bangaindigenous: MANUAL Of FDI in India

MANUAL

ON

FOREIGN DIRECT INVESTMENT

IN

INDIA

- Policy and Procedures

MAY- 2003

SIA

(Secretariat for Industrial Assistance)

Department of Industrial Policy and Promotion

Ministry of Commerce and Industry

Government of India

New Delhi

Published by:

Secretariat for Industrial Assistance

Department of Industrial Policy and Promotion

Ministry of Commerce and Industry

Government of India, New Delhi

May, 2003

This Manual on ‘Industrial Policy and Procedures in India’ is intended to serve as a

comprehensive guide to prospective investors/entrepreneurs and does not purport to

be a legal document. In case of any variance between what has been stated in this Manual and

that contained in the relevant Act, Rules, Regulations, Policy Statements, etc., the latter shall

prevail.

FOREWORD

In recognition of the important role of Foreign Direct Investment(FDI)

in the accelerated economic growth of the country, Government of India

initiated a slew of economic and financial reforms in 1991. India is now

ushering in the second generation reforms aimed at further and faster

integration of Indian economy with the global economy. As a result of the

various policy initiatives taken, India has been rapidly changing from a

restrictive regime to a liberal one, and FDI is encouraged in almost all the

economic activities under the automatic route.

2. Over the years, FDI inflow in the country is increasing. However,

India has tremendous potential for absorbing greater flow of FDI in the

coming years. Serious efforts are being made to attract greater inflow of

FDI in the country by taking several actions both on policy and

implementation front. Since the last publication of the Manual in

November 2002, Foreign Investment Promotion Board has been shifted to

Department of Economic Affairs, Ministry of Finance and Company Affairs.

However, the subject relating to FDI Policy and its promotion and

facilitation as also promotion and facilitation of investment by Non-

Resident Indians(NRIs) and Overseas Corporate Bodies (OCBs) will

continue to be handled by this Department. Further, application form

required for Carry on Business(COB) License has been revised. These

changes have been incorporated in this issue of the Manual. In Annexure-

IV of this Manual, guidelines regarding print media has been also

elaborated. To make the Manual more user-friendly, some new additions

have been made such as write-up on Department’s website, online Chat

and Bulletin Board facilities, brief details of clearances/approvals required,

agencies concerned and their website address and Frequently Asked

Questions. As the main emphasis of the Manual is to facilitate more FDI in

India, from this issue the name of the Manual has been also changed.

3. An essential requirement of the foreign investing community in

making their investment decision is availability of timely and reliable

information about the policies and procedures governing FDI in India. This

publication is a part of our endeavour to apprise the investing community

of our policy measures and the opportunities available for investment in

India.

4. We hope that this Manual will be found useful by the investing

community. We welcome suggestions for its improvement.

