign technology. Government is committed to promoting accelerated growth in the industrial sector. The role of foreign direct investment (FDI) as a means to support domestic investment for achieving a high level of economic development is well recognized. Increasing the level of inflow of FDI into the country is one of the main objectives of the Government's economic development strategy. In order to achieve this goal, the Government is also committed to putting in place appropriate institutional arrangements and transparent rules, procedures and guidelines for investment promotion and for considering and approving the proposals for Foreign Direct Investment. Towards fulfilling this objective, the Government has recently taken a number of decisions to further liberalize the Foreign Direct Investment regime. These include expansion of the list of industries eligible for automatic approval, increasing the limit on FDI to 74% for automatic approval of projects in key infrastructure sectors, a set of guidelines for the FIPB etc. All these are contained in this, the 4th edition of this Manual. Procedures For The Delicensed And Licensable Sectors Investment Promotion and Facilitation Procedures For The Delicensed And Licensable Sectors 1(A) Exemption from Licensing With the introduction of the New Industrial Policy on 24th July, 1991, all industrial undertakings have been exempted from industrial licensing requirements provided: a)The proposed article(s) of manufacture is/are not included in:- i) Annex I i.e., list of industries reserved for the public sector; ii) Annex II i.e., list of industries which are subject to compulsory licensing; and iii) List of industries reserved for small scale/ancillary sector. b)The proposed project is not located within 25 kms of standard urban area limits of a city with a population of more than 10 lakhs (1 million) according to the 1991 Census. The list is appended to this Manual. (Annex V) NOTE:- i) This condition will not apply to electronics, computer software, printing and other non polluting industries so notified from time to time. ii) This condition will also not apply to other industries provided they are located within the areas designated as "industrial areas" by the State Govt.(s). before 25th July, 1991. Notwithstanding the above, location of industrial projects will also be subject to Central or State Government environmental laws or regulations including local zoning and land use laws and regulations. 1(B) Policy Relating to Small Scale Undertaking An industrial undertaking having investment in fixed assets in plant & machinery, not exceeding Rs. 60 lakhs, is defined as a small scale unit. All small scale undertakings are exempted from industrial licensing requirements for all articles of manufacture excluding those listed in Annex I and Annex II. In addition all small scale undertakings are also exempted from industrial licensing for the article(s) of manufacture exclusively reserved for the small scale/ancillary sector even if they happen to be included in Annex II. Small scale units are, as before, exempted from locational conditions, subject to the provisions of any Central/State environmental laws or regulations including local zoning and land use laws & regulations. 1(C) Manufacture of Items Reserved for Small Scale Sector Manufacture of these items can be taken up by units other than small scale units provided they undertake an export obligation of a minimum of 75% of the new or additional production to be achieved within a maximum period of 3 years. Units intending to manufacture reserved items will need to apply for and obtain an industrial license from the Secretariat for Industrial Approvals as per the procedure applicable to the licensed sectors. In case an existing small scale unit crosses the investment limit of Rs. 60 lakhs, if it is manufacturing an unreserved and delicensed item, it would only have to file an IEM (details in Para 2 of this Chapter). In case it is manufacturing a reserved or licensable item, it would need to apply for a Carry on Business License as per procedure given in Para 4 of this Chapter. 1(D) Locational Requirements The New Industrial Policy has removed the earlier restrictions on location of industrial projects. The only restriction in force is that the proposed project should not be located within 25 kms from the periphery of the standard urban area limit of a city having a population of more than 10 lakhs according to 1991 census. However, if the industrial units were to be located in an area designated as`industrial area' by the concerned State Govt., before July 25, 1992, this restriction on location will not apply. Further, this restriction on location will not apply to electronics, computer software, printing or other non polluting industries notified from time to time. No further industry has been notified to be as non-polluting so far. The location of industrial projects will further be regulated by the local zoning and land use regulation as well as environmental legislations. Various State Govt.'s. have issued land use bye-laws restricting setting up of certain industries in certain areas in their respective territories. Similarly, various Ministries of Govt. of India have also enacted laws which, inter alia, restrict setting up of industries in some locations. For example, Ministry of Urban Development while drawing a Master Plan for NCT of Delhi have recommended a ban on setting up of medium and large scale projects in the territory of Delhi. Government of Maharashtra have also divided Mumbai Metropolitan into three zones specifying categories of industries which can be set up in these zones. Entrepreneurs would have to ensure that the location of their proposed project is not violative of such land use restrictions. 