April 08, 2002

'17'

    In pursuance of Government’s commitment to further facilitate Indian industry to engage unhindered in various activities, Government has permitted, except for a small negative list, access to the automatic route for FDI. The automatic route means that foreign investors only need to inform the Reserve Bank of India within 30 days of bringing in their investment, and again within 30 days of issuing any shares. The negative list includes the following:

1. All proposals that require an industrial license because the activity is licensable under the Industries (Development and Regulation) Act, 1951, cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for small scale industries, and all activity that requires an industrial license in terms of the locational policy notified by Government under the Industrial Policy of 1991
2. All proposals in which the foreign collaborator has a previous venture/tie up in India.
3. All proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/Non Resident Indian (NRI)/ Overseas Corporate Body (OCB) investor.
4. 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 Foreign Investment Promotion Board and not to avail of the automatic route.

• Non-Banking Financial Companies may hold foreign equity up to 100% if these are holding companies. The minimum capitalisation norms for fund based NBFCs are:

1. For FDI upto 51% - US $ 0.5 million to be brought upfront
2. For FDI above 51% and up to 75% - US $ 5 million to be brought upfront
3. For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million to be brought upfront and the balance in 24 months.

• For non-fund based activities, minimum capitalisation norm of US $ 0.5 million is applicable in respect of all permitted non-fund based NBFCs with foreign investment.
• Foreign investors can set up 100% operating subsidiaries (without any restriction on number of subsidiaries) without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US $ 50 million, out of which US $ 7.5 million to be brought upfront and the balance in 24 months.
• Joint venture operating NBFCs that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFCs activities, subject to the subsidiaries also complying with the applicable minimum capital inflow.
• FDI up to 49% from all sources is permitted in the private banking sector on the automatic route subject to conformity with RBI guidelines.

• In the process of liberalisation of FDI policy, the following policy changes have been made :

1. 100% FDI permitted for B to B e-commerce
2. Condition of Dividend Balancing on 22 consumer items removed forthwith.
3. Removal of cap on foreign investment in the Power sector
4. 100% FDI permitted in oil-refining

• Automatic Route is available to proposals in the Information Technology sector, even when the applicant company has a previous joint venture or technology transfer agreement in the same field.

• Automatic Route of FDI upto 100% is allowed in all manufacturing activities in Special Economic Zones (SEZs), except for the following activities :

1. Arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships ;
2. Atomic substances ;
3. Narcotics and psychotropic substances and hazardous chemicals ;
4. Distillation and brewing of alcoholic drinks; and
5. Cigarettes/cigars and manufactured tobacco substitutes.

• FDI up to 100% is allowed with some conditions for the following activities in Telecom sector:

1. ISPs not providing gateways (both for satellite & submarine cables) ;
2. Infrastructure Providers providing dark fiber (IP Category I) ;
3. Electronic Mail ; and
4. Voice Mail.

• FDI up to 74% permitted for the following telecom services subject to licensing and security requirements (proposals with FDI beyond 49% shall require prior Government approval):

1. Internet services providers with gateways;
2. Radio paging ; and
3. End-to-end bandwidth

• Payment of royalty up to 2% on exports and 1% on domestic sales is allowed under automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer.

• International Financial Institutions like ADB, IFC, CDC, DEG, etc., are allowed to invest in domestic companies through the automatic route, subject to SEBI/RBI guidelines and sector specific caps on FDI.
• Industrial licences/Letter (s) of Intent issued by the Secretariat for Industrial Assistance (SIA) in the past carrying the condition of export obligation have been exempted from the operation of this condition for items which stand deserved by an appropriate notification.
• Investment limit raised to Rs. five crore for 41 SSI reserved items by amending IDR Act, 1951.
• To strengthen economic co-operation with particular emphasis on investment flow, the first meeting of India Japan Investment Dialogue (IJID) was held on 10^th August, 1999 in New Delhi. Both sides agreed to maximise Japanese FDI inflows for 2000 and beyond; build in a periodic review mechanism to enable effective monitoring and midstream interventions; to identify priority sectors for Indo-Japanese co-operation and to consider steps for promoting technology transfer in priority sectors. For this, three Working Groups have been set up for information technology, food processing and infrastructure.

    The second meeting of IJID was held on 7.12.2000 in Tokyo. It was decided that in addition to the existing Working Groups, three more Working Groups on Chemicals, Environment and Implementation issues may be set up in CII & FICCI respectively under the aegis of IJID.

• FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY (FIIA) -

    The Government has set up the Foreign Investment Implementation Authority (FIIA) in the Ministry of Commerce & Industry. The FIIA has mandate to provide translation of Foreign Direct Investment (FDI) approvals into implementation, provide a pro-active one stop after care service to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various Government agencies to find solutions to problems and maximising opportunities through a partnership approach. The FIIA may co-opt other Secretaries to the Government of India, Chief Commissioner (NRI), top functionaries of financial institutions and professional experts from industry and commerce, as and when necessary. The Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion shall function as the Secretariat of the FIIA.

    For conducting meeting of FIIA, the country has been divided into four regions. So far, eight meetings of FIIA have been held. The region-wise break-up of the meetings is – northern (3), western (2), southern (2) and eastern (1).