V. Govindarajan

New Delhi

May , 2003

CONTENTS

POLICY

1. INDUSTRIAL POLICY 1

Industrial Licensing 1

Industrial Entrepreneurs Memorandum (IEM) 1

Locational Policy 1

Policy Relating to Small Scale Undertakings 1

Environmental Clearances 2

2. FOREIGN DIRECT INVESTMENT 2

Automatic Route

(a) New Ventures 2

(b) Existing Companies 2

Government Approval 3

Issue and Valuation of Shares in case of existing companies 3

Foreign Investment in the Small Scale Sector 4

Foreign Investment Policy for Trading Activities 4

Other Modes of Foreign Direct Investments 4

Preference Shares 4

3. NVESTMENT BY NON RESIDENT INDIANS AND OVERSEAS CORPORATE

BODIES 5

4. FOREIGN TECHNOLOGY AGREEMENTS 5

Automatic Approval 5

Government Approval 5

5. 100% EXPORT ORIENTED UNITS/ EXPORT PROCESSING ZONES/

SPECIAL ECONOMIC ZONES 6

Automatic Approval 6

Government Approval 6

6. ELECTRONIC HARDWARE TECHNOLOGY PARK AND

SOFTWARE TECHNOLOGY PARK SCHEMES 7

Automatic Approval 7

Government Approval 7

PROCEDURES

7. APPROVAL PROCEDURES 7

7.1 General Procedures

Industrial Entrepreneurs Memorandum (IEM) 7

7.2 Procedural Requirements for Licensed Sectors 8

Industrial Licence 8

Carry on Business (COB) Licence 8

8. FOREIGN DIRECT INVESTMENT 8

Procedure for Automatic Route 8

Procedure for Government Approval 8

Foreign Investment Promotion Board (FIPB) 8

9. FOREIGN TECHNOLOGY COLLABORATION 9

Procedure for Automatic Approval 9

Procedure for Government Approval 9

10. 100% EXPORT ORIENTED UNITS AND UNITS SET UP IN EPZ/FTZ/SEZ 9

A. Procedure for Approval for EOUs 9

Procedure for Automatic Approval for EOUs 10

Procedure for Government Approval for EOUs 10

Procedure for Foreign Direct Investment/NRI investment 10

B. Procedure for Approval for units located In EPZ/FTZ/SEZ 10

Procedure for Automatic Approval for units located in EPZ/FTZ/SEZ 10

Procedure for Government Approval for units located in EPZ/FTZ/SEZ 10

Procedure for Foreign Direct Investment / NRI Investment 10

11. EHTP/STP UNITS 10

Procedure for Approval for EHTP/STP 10

Procedure for Automatic Approval for EHTP/STP 10

Procedure for Government Approval for EHTP/STP 10

Procedure for Foreign Direct Investment / NRI Investment 11

Procedure for Foreign Direct Investment in Industrial Park 11

Procedure for availing IT benefits for the Industrial Park 11

NIC Codes 11

INVESTMENT PROMOTION AND

FACILITATION

12 SECRETARIAT FOR INDUSTRIAL ASSISTANCE (SIA) 11

13 FOREIGN INVESTMENT PROMOTION BOARD (FIPB) 11

14 FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY (FIIA) 12

15 NODAL OFFICERS 13

16 FOCUS WINDOWS 13

17 FOREIGN INVESTMENT PROMOTION COUNCIL (FIPC) 13

18 SIA’s PROMOTIONAL ACTIVITIES 13

19 INVESTMENT PROMOTION & INFRASTRUCTURE DEVELOPMENT (IP&ID)

CELL 13

20 ENTREPRENEURAL ASSISTANCE UNIT (EAU) OF SIA 14

21 WEBSITE, ONLINE CHAT AND BULLETIN BOARD FACILITIES 14

22 INTERNATIONAL CENTRE FOR ALTERNATIVE DISPUTE RESOLUTION 14

23 PUBLICATIONS 15

SIA Newsletter 15

SIA Statistics 15

Other Publications 15

24. SUBMISSION OF MONTHLY PRODUCTION RETURNS 15

25 INFORMATION ABOUT VARIOUS OTHER CLEARANCES AND APPROVALS 15

26. GRIEVANCES AND COMPLAINTS 16

Business Ombudsperson 16

Grievances Officer & Joint Secretary 16

27. CITIZENS CHARTER 16

28 FREQUENTLY ASKED QUESTIIONS 16

POLICY

1. INDUSTRIAL POLICY

The Government’s liberalisation and economic reforms programme aims at rapid and substantial

economic growth, and integration with the global economy in a harmonised manner. The

industrial policy reforms have reduced the industrial licensing requirements, removed restrictions

on investment and expansion, and facilitated easy access to foreign technology and foreign direct

investment.

Industrial Licensing

All industrial undertakings are exempt from obtaining an industrial licence to manufacture, except

for

(i) industries reserved for the Public Sector (Annex I),

(ii) industries retained under compulsory licensing (Annex II),

(iii) items of manufacture reserved for the small scale sector and

(iv) if the proposal attracts locational restriction. [For procedure to obtain Industrial

Licence refer to para 7.2].

Industrial Entrepreneurs Memorandum

1.2 Industrial undertakings exempt from obtaining an industrial license are required to file an

Industrial Entrepreneur Memoranda (IEM) in Part ‘A’ (as per prescribed format) with the

Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion,

Government of India, and obtain an acknowledgement. No further approval is required.

Immediately after commencement of commercial production, Part B of the IEM has to be filled in

the prescribed format. The facility for amendment of existing IEMs has also been introduced. [For

procedure to file IEM refer to para 7.1].

Locational Policy

1.3 Industrial undertakings are free to select the location of a project. In the case of cities with

population of more than a million (as per the 1991 census), however, the proposed location

should be at least 25 KM away from the Standard Urban Area limits of that city unless, it is to be

located in an area designated as an ‘’industrial area’’ before the 25th July, 1991. (List of cities

with population of 1 million and above is given at Annexure-V). Electronics, Computer software

and Printing (and any other industry which may be notified in future as "non polluting industry")

are exempt from such locational restriction. Relaxation in the aforesaid locational restriction is

possible if an industrial license is obtained as per the notified procedure.

1.4 The location of industrial units is further regulated by the local zoning and land use

regulations as also the environmental regulations.

Policy Relating to Small Scale Undertakings

1.5 An industrial undertaking is defined as a small scale unit if the investment in fixed assets in

plant and machinery does not exceed Rs 10 million. The small scale units can get registered with

the Directorate of Industries/District Industries Centre in the State Government concerned. Such

units can manufacture any item including those notified as exclusively reserved for manufacture

in the small scale sector. Small scale units are also free from locational restrictions cited in

paragraph 1.3 above. However, a small scale unit is not permitted more than 24 per cent equity in

its paid up capital from any industrial undertaking either foreign or domestic.

1.6 Manufacturing of items reserved for the small scale sector can also be taken up by non-

small scale units, if they obtain an industrial license. In such cases, it is mandatory for the nonsmall

scale unit to undertake minimum export obligation of 50 per cent. This will not apply to nonsmall

scale EOUs that are engaged in the manufacture of items reserved for the SSI sector, as

they already have a minimum export obligation of 66 per cent of their production. In addition, if

the equity holding from another company (including foreign equity) exceeds 24 per cent, even if

the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its

small scale status.

1.7 A small scale unit manufacturing small scale reserved item(s), on exceeding the small scale

investment ceiling in plant and machinery by virtue of natural growth, needs to apply for and

obtain a Carry-on-Business (COB) License. No export obligation is fixed on the capacity for which

the COB license is granted. However, if the unit expands its capacity for the small scale reserved

item(s) further, it needs to apply for and obtain a separate industrial license. (For procedure to

obtain COB licence, refer to para 7.2(d)).

1.8 It is possible that a chemical or a by-product recoverable through pollution control measures

is reserved for the small scale sector. With a view to adopting pollution control measures,

Government have decided that an application needs to be made for grant of an industrial licence

for such reserved items which would be considered for approval without necessarily imposing the

mandatory export obligation.

Environmental Clearances

1.9 Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and

Environment for setting up an industrial project. A Notification (SO 60(E) dated 27.1.94) issued

under The Environment (Protection) Act, 1986 has listed 30 projects in respect of which

environmental clearance needs to be obtained from the Ministry of Environment, Government of

India. This list includes industries like petrochemical complexes, petroleum refineries, cement,

thermal power plants, bulk drugs, fertilisers, dyes, paper etc. However, if investment is less than

Rs. 1000 million, such clearance is not necessary, unless it is for 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. Further, any item reserved for the small scale sector with

investment of less than Rs 10 million is also exempt from obtaining environmental clearance from

the Central Government under the Notification. Powers have been delegated to the State

Governments for grant of environmental clearance for certain categories of thermal power plants.

Setting up industries in certain locations considered ecologically fragile (eg Aravalli Range,

coastal areas, Doon valley, Dahanu, etc.) are guided by separate guidelines issued by the

Ministry of Environment of the Government of India.

2. FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is now recognized as an important driver of growth in the country.

Government is , therefore, making all efforts to attract and facilitate FDI and investment from Non

Resident (NRIs) including Overseas Corporate Bodies (OCBs), that are predominantly owned by

them, to complement and supplement domestic investment. To make the investment in India

attractive, investment and returns on them are freely repatriable, except where the approval is

subject to specific conditions such as lock -in period on original investment, dividend cap, foreign

exchange neutrality, etc. as per the notified sectoral policy. The condition of dividend balancing

that was applicable to FDI in 22 specified consumer goods industries stands withdrawn for

dividends declared after 14th July 2000, the date on which Press Note No. 7 of 2000 series was

issued.