1(E) Environmental Clearance Entrepreneurs are required to obtain necessary clearances from the environmental angle before setting up an industrial project. In the case of small scale units, filing of an application would be sufficient for items with a low pollution load and there would also be no need for the industry to obtain periodic renewal consent till such time that a unit changes its process. Environmental clearance in respect of certain projects including Petrochemical Complexes, Petroleum Refineries, Chemical Fertilizers, Bulk Drugs, Distilleries, Dyes, Cement, etc. specified in Schedule I of Notification No. S.O. 60 (E) dated 27.01.1994 issued by the Ministry of Environment & Forests will need to be obtained from the Central Govt. in the Ministry of Environment & Forests. In case of items not falling in Schedule I of the Notification dated 27.01.1994, application for environmental clearance is to be submitted to the Department of Environment of the concerned State Government. The procedures for seeking environmental clearance in Central Govt./State Govt. as outlined in Notification dated 27.01.94 is, however, not applicable to projects like refineries, chemical fertilizers, petrochemical complexes, thermal power plants, paper and cement etc. if the investment is less than Rs. 50 crores. Environment clearance for setting up projects in Aravalli Range, Coastal Stretches, Doon Valley etc. is guided by separate guidelines issued by Ministry of Environmental and Forests. For further details regarding procedure for environmental clearance of industrial project, entrepreneurs may approach Ministry of Environment & Forests, Paryavaran Bhavan, Phase-II, CGO Complex, Lodhi Road, New Delhi-110003. 1(F) Substantial Expansion Substantial expansion of existing units is also exempted from the requirements of industrial licensing provided the item of manufacture is not listed in Annex I or Annex II and is not reserved for the small scale/ancillary sector. However, substantial expansion will be subject to the locational conditions outlined above. 1(G) Broad Banding/Manufacture of New Articles Existing units are permitted to manufacture any new article without additional investment provided the article is not subject to compulsory licensing. This facility is available notwithstanding any locational conditions. 2.Procedural Requirements for Delicensed Sector a) All industrial undertakings exempted from the requirements of industrial licensing, including existing units undertaking substantial expansion, shall file information in the prescribed Industrial Entrepreneurs Memorandum (Form IEM). b) The Memorandum (IEM) should be submitted to the Secretariat for Industrial Assistance (SIA); Department of Industrial Policy & Promotion, Ministry of Industry, Udyog Bhawan, New Delhi-110011. An acknowledgment receipt will be issued across the counter immediately. No further approval from SIA will be required. c) The IEM should be submitted along with a crossed demand draft of Rs. 1000/- drawn in favour of "The Pay & Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhawan Branch, New Delhi. d) All Industrial undertakings shall also file information in Part `B' of the Memorandum at the time of commencement of commercial production. The prescribed format is appended to Form IEM. This second Memorandum shall also be filed with the SIA. No payments will accompany this Memorandum.This is only for collecting statistical data on industrial production. e) The IEM in respect of delicensed items of drugs and pharmaceuticals industry shall also include additional information regarding requirement of raw material etc. in the prescribed format appended to the Press Note No. 4 (1994 Series) dated 25th October, 1994. f) Small Scale and ancillary units are not required to file an IEM with the SIA. Such units may continue to get themselves registered with the Director of Industries. g) No amendment/modifications will be made to the IEM already filed and acknowledged by the SIA unless the error is on account of wrong data entry in the computer. Where any amendment/modification is sought to be made, a fresh memorandum in FORM IEM, alongwith the prescribed fee should be filed. A fresh acknowledgment will be issued. In such cases it is advisable to clearly state that the earlier Memorandum is being withdrawn so that the earlier acknowledgment issued by the SIA is simultaneously cancelled. It is further clarified that an IEM would be cancelled/deleted from the SIA records if, on scrutiny, it found that the proposal contained in the IEM is licensable. 3.Procedural requirements of Licensed Sectors a) All industrial undertakings subject to compulsory industrial licensing are required to submit an application in the prescribed format (Form IL).The list of 14 industries under compulsory licensing is at Annex II to this Manual. Applications for the manufacture of chlorine and caustic soda, alongwith associated products should include information regarding the chlorine utilization programme in the prescribed proforma published in Press Note No.5, dated 28th October, 1994. b) Application in Form IL should be submitted to the Secretariate for Industrial Assistance (SIA), Department of Industrial Policy & Promotion, Ministry of Industry, Udyog Bhawan, New Delhi - 110001. Approvals will normally be available within 6-8 weeks of filling the application. c) The application, in Form IL, should be submitted along with a crossed demand draft of Rs. 2500/- drawn in favour of the Pay & Accounts Officer, Department of Industrial Development, Ministry of Industry, payable at the State Bank of India, Nirman Bhawan, New Delhi. 