2.1 Foreign direct investment is freely allowed in all sectors including the services sector, except

a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling.

FDI for virtually all items/activities can be brought in through the Automatic Route under powers

delegated to the Reserve Bank of India (RBI), and for the remaining items/activities through

Government approval. Government approvals are accorded on the recommendation of the

Foreign Investment Promotion Board (FIPB).

Automatic Route

(a) New Ventures

2.2 All items/activities for FDI/NRI/OCB investment up to 100% fall under the Automatic Route

except those covered under (i) to (iv) of para 2.9.

Whenever any investor chooses to make an application to the FIPB and not to avail of the

automatic route, he or she may do so.

Investment in public sector units as also for EOU/EPZ/EHTP/STP units would also qualify for the

Automatic Route. Investment under the Automatic Route shall continue to be governed by the

notified sectoral policy and equity caps and RBI will ensure compliance of the same. The

National Industrial Classification (NIC) 1987 shall remain applicable for description of activities

and classification for all matters relating to FDI/NRI/OCB investment:

Areas/sectors/activities hitherto not open to FDI/NRI/OCB investment shall continue to be so

unless otherwise decided and notified by Government.

Any change in sectoral policy/sectoral equity cap shall be notified by the Secretariat for Industrial

Assistance (SIA) in the Department of Industrial Policy & Promotion.

(b) Existing Companies

2.3 Besides new companies, automatic route for FDI/NRI/OCB investment is also available to

the existing companies proposing to induct foreign equity. For existing companies with an

expansion programme, the additional requirements are that (i) the increase in equity level must

result from the expansion of the equity base of the existing company without the acquisition of

existing shares by NRI/OCB/foreign investors, (ii) the money to be remitted should be in foreign

currency and (iii) proposed expansion programme should be in the sector(s) under automatic

route. Otherwise, the proposal would need Government approval through the FIPB. For this the

proposal must be supported by a Board Resolution of the existing Indian company.

2.4 For existing companies without an expansion programme, the additional requirements for

eligibility for automatic approval are (i) that they are engaged in the industries under automatic

route, (ii) the increase in equity level must be from expansion of the equity base and (iii) the

foreign equity must be in foreign currency.

2.5 The earlier SEBI requirement, applicable to public limited companies, that shares allotted on

preferential basis shall not be transferable in any manner for a period of 5 years from the date of

their allotment has now been modified to the extent that not more than 20 per cent of the entire

contribution brought in by promoter cumulatively in public or preferential issue shall be locked-in.

2.6 The automatic route for FDI and/or technology collaboration would not be available to those

who have or had any previous joint venture or technology transfer/trade mark agreement in the

same or allied field in India.

2.7 Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc.

in domestic companies is permitted through automatic route subject to SEBI/RBI regulations and

sector specific cap on FDI.

2.8 In a major drive to simplify procedures for foreign direct investment under the "automatic

route", RBI has given permission to Indian Companies to accept investment under this route

without obtaining prior approval from RBI. Investors are required to notify the Regional Office

concerned of the RBI of receipt of inward remittances within 30 days of such receipt and file

required documentation within 30 days of issue of shares to Foreign Investors. This facility is

available to NRI/OCB investment also. [For procedure relating to automatic approval, refer to

para 8.1].

Government Approval

2.9 For the following categories, Government approval for FDI/NRI/OCB through the FIPB shall

be necessary: -

(i) All proposals that require an Industrial Licence which includes (1) the item requiring an

Industrial Licence under the Industries (Development & Regulation) Act, 1951; (2) foreign

investment being more than 24 per cent in the equity capital of units manufacturing items

reserved for small scale industries; and (3) all items which require an Industrial Licence in

terms of the locational policy notified by Government under the New Industrial Policy of

1991.

(ii) All proposals in which the foreign collaborator has a previous venture/tie up in India. The

modalities prescribed in Press Note No. 18 dated 14.12.1998 of 1998 Series, shall apply to

such cases. However, this shall not apply to investment made by multilateral financial

institutions such as ADB, IFC, CDC, DEG, etc. as also investment made in IT sector.

(iii) All proposals relating to acquisition of shares in an existing Indian company in favour of a

foreign/NRI/OCB investor.

(iv) All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is

not permitted.

Areas/sectors/activities hitherto not open to FDI/NRI/OCB investment shall continue to be so

unless otherwise decided and notified by Government.

Any change in sectoral policy/sectoral equity cap shall be notified by the Secretariat for Industrial

Assistance (SIA) in the Department of Industrial Policy & Promotion.

2.10 RBI has granted general permission under Foreign Exchange Management Act (FEMA) in

respect of proposals approved by the Government. Indian companies getting foreign investment

approval through FIPB route do not require any further clearance from RBI for the purpose of

receiving inward remittance and issue of shares to the foreign investors. Such companies are,

however, required to notify the Regional Office concerned of the RBI of receipt of inward

remittances within 30 days of such receipt and to file the required documents with the concerned

Regional Offices of the RBI within 30 days after issue of shares to the foreign investors.

2.11 For greater transparency in the approval process, Government has announced guidelines

for consideration of FDI proposals by the FIPB. The guidelines are stated in Annexure-III. The

sector specific guidelines for FDI and Foreign Technology Collaborations are stated in Annexure

IV. [For procedure relating to Government approval, refer to para 8.2].

Issue and Valuation of Shares in case of existing companies

2.12 Allotment of shares on preferential basis shall be as per the requirements of the Companies

Act, 1956, which will require special resolution in case of a public limited company.

In case of listed companies, valuation shall be as per the RBI/SEBI guidelines as follows:

The issue price shall be either at :

a) The average of the weekly high and low of the closing prices of the related shares quoted on

the Stock Exchange during the six months preceding the relevant date or b) The average of the

weekly high and low of the closing prices of the related shares quoted on the Stock Exchange

during the two weeks preceding the relevant date.