4. Carry on Business (COB) Licenses Submission of Monthly Production Returns A COB license is required, interalia, when a non industrial undertaking becomes an `industrial undertaking' and on withdrawal of the exemption under delicensing scheme. Certain industries previously exempted from the requirements of industrial licensing were brought under compulsory licensing under the New Industrial Policy. It is clarified that such industrial undertakings need not apply for a carry on business (COB) license provided they have a valid registration granted to them, prior to 25.07.1991, by the Secretariat for Industrial Assistance (SIA) or the Directorate General of Technical Development (DGTD) or any other technical authority. This registration will permit them to carry on business in respect of articles, quantity & location mentioned in it. Small scale/ancillary industrial undertakings which are engaged in the manufacture of items exempted from compulsory industrial licensing of items not reserved for SSI are not required to obtain a COB license on crossing the investment limits prescribed for them. Such undertakings are required to file an Industrial Entrepreneurs Memorandum (IEM) in the prescribed form as per procedure already outlined. In such cases the location of the undertaking are subject to local zoning and land use laws and regulations. The application for grant of a COB license should be submitted in the prescribed form i.e., Form EE, to the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy & Promotion, Ministry of Industry, Udyog Bhawan, New Delhi - 110011. The application should be submitted alongwith a crossed demand draft of Rs. 2500/- drawn in favour of "The Pay & Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhawan Branch, New Delhi. 5.Submission of Monthly Production Returns All industrial undertakings, whether they are exempted or not from the requirements of compulsory industrial licensing, are required to submit a monthly production return in the revised proforma to the concerned technical authorities viz. Deputy Director (Statistics), Secretariat for Industrial Assistance (SIA), Dept. of Industrial Policy & Promotion, Iron & Steel Controller; Coal Controller, Directorate of Sugar; Director of Vanaspati, Vegetable Oils & Fats and Textile Commissioner, as the case may be. A copy of the monthly production return should also be submitted to the concerned Administrative Ministry/Department. In the case of small scale/ancillary industrial undertakings, the monthly production return should be submitted to the appropriate State Govt. or Commissioner of Industries and to the Department of Small Scale and Agro & Rural Industries, Govt. of India along with a copy to the Small Industries Service Institute. 6.New Classification System The Entrepreneurs/investors are required to give the description of activities in National Industrial Classification of all Economic Activities (NIC), 1987, while submitting applications to the Reserve Bank of India (RBI)/Government for various Industrial Approvals to the Secretariat for Industrial Assistance Copies of the National Industrial Classification of All Economic Activities (NIC), 1987 published by the Ministry of Planning, Central Statistical Organisation, New Delhi can be obtained on payment from the Controller of Publications, 1 Civil Lines, Delhi - 110054 or from any of the agents authorized to sell Govt. of India publications. 7.Abolition of Registration Schemes and deletion of conditions i) Various schemes of registration namely, the Delicensed Industries Schemes (DLR), Exempted Industries Registration Scheme (EIR) and registration with other technical authorities including Textile Commissioner and Development Commissioner for Iron & Steel, have been abolished w.e.f. 24.07.1991. ii) The System of Phased Manufacturing Programme (PMP) has been discontinued w.e.f. 24.07.1991. Its applicability to the existing projects has been abolished w.e.f. April, 1994. iii) Various conditions relating to export obligations, foreign exchange neutrality, prohibition of merchant sale, setting up of join sector units by SIDCs and financial management on MRTP/FERA companies have been deleted from the Letter of Intent/Industrial Licenses granted for delicensed items from July, 1993. Foreign investment 1. The stated objective of the New Industrial Policy is to invite and facilitate foreign investments and, accordingly, simplified mechanisms have been installed for providing expeditious approvals. Under the new Policy, all foreign investments and returns on them, are fully repatriable, except where the condition of diverted balancing is applicable (details in Para 3). Foreign Investments are approved through two routes:- A) Automatic B) Government 2(A) Automatic Route The Reserved Bank of India, accords AUTOMATIC APPROVALS to all proposals:- a) Where the foreign investment in the equity capital of the Indian Company is upto 50/51/74% (as the case may be as applicable to the list of Industries/items given in Annex III, Annex III Part `A', Part `B', and Part `C'), and b) Where the foreign investment in the equity capital of the Indian Company is proposed in high priority industries listed in Annex III, Annex III Part `A', Part `B' and Part `C' of the Statement on the Industry Policy, 1991 and Press Note No. 2 (197 Series) dated 17.01.1997. The list is appended to this Manual at Annex III, Annex III Part `A', Part `B' and Part `C' respectively; and Note: - i) Import of plant and machinery would be as per the existing EXIM Policy ii) It should be noted that the import of components, raw materials and intermediate goods and payment of know how fees and royalties are governed by the General policies applicable to other domestic units. iii) The outflow on account of dividend payments is to be balanced by export earnings over 7 years in case the foreign investment is in the 22 consumer sectors listed in Annexure VI to this Manual. Applications for automatic approval of such foreign investment proposals should be submitted in Form FC(RBI) to the Reserve Bank of India, Exchange Control Department, Shaheed Bhagat Singh Road, Mumbai - 400023. No fee is payable. The automatic approval of the RBI includes exemption from the operation of provisions of the Foreign Exchange Regulation Act, 1973 (FERA), where applicable. Such approvals are normally available within two weeks of filing the application. 2(B) Government Approval All other proposals for foreign investment, which do not fulfill any or all of the parameters prescribed for automatic approval, are considered for approval, on merits, by the Government. These include proposals for foreign investment:- a) Within or upto 51% in industries not listed as high priority in Annex III, Annex III Part `A', Part `B' and Part `C' of the Statement on Industrial Policy and Press Note No. 2 (1997 Series) dated 17.01.1997 respectively. b) Beyond 50/51/74% as the case may be as applicable to the List of Industries/ Items given in Annex III, Annex III Part `A', Part `B' and Part `C'. c) In the service sectors including those in consultancy and financial sector. d) Involving special features. e) Items reserved for Small Scale Sector, f) Items requiring Industrial License under the existing policy. g)Proposals for increase in foreign equity where Automatic approval is not available (Please see Para 4(B) Under the New Industrial Policy, proposals for foreign investment need not necessarily be accompanied by foreign technology agreements. All such proposals,including those proposing investments by NRIs or in 100% export oriented units, are considered for approval by the Foreign Investment Promotion Board (FIPB).Composite proposals i.e, proposals seeking other industrial approvals like industrial license, technical collaborations etc. alongwith approval for foreign investment, are given composite clearance by the FIPB. A Monitoring officer, an officer from the Administrative Ministry, is to be appointed to help process and implement the project in conjunction with the state and central authority for every foreign investment proposal exceeding Rs.100 Crores. Decision on all froeign investment proposal would be taken within a period of 90 days. Note:- i) Import of plant and machinery would be as per the existing EXIM Policy. ii)It should be noted that the import of components, raw materials and intermediate goods and payment of know how fees and royalties are governed by the general policies applicable to other domestic units. iii) The outflow on account of dividend payments is to be balanced by export earnings over 7 years in case the foreign investment is in the 22 consumer sectors listed in Annexure VI to this Manual.The Foreign Investment Promotion Board has been recently revamped and has the following composition: 1. Industry Secretary - Chairman (Secretary, Dept. of Industrial Policy & Promotion) Government of India 2. Finance Secretary Government of India 3. Commerce Secretary Government of India 4. Secretary (Economic Relations) Ministry of External Affairs Government of India Other Secretaries to the Government of India and officials of financial institutions, banks and professional experts of Industry and Commerce,can be co-opted as and when necessary. The guidelines for consideration of Foreign Direct Investment (FDI) proposals by the Foreign Investment Promotion Board (FIPB) as amended by Government vide Press Note No. 3 (1997 Series) dated 17.01.1997 or and Annexure IV of this Manual. Procedures Applications for approval of such foreign investment proposals should be submitted in Form FC (SIA). Plain paper applications carrying all relevant details are also accepted. No fee is payable Application can be submitted with the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy & Promotion, Ministry of Industry, Udyog Bhavan, New Delhi 110011. Applications can also be submitted with Government of India's Missions abroad who will forward them to the SIA for further processing. Foreign investment proposals received in the Secretariat for Industrial Assistance are placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. The Board has the flexibility of purposeful negotiation with the investors and considers project proposals in totality and free from parameters, in order to ensure maximum foreign direct investment into the country. The recommendations of FIPB in respect of project proposals each involving a total investment of Rs. 600 crores or less are considered and approved by the Industry Minister. Projects with a total investment of above Rs. 600 crores are submitted to the Cabinet Committee on Foreign Investment (CCFI) for decision. The decision of the Government in all cases are conveyed by the Secretariat for Industrial Assistance normally within 6 weeks. 3.Dividend Balancing Prior to 26th June, 1992, all foreign investment approvals given by the RBI and the Government, carried the condition of Dividend Balancing. As part of its continuing economic liberalization programme, and, to further stimulate foreign investment, Govt. in 1992 decided NOT to impose the condition of dividend balancing in foreign investment approvals except for 22 specified industries in the consumer goods sector. The list of these industries is given in Annexure VI of this Manual. This condition is applicable to all projects falling in this list whether approved by the Government or the Reserve Bank of India. The condition of dividend balancing does not apply to investments by approved international organisations like the International Finance Corporation, The Deutsche Entwicklungs Gescllshaft (DEG), the Commonwealth Development Corporation, the Asian Development Bank etc. Where applicable, foreign investment approvals issued in the past, which carry the condition of dividend balancing, but do not fall under the revised list of Annexure VI of this Manual are deemed to have been exempted from the operation of this condition and no separate amendment in the approval letter is necessary. Where the condition of dividend balancing applies, the outflow of foreign exchange on account of dividend payments is to be balanced by export earnings, on the following basis:- a) The balancing of dividend is over a period of 7 years form commencement of production. Balancing is not required beyond this period. b) Remittance of dividend should be covered by earnings of the company from export of items covered by the foreign collaboration agreement. Remittance of dividend can also be covered from earnings through export of items not mentioned in the agreement provided these are in the list of industries mentioned in Annex III, Annex III, Part `A'Part `B' and Part `C'. The amount of dividend payment may be covered by export earnings of such items recorded in years prior to the payment of dividend or in the year of payment of dividend. 