The stock exchange referred to is the one at which the highest trading volume in respect of the

share of the company has been recorded during the preceding six months prior to the relevant

date.

The relevant date is the date thirty days prior to the date on which the meeting of the General

Boby of the shareholder is convened.

In all other cases a company may issue shares as per the RBI regulation in accordance with the

guidelines issued by the erstwhile Controller of Capital Issues.

Other relevant guidelines of Securities and Exchange Board of India (SEBI)/(RBI) including the

SEBI (Substancial Acquistion of Shares and Takeover) Regulations, 1997, wherever applicable,

would need to be followed.

Foreign Investment in the Small Scale Sector

2.13 Under the small scale policy, equity holding by other units including foreign equity in a small

scale undertaking is permissible up to 24 per cent. However there is no bar on higher equity

holding for foreign investment if the unit is willing to give up its small scale status. In case of

foreign investment beyond 24 per cent in a small scale unit which manufactures small scale

reserved item(s), an industrial license carrying a mandatory export obligation of 50 per cent would

need to be obtained.

Foreign Investment Policy for Trading Activities

2.14 Foreign investment for trading can be approved through the automatic route up to 51%

foreign equity, and beyond this by the Government through FIPB. For approval through the

automatic route, the requirement would be that it is primarily export activities and the undertaking

concerned is an export house/trading house/ super trading house/star trading house registered

under the provisions of the Export and Import policy in force. The sectoral policy of trading

activities is elaborated at S. No. 8 viz. Trading of Annexure IV (Sector Specific Guidelines for

Foreign Direct Investment) of this Manual.

Other Modes of Foreign Direct Investments

2.15 Global Depository Receipts(GDR)/American Deposit Receipts (ADR)/Foreign Currency

Convertible Bonds (FCCB): Foreign Investment through GDRs/ADRs, Foreign Currency

Convertible Bonds (FCCBs) are treated as Foreign Direct Investment. Indian companies are

allowed to raise equity capital in the international market through the issue of GDR/ADRs/FCCBs.

These are not subject to any ceilings on investment. An applicant company seeking

Government’s approval in this regard should have a consistent track record for good performance

(financial or otherwise) for a minimum period of 3 years. This condition can be relaxed for

infrastructure projects such as power generation, telecommunication, petroleum exploration and

refining, ports, airports and roads.

2.16 There is no restriction on the number of GDRs/ADRs/FCCBs 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 Automatic Route, whose direct foreign investment after a proposed

GDR/ADR/FCCBs issue is likely to exceed the percentage limits under the automatic route, or

which is implementing a project falling under Government approval route, would need to obtain

prior Government clearance through FIPB before seeking final approval from the Ministry of

Finance.

2.17 There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban

on investment in real estate and stock markets. The FCCB issue proceeds need to conform to

external commercial borrowing end use requirements; in addition, 25 per cent of the FCCB

proceeds can be used for general corporate restructuring.

Preference Shares

2.18 Foreign investment through preference shares is treated as foreign direct investment.

Proposals are processed either through the automatic route or FIPB as the case may be. The

following guidelines apply to issue of such shares:-

(i) Foreign investment in preference share are considered as part of share capital and fall

outside the External Commercial Borrowing (ECB) guidelines/cap.

(ii) Preference shares to be treated as foreign direct equity for purpose of sectoral caps on

foreign equity, where such caps are prescribed, provided they carry a conversion option. If

the preference shares are structured without such conversion option, they would fall

outside the foreign direct equity cap.

(iii) Duration for conversion shall be as per the maximum limit prescribed under the Companies

Act or what has been agreed to in the shareholders agreement whichever is less.

(iv) The dividend rate would not exceed the limit prescribed by the Ministry of Finance.

(v) Issue of Preference Shares should conform to guidelines prescribed by the SEBI and RBI

and other statutory requirements.

3. INVESTMENT BY NON RESIDENT INDIANS & OVERSEAS CORPORATE BODIES

3.1 For all sectors, excluding those falling under Government approval, NRIs (which also

includes PIOs) and OCBs (an overseas corporate body means a company or other entity owned

directly or indirectly to the extent of at least 60% by NRIs) are eligible to bring investment through

the automatic route of RBI. All other proposals, which do not fulfil any or, all of the criteria for

automatic approval are considered by the Government through the FIPB.

3.2 The NRIs and OCBs are allowed to invest in housing and real estate development sector, in

which foreign direct investment is not permitted. They are allowed to hold up to 100 percent

equity in civil aviation sector in which otherwise foreign equity only up to 40 per cent is permitted.

4. FOREIGN TECHNOLOGY AGREEMENTS

4.1 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, foreign technology induction is encouraged both through FDI and through foreign

technology collaboration agreements. Foreign technology collaborations are permitted either

through the automatic route under delegated powers exercised by the RBI, or by the

Government. However, cases involving industrial licenses/small scale reserved items do not

qualify for automatic approval and would require consideration and approval by the Government.

Automatic route for technology colloboration would also not be available to those who have, or

had any previous technology transfer/trade-mark agreement in the same or allied field in India.

Further, automatic approval for EOU/EHTP/STP units is governed by provisions under Para 5.2

and 6.2.

Automatic Approval

4.2 The Reserve Bank of India, through its regional offices, accords automatic approval to all

industries for foreign technology collaboration agreements subject to (i) the lump sum payments

not exceeding US $ 2 Million; (ii) royalty payable being limited to 5 per cent for domestic sales

and 8 per cent for exports, subject to a total payment of 8 per cent on sales over a 10 year period;

and (iii) the period for payment of royalty not exceeding 7 years from the date of commencement

of commercial production, or 10 years from the date of agreement, whichever is earlier (The

aforesaid royalty limits are net of taxes and are calculated according to standard conditions). [For

procedure for automatic approval, refer to para 9.1].

Payment of royalty up to 2% for exports and 1% for domestic sales is allowed under automatic

route on use of trademarks and brand name of the foreign collaborator without technology

transfer. In case of technology transfer, payment of royalty subsumes the payment of royalty for

use of trademark and brand name of the foreign collaborator. Royalty on brand name/trade mark

shall be paid as a percentage of net sales, viz., gross sales less agents’/dealers’ commission,

transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of

raw materials, parts, components imported from the foreign licensor or its subsidiary/affiliated

company.