4.Raising Foreign Equity in Existing Companies The Government have promulgated Ordinance No. 9 of 1992 by which the Capital issues (Control) Act of 1947 has been repealed. The Securities and Exchange Board of India (SEBI) had subsequently issued guidelines on 11th and 17th June, 1992 and again on 4th August, 1994 prescribing, inter alia, the procedures for issue of shares and valuation thereof. This has simplified the procedure for raising equity in existing companies. Approval for raising foreign equity in existing companies is now available on the automatic route and by Government approval, as described below. 4A) Automatic Route The Reserve Bank of India accords AUTOMATIC APPROVAL for:- a) Expansion Programmes Existing companies can raise foreign equity upto 51% as part of an expansion programme, provided the expansion is in the high priority sectors listed in Annex III, Annex III Part `A', Part `B' and Part `C'. The equity should be part of the financing of the expansion programme. The increase in equity level must result from expansion of the equity base of the existing company and the money to be remitted should be in foreign exchange. The Company itself need not be exclusively engaged in activity listed in Annex III, Annex III Part `A', Part `B' and Part `C' , only the proposed expansion must be predominantly in sector shown in Annex III, ANNex III Part `A', Part `B' and Part `C'. b) Without an Expansion Programme Existing companies wishing to raise foreign equity upto 51% without an expansion programme, can do so, provided they are predominantly engaged in the high priority industry sectors listed in Annex III, Annex II Part `A', Part `B' and Part `C'. The increase in equity level must result from expansion of the equity base of the existing company. The foreign equity must be from remittance of foreign exchange. Procedure Applications for approval of such proposals should be submitted in form FC(RBI) to the Reserve Bank of India, Exchange Control Department, Shaheed Bhagat Singh Road, Mumbai - 400023. No fee is payable. Companies undertaking expansion programmes, must clearly give the description of the activities in National Industrial Classification of all Economic Activities (NIC), 1987. The proposal should be a composite one including detailed information on the capital goods to be imported for the expansion programme. Under the provisions of the policy,the proposed foreign equity must cover the import of capital goods required for the expansion programme. It should be accompanied by a Resolution of the Board of Directors of the existing Indian Company as well as consent letter from the Indian Partner and Foreign Collaborator. Similarly, in the case of companies not undertaking an expansion programme, the applications must describe the existing products(s) of the company in National Industrial Classification of all Economic Activities (NIC), 1987. The Reserve Bank of India accords necessary permission for foreign equity investment under the Foreign Exchange Regulation Act 1973 (FERA). This permission, inter-alia, includes exemption from the operation of section 26(7), 28, 29 and 31 of FERA. Simultaneously, the Reserve Bank of India confirms that the import of capital goods is covered by the Foreign Equity. The import of capital goods is governed by the Import and Export Policy in force. The condition of Dividend Balancing would apply only for the 22 specified consumer goods sectors listed in Annexure VI of this Manual. Issue and Valuation of Shares On receipt of RBI approval, the company must pass a special resolution under section 81(1)(A) of the Companies Act proposing preferential allocation of the required volume of equity to the foreign investor. In respect of the equity holding of financial institutions in such companies, the concerned financial institutions may support such proposals provided, in their commercial judgment, they are in the interest of the Company. In accordance with the fresh guidelines issued by the SEBI on 4th August, 1994, existing companies wishing to raise foreign equity upto 51% can make the issue at market price of the shares of the following: The average of the weekly high and low the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date : OR The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. Explanation a) "relevant date" for this purpose means the date thirty days prior to the date on which the meeting of General Body of shareholders is convened, in terms of Section 81 (1A) of the Companies Act to consider the proposed issue; b) "stock exchange" shall mean any of the stock exchanges in which the shares are listed and in which the highest trading volume in respect of the shares of the company has been recorded during the preceding six months prior to the relevant date. These guidelines of pricing in connection with preferential allotment to non-residents would apply to all foreign investment approvals to be issued by the Reserve Bank of India under automatic routes as well as by the Government. The shares allotted on preferential basis will not be transferable in any manner for a period of 5 years from the date of their allotments. The above instructions also apply to companies where there is no foreign share holding of present. 4(B) Government Approval All other proposals for raising foreign equity in existing companies, including proposals involving raising of foreign equity upto 51% in existing companies, where any or all of the conditions for automatic approval are not met, as well as proposals for raising of foreign equity beyond 51% in existing companies are considered by the Government. Procedure The application and clearance procedures are the same as outlined in Para III 2(B) of this Chapter for non automatic foreign investment proposals under the heading "Government Approvals".The applications should be accompanied by a Resolution of the Board of Directors of the existing company and a consent letter from the Indian partner/foreign collaborator. Procedure for valuation and issue of shares shall be as described in Para 4(A). 5.Foreign Investment in the Small Scale Sector To provide access to the capital market and to encourage modernization and technological upgradation in the small scale industry sector, equity participation upto 24% of the total share holding is allowed in the SSI by other industrial undertakings (including foreign collaborators). Applicants seeking foreign equity investment beyond 24% in the small scale sector have the option of giving up their SSI status and obtaining an industrial License/filing an Industrial Entrepreneurs Memorandum (IEM) as applicable. Alternatively, he can exercise the option of restricting foreign equity investment of 24% and retain their SSI status. It is further clarified that in respect of items exclusively reserved for the small scale considered for approval if the proposal is accompanied by a commitment to export 75% of the production. Similarly, a non-SSI unit may also manufacture an item reserved for the SSI sector provided it under takes an export obligation of 75% of its production. Procedure The application and clearance procedure will be the same as outlined in Para 2(B) of this Chapter under the heading "Government Approvals". Approval for all proposals in this sector is granted by the Government. 6. Foreign Investment Policy-Some sector Specific provisions 6(1) Trading Activities Foreign Investment in this sector is approved by both the RBI and the Government. A. Automatic Approval The new Industrial Policy has allowed trading companies primarily engaged in export activities, to have foreign equity upto 51% through the automatic route. This facility is available to export houses, trading houses, super trading houses and star trading houses registered under the provisions of Import and Export Policy in force. The RBI accords this automatic approval under the following conditions: (A) A new company will have to register itself with the Minister of Commerce, i.e. Office of the Directorate General of Foreign Trade as an exporter/importer. Repatriation of dividend is permissible only after the company has acquired certification as an Export House/Trading House/State Trading House under the provisions of the prevailing Import and Export Policy. (B) In the case of an existing company already registered as an Export House/Trading House/Star Trading House, on receipt of the RBI approval, the company must pass a special resolution under Section 81(1) (A) of the companies Act proposing preferential allocation of the required volume of fresh equity to the foreign investor. The issue of shares and valuation there of will be as per fresh guidelines issued by SEBI on 4th August, 1994. This applies mutates mutandis to closely held companies. Application for approval of such proposals should be submitted in Form FC(RBI) to the Reserve Bank of India, Exchange Control Department, Shaheed Bhagat Singh Road, Mumbai - 400 023. No fee is payable. The Reserve Bank of India issues the necessary permission for the foreign equity investment under the Foreign Exchange Regulation Act, 1973. Inter-alia this permission includes exemption from the operation of Section 26(7), 28, 29, & 31 of FERA. The condition of Dividend Balancing is applicable only in respect of the consumer goods sector listed/specified in Annex V of this Manual. In such cases the balancing of dividend is over a period of 7 year reckoned form the date of recognition as Export House/Trading House/Star Trading House for new companies and from the date of allotment of the shares, raising the level of foreign equity to the approved level in the case of existing companies. B. Government Approval All other proposals for foreign investment in trading companies, which do not meet any or all of the criteria for automatic approval, are subject to procedure outlined in Para 2(B). FDI of upto 100% is permitted in Trading Companies subject to the conditions stated in Para 14 of the Guidelines of the FIPB at Annexure IV of this Manual. These are:-
Dividend Balancing is applicable to all such proposals. 6(2) Foreign Investment in Hotel & Tourism Related Industry Tourism related industry falls in the list of highpriority industries (Annex III), this is a sector with immense possibilities for foreign investment 100% foreign equity is permissible in the sector and automatic approvals are also granted by the Reserve Bank of India for foreign equity upto 51% and subject to specified parameters. The term "Hotels" include Restaurants, Beach Resortsand other Tourist Complexes providing accommodation and/or catering and food facilities to tourists. It is further clarified that "Tourism related industry" includes among others, the following:-
Foreign technology agreements for the Hotel Industry are eligible for automatic approval by the Reserve Bank of India subject to the following criteria.