Payment of royalty up to 8% on exports and 5% on domestic sales by wholly owned subsidiaries

(WOS) to offshore parent companies is allowed under the automatic route without any restriction

on the duration of royalty payments.

Government Approval

4.3 For the following categories, Government approval would be necessary:

(a) Proposals attracting compulsory licensing

(b) Items of manufacture reserved for the small scale sector

in the same or allied field in India. The definition of ‘’same’’ and ‘’allied’’ field would be as

per 4 digit NIC 1987 Code and 3 digit NIC 1987 Code.

(d) Extension of foreign technology collaboration agreements (including those cases, which

may have received automatic approval in the first instace)

(e) Proposals not meeting any or all of the parameters for automatic approval as given in para

4.2.

[For procedure for Government approval refer to Para 9.2]

4.4 The items of foreign technology collaboration, which are eligible for approval through the

automatic route, and by the Government are technical know how fees, payment for design and

drawing, payment for engineering service and royalty.

4.5 Payments for hiring of foreign technicians, deputation of Indian technicians abroad, and

testing of indigenous raw material, products, indigenously developed technology in foreign

countries are governed by separate RBI procedures and rules and are not covered by the foreign

technology collaboration approval. Similarly, payments for imports of plant and machinery and

raw material are also not covered by the foreign technology collaboration approval. For any of

these items, entrepreneurs may contact the RBI.

5. 100% EXPORT ORIENTED UNITS/ EXPORT PROCESSING ZONES/ SPECIAL

ECONOMIC ZONES

5.1a 100 per cent Export Oriented Units (EOUs) and units in the Export Processing Zones

(EPZs)/Special Economic Zones (SEZs), enjoy a package of incentives and facilities, which

include duty free imports of all types of capital goods, raw material, and consumables in addition

to tax holidays against export.

5.1b 100% FDI is permitted under automatic route for setting up of industrial park/industrial model

town/special economic zone in the country. To encourage investment in this sector, 100%

income tax exemption for 10 years within a block of 15 years is also granted for the industrial

parks set up during the period 1.4.1977 to 31.3.2006".

Automatic Approval

5.2 The Development Commissioners (DCs) of Export Processing Zones (EPZs) /Free Trade

Zones (FTZS) )/Special Economic Zones(SEZs) accord automatic approval to projects where

(a) Activity proposed does not attract compulsory licensing or falls in the services sector except

IT enabled services;

(b) Location is in conformity with the prescribed parameters;

and Import Policy in force;

(d) Unit is amenable to bonding by customs authorities; and

(e) Unit has projected the minimum export turnover, as specified in the Handbook of

Procedures for Export and Import.

All proposals for FDI/NRI/OCB investments in EOU/EPZ units qualify for approval through

automatic route subject to sectoral norms. Proposals not covered under the automatic route

would be considered and approved by FIPB. [For procedure for automatic approval, refer to para

10.1 & 10.5].

5.3 Conversion of existing Domestic Tariff Area (DTA) units into EOU is also permitted under

automatic route, if the DTA unit satisfies the parameters mentioned above and there is no

outstanding export obligation under any other Export Oriented scheme of the Government of

India.

5.4 FDI upto100% is allowed through the automatic route for all manufacturing activities in

Special Economic Zones (SEZs), except for the following activities:

a. arms and ammunition, explosives and allied items of defence equipments, defence aircraft

and warships;

b. atomic substances;

c. narcotics and psychotropic substances and hazardous chemicals;

d. distillation and brewing of alcoholic drinks; and

e. cigarettes/cigars and manufactured tobacco substitutes.

For services, norms as notified, would be applicable

Government Approval

5.5 All proposals which do not meet any or all of the parameters for automatic approval will be

considered and approved by the Board of Approval of EOU/EPZ/SEZ set up in the Department of

Commerce.

6. ELECTRONIC HARDWARE TECHNOLOGY PARK AND SOFTWARE TECHNOLOGY

PARK SCHEMES

6.1 In order to provide impetus to the electronics industry, to enhance its export potential and to

develop an efficient electronic component industry, Electronic Hardware Technology Park (EHTP)

and Software Technology Park (STP) schemes offer a package of incentives and facilities like

duty free imports on the lines of the EOU Scheme, deemed exports benefits and tax holidays.

Automatic Approval

6.2 The Directors of STPs in respect of STP proposals; and the Designated Officers in respect of

EHTP proposals accord automatic approval if:

(a) items do not attract compulsory licensing;

(b) location is in conformity with the prescribed parameters;

(d) unit is amenable to bonding by the Customs, and all the manufacturing operations are

carried out in the same premises and the proposal does not envisage sending out of the

bonded area any raw material or intermediate products for any other manufacturing or

processing activity.

All proposals for FDI/NRI/OCB investments in EHTP/STP units are eligible for approval through

Automatic Route subject to parameters listed under para 2.9[For procedure to obtain Automatic

Approval, refer to para 11.2].

Government Approval

6.3 All proposals which do not meet any or all of the parameters for automatic approval need to

be considered and approved by the Government. Government approval for FDI/NRI/OCB

investment under EHTP/ STP need to be obtained through the FIPB in respect of proposals

covered under paragraph 2.9 [For procedure to obtain Government approval, refer to para 11.3 &

11.4].

PROCEDURES

7. APPROVAL PROCEDURES

It has been the continuous effort of the Government to simplify the procedures for filing of the

application for various approvals. Even the forms required for various purposes are also simplified

and are available in downloadable format on the web site of the Department ( www.dipp.nic.in).

The following paragraphs give in brief the procedures involved in obtaining various approvals

7.1 General Procedures

Procedural Requirements for De-licensed Sector – Industrial Entrepreneurs Memorandum

(IEM):

(a) All industrial undertakings exempt from the requirements of industrial licensing, including

existing units undertaking substantial expansion, need to file information in the prescribed

Industrial Entrepreneurs Memorandum, i.e. Form IEM. The form is available at all outlets

dealing in Government Publications, Indian Embassies, the Entrepreneurial Assistance

Unit (EAU) of the Secretariat for Industrial Assistance (SIA), Department of Industrial

Policy and Promotion, Udyog Bhavan, New Delhi-110011, and can also be downloaded

from the web site of the DIPP (http://dipp.nic.in).