6(3) Foreign Investment through GDRs (Euro Issues) Foreign Investment through GDRs is treated as Foreign Direct Investment Indian companies are allowed to raise equity capital in the international market through the issue of Global Depository Receipts (GDRs). GDRs are designated in dollars and are not subject to any ceilings on investment. An applicant company seeking Government's approval in this regard should have consistent track record for good performance (financial or other wise) for a minimum period of 3 years. This condition would be relaxed for infrastructure projects such as power generation, telecommunication petroleum exploration and refining, ports, airports and roads. There is no restriction on the number of Euro issue to be floated by a company or a group of companies in a financial year. A company engaged in the manufacture of items covered under Annex-III of the New Industrial policy whose direct foreign investment after a proposed Euro issue is likely to exceed 51% of which is implementing a projects no contained in Annex-III would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance. The proceeds of the GDRs can be used for financing capital goods imports, capital expenditure including domestic purchase/installation of plant, equipment and building and investment in software development, prepayment or scheduled repayment of earlier external borrowings and equity investment in JV/WOSs in India. However, investment in stock markets and real estate well not be permitted. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end uses. 6(4) Venture Capital Fund An offshore venture capital company may contribute 100% of the capital of a domestic assets management company to manage the fund. VCFs and VCCs are permitted upto 40% of their investment of the paid up capital of an unlisted company and individual VCF/VCCs shall not exceed 50% of the paid up corpus of the domestic VCF/VCCs. 6(5) Bilateral Investment There exist bilateral agreements between India and UK, Germany, Netherlands , Singapore, Malaysia. Details could be obtained from the Department of Economic Affairs or the SIA. 6(6) Double Taxation Treaty Treaties have been signed with a number of countries for avoidance of double taxation. 7. Foreign Technology Agreements With a view to injecting the desired level of technological dynamism in Indian industry and for promoting an industrial environment where the acquisition of technological capability receives priority, simplified approval mechanisms have been provided for foreign technology agreements. Approval is given on the Automatic Route by the RBI and in other cases, by the Government, as detailed below. 7(A) Automatic Route The Reserve Bank of India, accords AUTOMATIC APPROVAL to ALL industries (Annex III as well as other for foreign technology agreement with in the following monetary/royalty limits - a lumpsum payment not exceeding US $ 2 Million, 5% royalty for domestic sale and 8% for exports, subject to a total payment of 8% on sales over a 10 year period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and are calculated according to standard conditions detailed in the application form. Procedure Applications for automatic approval for such foreign technology agreements should be submitted in form FC (RBI) with the Reserve Bank of India, Exchange Control Department, Shaheed Bhagat Singh Road, Mumbai - 400023. No fee is payable. Approvals are available with in 2 weeks. 7(B) Government Approval All other proposals for foreign technology agreements not meeting any or all of the parameters for automatic approval, are considered for approval , on merits, by the Government. Procedure Application in respect of such proposals should be submitted in Form FC(SIA) to the Secretariat for Industrial Assistance, Department of Industrial Policy & Promotion, Ministry of Industry, Udyog Bhavan, New Delhi. No fee is payable. Approvals are normally available within 4 to 6 weeks of filing the application. 8. Extension of Foreign Technology Agreements Extension of foreign technology agreement require the approval of the Government under the existing procedure. This also includes cases which have received automatic approval in the first instance. Applications should be submitted in Form FC(SIA) to the SIA. 9. Hiring of Foreign Technicians No permissions is necessary for hiring of foreign technicians and hence no application needs to be made to the Government for this purpose irrespective of the fact that the hiring of foreign technicians is under an approved collaboration or otherwise. Full powers have been delegated by the Government to the Reserve Bank of India, which in turn has empowered authorize dealers for release of foreign exchange payments in this regard. 10. Deputation of Indian Technicians Abroad For deputing Indian personnel for training and other purpose abroad, the entrepreneur may approach authorized dealers directly for permission as per guidelines and procedures already laid down by the Reserve Bank of India. 11. Opening of Branch Offices in India by Foreign Companies Foreign companies engaged in manufacturing and trading activities abroad may approach the Reserve Bank of India for seeking permission to open branch/project/liaison offices in India for the purpose of carrying on the following activities in India.
12. Foreign Testing of Indigenous Raw Materials and Products and Indigenously Developed Technology Full powers have been delegated by the Government to the Reserve Bank of India, which in turn has empowered authorized dealers for release of foreign exchange payments in this regard. Necessary guidelines and procedures laid down by the Reserve Bank of India are to be observed. 13. Use of Foreign Brand Names/Trade Marks for Internal Sale It has been decided by Government that the earlier restriction prohibiting the use of any foreign brand name/ trademark on goods for sale within the country shall no longer be imposed while granting letters of intent and foreign investment/foreign technology approvals. In past cases where such a condition was imposed, the entrepreneur/ company concerned can take up the matter with the SIA in case a formal deletion of the condition is desired. 14. Investment by Non-Resident Indians (NRI) In accordance with the importance attached to investments in India by Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) predominantly owned by them (i.e., companies in which NRIs hold at least 60% of the equity), Government have provided a liberalized policy framework and simplified procedures for approval of NRI investments by both the automatic route and through Government approval as given below. The Reserve Bank of India accords AUTOMATIC APPROVAL to all proposals for NRIs and OCBs predominantly owned by them permitting investment upto 100% equity in high priority industries listed in Annex III, Annex III Part `A', Part `B' and Part `C'. The approval includes full benefits of repatriation of capital invested and income accruing thereon. Procedure Applications for setting up units under EHTP/STP Schemes should be submitted to the Secretariat for Industrial Assistance, Department of Industrial Policy & Promotion alongwith a crossed demand draft of Rs. 2500/- if the item of manufacture requires a Letter of Intent or Rs. 1000/- if the item of manufactures does not require a Letter of Intent. This should be drawn in favour of the "Pay & Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhavan, New Delhi. IV. INVESTMENT PROMOTION AND FACILITATION 1. Foreign Investment Promotion Board (FIPB) The Government has recently revamped the FIPB and transferred it to the Industry Ministry. The FIPB is the nodal, single window agency for all matters relating to FDI as well as promoting investment into the country. It is Chaired by Secretary Industry (Department of Industrial Policy & Promotion). Its objective is to promote FDI into India:-
After its revamping, the FIPB has played a proactive role in promoting and attracting FDI into the country and further facilitating expeditious clearance to the proposals submitted to it. Its first major promotional venture, "Destination India", organized by the Ministry of Industry and FICCI which was well reviewed by investors. Over 1000 foreign and domestic investors participated in this seminar. Viewing this as a unique forum for free frank interaction between the Senior Members of the Government, Foreign Investors and Captains of Indian Industry, the Government has decided to make it an annual feature and would hold one or more events every year in India and abroad. The FIPB has, in January, 1997, signed a MOU with the Board of Investment, Thailand for promoting investment. The FIPB has also decided to monitor implementation of mega projects to further facilitate investment and remove bottlenecks and as a part of this exercise, to get studies commissioned through professional bodies. 2. Foreign Investment Promotion Council (FIPC) Apart from making the policy framework investor friendly and transparent, promotional measures are also taken to attract Foreign Direct Investment into the country. The Government has recently constituted a Foreign Investment Promotion Council (FIPC) in the Ministry of Industry. This comprises of professionals from Industry and Commerce. It has been set up to have a more target oriented approach toward Foreign Direct Investment Promotion. The basic functions of the Council are to identify the sector/projects within the country requiring Foreign Direct Investment and target specific regions/countries of the world from where FDI will be brought through special efforts. The Council shall also prepare sectoral profiles and project proposals for such industries for presentation to the selected international companies and foreign investors. 3. Entrepreneurial Assistance Unit (EUA) The Entrepreneurial Assistance Unit functioning under the Secretariat for Industrial Assistance, Department of Industrial Policy & Promotion provides assistance to entrepreneurs on various subjects concerning investment decisions. The unit receives all papers/applications related to industrial approvals and immediately issues on acknowledgment receipt which also has an identify/reference number. All correspondence, if any, with the SIA should quote this number. In case of papers filed by post, the acknowledgment will be intimated by post. The Unit extends this facility to all papers/applications relating to IEMs, ILs, Foreign Investment, Foreign Technology Agreements, 100% EOUs, NRIs etc. The Unit also attends to inquiries from entrepreneurs relating to a wide range of subjects concerning investment decisions. It furnishes clarifications and arranges meetings with nodal officers in concerned Ministries/ Organisations. The Unit also provides information regarding the current status of applications filled for various industrial approvals. It also provides information regarding infrast- ructure facilities and incentives provided by the State Government for industrial ventures. 4. Investment Promotion and Infrastructure Development (IP&ID) In order to give further impetus to facilitation and monitoring of investment as well as for better coordination of infrastructural requirements for the industry, a new cell called the "Investment Promotion and Infrastructure Devel- opment Cell" has been created.
5. Business Ombudsperson To facilitate expeditious redressal of grievances and attend to complaints relating to delays in grant and implementaion of industrial approvals and facilitate their disposal, the Government has appointed a BUSINESS OMBUDSPERSON in the Ministry of Industry. Additional Secretary & Financial Adviser in the Ministry of Industry has been nominated to act as Business Ombudsperson. Source: DBI (VER 6.11)
Last Upate: July 31, 1998 |