(b) The Memorandum (IEM) after filling in can be submitted to the EAU of the SIA in person

or by post. 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 up to 10 items proposed to be manufactured in the same unit. For more than 10

items, an additional fee of Rs 250 up to 10 additional items needs to be paid through

crossed demand draft.

(c ) A computer acknowledgement containing the SIA Registration Number (for future

reference) will be issued across the counter immediately if delivered in person or sent by

post if received through post. No further approval from SIA is required.

(d) All Industrial undertakings also need to file information in Part ‘B’ of the Memorandum at

the time of commencement of commercial production. The prescribed form is appended to

Form IEM. Part - B of the Memorandum has to be filed with the EAU in SIA, but no fee is

required.

(e) No amendment/modifications are made to any IEM filed before 30th June 1998 except for

clerical errors. Where any amendment/modification is sought to be made in such IEMs, a

fresh memorandum in Form IEM, along with the prescribed fee has to be filed for which a

fresh acknowledgement will be issued. An IEM would be cancelled/deleted from the SIA

records if, on scrutiny, it is found that the proposal contained in the IEM is licensable.

(f) In respect of IEMs filed in the new form made effective from 1st July 1998,

amendments/modifications will be made on the request of the entrepreneur, as per the

notified procedure.

7.2 PROCEDURAL REQUIREMENTS FOR LICENSED SECTORS

Industrial License:

(a) All industrial undertakings subject to compulsory industrial licensing are required to

submit an application in the prescribed format, i.e. Form FC-IL. Licenses are granted

under the provisions of the Industries (Development and Regulation) Act, 1951. The form

is available in the EAU of the SIA, at all outlets dealing in Government Publications,

Indian Embassies, and can also be downloaded from the web site of the DIPP

(http://dipp.nic.in). Applications for the manufacture of chlorine and caustic soda, along

with associated products should include information regarding the chlorine utilisation

programme.

(b) Application in Form FC-IL should be submitted to the EAU of the SIA, Department of

Industrial Policy & Promotion, Ministry of Commerce and Industry, Udyog Bhawan, New

Delhi - 110011.

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.

(d) Approvals will normally be available within 4- 6 weeks of filling the application.

Carry on Business (COB) Licence

(e) A COB licence is required when a small scale unit exceeds the prescribed small scale limit

of investment in plant and machinery by way of natural growth and continues to

manufacture small scale reserved item(s). Also, if exemption from Industrial licensing

granted for any item is withdrawn, the industrial undertakings that are manufacturing such

item(s) require COB licence. The application for COB licence should be submitted in

revised form "EE", which can be downloaded from the web site (http://dipp.nic.in).

Department of Industrial Policy and Promotion, 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.

8. FOREIGN DIRECT INVESTMENT

Procedure For Automatic Route

8.1 The proposals for approval under the automatic route are to be made to the Reserve Bank

of India in the FC (RBI) form. In a major drive to simplify procedures for foreign direct investment

under the "automatic route", RBI has given permission to Indian Companies to accept

investment under this route without obtaining prior approval from Reserve Bank of India.

However, investors are required to notify the concerned Regional Offices of RBI of receipt

of inward remittances within 30 days of such receipt and will have to file the required

documents with the concerned Regional Office of the RBI within 30 days after issue of

shares to foreign investors. This facility is available to NRI/OCB investment also.

Procedure For Government Approval

8.2 Foreign Investment Promotion Board

(a) All other proposals for foreign investment, including NRI/OCB investment and foreign

investment in EOU/EPZ/STP/EHTP units, which do not fulfil any or all of the parameters

prescribed for automatic approval, as given in paragraph 2.8, 3.1, and 3.2 are considered

for approval by the Foreign Investment Promotion Board (FIPB). The FIPB also grants

composite approvals involving foreign technical collaborations and setting up of Export

Oriented Units involving foreign investment/foreign technical collaboration.

(b) Applications to FIPB for approval of foreign investment should be submitted in Form FC-IL.

Plain paper applications carrying all relevant details are also accepted. No fee is payable.

The following information should form part of the proposals submitted to FIPB: -

i) Whether the applicant has had or has any previous financial/technical collaboration or trade

mark agreement in India in the same or allied field for which approval has been sought; and

ii) If so, details thereof and the justification for proposing the new venture/technical

collaboration (including trade marks).

(c) The application can be submitted with the FIPB Unit of the Department of Economic

Affairs, Ministry of Finance, North Block, New Delhi. Applications can also be

submitted with Indian Missions abroad who will forward them to the Department of

Economic Affairs for further processing.

(d) Foreign investment proposals received in the Department of Economic Affairs ( DEA) are

placed before the Foreign Investment Promotion Board (FIPB) within 15 days of its receipt.

The recommendations of FIPB in respect of project proposals involving a total investment

of up to Rs. 6 billion are considered and approved by the Finance Minister. Projects with a

total investment exceeding Rs. 6 billion are submitted to the Cabinet Committee on

Economic Affairs (CCEA) for decision.

(e) The decision of the Government in all cases is conveyed by the DEA normally within 30

days.

(f) For inward remittance and issue of shares to NRI/OCB up to 100 per cent equity also, prior

permission of RBI is not required. These companies have to file the required documents

with the concerned Regional Offices of RBI within 30 days after the issue of shares to

NRIs/OCBs.

9. FOREIGN TECHNOLOGY COLLABORATION

Procedure for Automatic Approval

9.1 Applications for automatic approval for such foreign technology agreements should be

submitted in Form FT (RBI) with the concerned Regional Offices of Reserve Bank of India. No fee

is payable. Approvals are available within 2 weeks.

Procedure for Government Approval

9.2 All other proposals for foreign technology agreement, not meeting any or all of the

parameters for automatic approval, and all cases of extension of existing foreign technical

collaboration agreement, are considered for approval, on merits, by the Government. Application

in respect of such proposals should be submitted in Form FC-IL to the Secretariat for Industrial

Assistance, Department of Industrial Policy & Promotion, Ministry of Commerce and Industry,

Udyog Bhavan, New Delhi. No fee is payable. The following information should form part of the

proposals submitted to SIA:

i) Whether the applicant has had or has any previous financial/technical collaboration or

trade mark agreement in India in the same or allied field for which approval has been

sought; and

ii) If so, details thereof and the justifications for proposing the new venture/technical

collaboration (including trade marks).

On consideration of the proposal by the Project Approval Board/FIPB, decisions are normally

conveyed within 4 to 6 weeks of filing the application.

10. 100% EXPORT ORIENTED UNITS AND UNITS SET UP IN EPZ/FTZ

A. Procedure for Approval for EOUs

10.1 Applications in the prescribed form for 100 per cent EOUs should be submitted to the

Development Commissioners (DCs) of the Export Processing Zones (EPZs) concerned for

automatic approval and to the SIA for Government approval. The Form is printed in the Handbook

of Procedures for Export and Import, 2002-2007 published by the Ministry of Commerce &

Industry and is also available at all outlets dealing in Government Publications. The application

should be submitted along with a crossed demand draft of Rs.5000/- drawn in favour of the "the

Pay & Accounts Officer, Department of Industrial Development, Ministry of Commerce and

Industry", payable at the State Bank of India, Nirman Bhavan Branch, New Delhi.

Procedure for Automatic Approval for EOUs

10.2 Applications in the prescribed form for 100 per cent E0Us should be submitted to the DCs of

the EPZs. Wherever, the proposals meet the criteria for automatic approval, as given in

paragraph 5.2, the DC of the EPZ would issue approval letters within 2 weeks.

Procedure for Government Approval for EOUs

10.3 Proposals not covered by the automatic route shall be forwarded by the DC to the Board

of Approval (BoA) for consideration. On consideration of the proposal by the board, the decision

would normally be conveyed in six weeks.

Procedure for foreign direct investment/NRI investment

10.4 For proposals not covered under Automatic Route, the applicant should seek separate

approval of the FIPB, as per the procedure outlined in para 8.2 above.

B. Procedure for Approval for units located In EPZ/FTZ/SEZ

10.5 Applications for setting up units in EPZs/SEZs be submitted to the concerned DC of the

EPZ/SEZ. The Form is printed in the Handbook of Procedures for Export and Import, 2002-2007

published by the Ministry of Commerce and Industry and is also available at all outlets dealing in

Government Publications. The application should be submitted along with a crossed demand

draft of Rs.5000/- drawn in favour of the "the Pay & Accounts Officer, Department of Industrial

Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhavan Branch,

New Delhi.

Procedure for Automatic Approval for units located in EPZ/FTZ/SEZ

10.6 Applications in the prescribed form for 100 per cent E0Us should be submitted to the DCs of

the EPZs/SEZs. Wherever, the proposals meet the criteria for automatic approval, as given in

paragraph 5.2, the DC of the EPZ/SEZ would issue approval letters within 2 weeks.

Procedure for Government Approval for units located in EPZ/FTZ /SEZ

10.7 Proposals not covered by the automatic route shall be forwarded by the DC to the Board of

Approval (BOA) for consideration. On consideration of the proposal by the Board, the decision

would normally be conveyed in six weeks.

Procedure for Foreign Direct Investment / NRI Investment

10.8 All proposals for FDI/NRI/OCB investment in EPZ/EOU/SEZ are eligible for approval under

Automatic Route subject to parameters listed in para 2.9. For proposals not covered under

Automatic Route, the applicant should seek separate approval of the FIPB, as per the procedure

outlined in para 8.2 above.

11. EHTP/STP UNITS

Procedure for Approval for EHTP/STP

11.1 Application, in the prescribed form, should be submitted to the concerned Directors of STPs

or the Designated Officers of EHTPs for automatic approval, and to the SIA for Government

approval. The application should be submitted along with a crossed demand draft for Rs. 5000/-

drawn in favour of the "the Pay & Accounts Offer, Department of Industrial Development, Ministry

of Industry", payable at State Bank of India, Nirman Bhawan, New Delhi. The form is available in

any outlet dealing with Government Publications.

Procedure for Automatic Approval for EHTP/STP

11.2 Application, in the prescribed form, should be submitted to the concerned Directors of STPs

or the Designated Officers of EHTPs for automatic approval. Wherever, the proposals meet the

criteria for automatic approval, as given in paragraph 6.2, the approval letters are issued within 2

weeks. All other proposals shall be forwarded to the Inter Ministerial Standing Committee for

consideration.

Procedure for Government Approval for EHTP/STP

11.3 Application, in the prescribed form, should be submitted to the Officer designated by the

Ministry of Information Technology for the purpose. Such applications shall be forwarded by the

Officer designated to the Inter Ministerial Standing Committee in the Ministry of Information

Technology for consideration. On consideration by the Inter Ministerial Standing Committee, a

decision would be normally conveyed within six weeks.

Procedure for Foreign Direct Investment / NRI Investment

11.4 All proposals for FDI/NRI/OCB investment in EHTP/STP Units are eligible for approval under

Automatic Route subject to parameters listed in Para 2.9. For proposals not covered under

Automatic Route, the applicant should seek separate approval of the FIPB, as per the procedure

outlined in para 8.2 above.

Procedure for foreign direct Investment in Industrial park

11.5 As 100% FDI is permitted under automatic route for setting up of industrial park, the

procedure mentioned in para 8.1 will be applicable for seeking requisite approval.

Procedure for availing income tax benefit for the industrial park

11.6 For availing 100% tax exemption available under section 80 IA of the Income Tax Act, for

setting up, operating, operating and maintenance of Industrial Park, proposal has to be submitted

in IPS-I form, available on this department’s web site (www.dipp.nic.in), to the secretariat for

Industrial Assistance. The proposals which meet the given criteria (please refer to Industrial Park

Notification, 2002 available on the department’s web site) are approved under automatic route.

Otherwise, they are considered under non-automatic route by an empowered committee.

Application for automatic approval has to be submitted in duplicate and for non-automatic

approval, in six sets. The approval in IPS-I form has to be accompanied with a demand draft of

Rs.6000/- drawn in favour of "Pay & Accounts Officer, Department of Industrial Development"

payable at State Bank of India, Nirman Bhavan branch, New Delhi.

NIC Codes

11.7 In all the forms required for various approvals National Industrial Classification ( NIC)

Codes for the activities to be undertaken have to be filled in. The description of activities seeking

all industrial approvals including foreign direct investment are required to be given as per the

National Industrial Classification of All Economic Activities (NIC), 1987, published by the Central

Statistical Organisation, Ministry of Statistics and Programme Implementation, New Delhi. Copies

of the publication can be obtained on payment from Controller of publications, 1, Civil Lines,

Delhi-1 10054 or from any outlet dealing in Government Publications.

INVESTMENT PROMOTION AND FACILITATION

12. SECRETARIAT FOR INDUSTRIAL ASSISTANCE (SIA)

12.1 SIA has been set up by the Government of India in the Department of Industrial Policy and

Promotion in the Ministry of Commerce and Industry to provide a single window for

entrepreneurial assistance, investor facilitation, receiving and processing all applications which

require Government approval, conveying Government decisions on applications filed, assisting

entrepreneurs and investors in setting up projects, (including liaison with other organisations and

State Governments) and in monitoring implementation of projects. It also notifies all Government

Policy relating to investment and technology, and collects and publishes monthly production data

for 209 select industry groups.

13 Foreign Investment Promotion Board (FIPB)

13.1 The FIPB is the competent body to consider and recommend Foreign Direct

Investment (FDI) proposals, which do not come under the automatic route. The FIPB, till

18.2.2003, had the following composition:

(i)Secretary,- Department of Industrial Policy & Promotion, - Chairman

(ii) Finance Secretary – Member

(iii) Commerce Secretary – Member

(iv) Secretary (Economic Relations), Ministry of External Affairs - - Member

The Board also had the Revenue Secretary, Secretary (SSI and ARI) and Chairman

CBEC as co-opted members. The FIPB meets every week and applications made to it

are, by and large decided within a time frame of 6-8 weeks.

With the shifting of the FIPB to the Department of Economic Affairs, the FIPB has been

re-constituted as under:

(i)Secretary, Department of Economic Affairs - Chairman

(ii) Secretary , Department of Industrial Policy & Promotion - Member

(iii) Commerce Secretary – Member

(iv) Secretary (Economic Relations), Ministry of External Affairs - Member

The Board would be able to co-opt Secretaries and other top officials of financial

institutions, banks and professional experts of industry and commerce, as and when

necessary.

14. FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY (FIIA)

14.1 Foreign Investment Implementation Authority (FIIA) was established on 9.8.1999 to assist

the foreign investors in getting necessary approvals and thereby facilitating quick translation of

Foreign Direct Investment (FDI) approvals into implementation.

Fast Track Committees have been set up in 30 Ministries/Departments for regular review of FDI

mega projects (with proposed investment of Rs. 1 billion and above), and resolution of any

difficulties in consultation with the concerned Ministries/State Governments. Unresolved issues

are brought before FIIA. Details of the Fast Track Committees set up in various

Ministries/Departments is available at the website www.dipp.nic.in.

14.2 Meetings of FIIA

FIIA’s meetings are held on regional basis as also with investors from specific countries. In the

meetings of FIIA, apart from GoI Ministries, senior officials from State Governments also

participate. Besides approval holders of unimplemented FDI projects with proposed investment of

Rs. 100 crores and above, representatives from apex industrial associations are also invited.

14.3 Regional Meetings of FIIA

For conducting meeting of FIIA, the Country is divided into 4 regions as under:

Region States Covered

Northern Delhi,Chandigarh, Haryana, Himachal Pradesh, J&K, Madhya Pradesh,

Chattisgarh, Punjab, Rajasthan and Uttar Pradesh, Uttaranchal

Southern

Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil Nadu,

Western Gujarat, Maharastra, Dadra & Nagar Haveli, Daman & Diu, Goa and

Lakshadweep

Eastern Bihar, Jharkhand, Orissa, Sikkam, West Bengal, Assam, Arunachal Pradesh,

Manipur, Meghalaya, Mizoram, Nagaland and Tripura, and Andaman & Nicobar

Islands

14.4 Meetings With Investors from Specific Countries

In addition to the regional meetings, separate meeting with Investors from major investing

countries in India are also held. In the recent past following meetings with investors from specific

investing countries have been held for special focus on their problems.

Meetings with investors from Netherlands and Italy in January 2002.

Meeting with investors from Switzerland in May 2002.

Meeting with investors from European Union countries in December 2002.

Meeting with investors from Republic of Korea in May 2003.

14.5 Issues Resolved by FIIA

Foreign Investment Implementation Authority has emerged as an effective problem-solving

platform for the foreign investors. Nearly 70% of the issues received from investors in FIIA have

been resolved/decided.

14.6 Association of Industrial Organizations

FIIA has been seeking co-operation of apex industrial organizations viz., CII, ASSOCHAM, and

FICCI, JAPAN Chamber of Commerce in India and American Chamber of Commerce

(AMCHAM), etc. Information about meetings of FIIA is sent to such organizations to advise their

members to participate in the meeting, in case they are experiencing difficulties in implementation

of their projects. Representatives of these organisations are also invited to these meetings.

CII, FICCI and ASSOCHAM have also been requested to follow up with approval holders of mega

projects to whom letters have been written by FIIA.

14.7 Direct Contact with Investors

Besides the meetings with the investors, FIIA has also taken the following initiatives to establish a

direct contact with foreign investors for resolution of their difficulties:

a. FIIA periodically writes to the approval holders of FDI mega projects, which are

under implementation or about which no information is available, to get a direct feed

back on any difficulties being faced by them in the implementation of their projects,

which can be followed by FIIA with respective Ministries/State Governments.

b. All fresh FIPB approvals issued since September 2001 contain information on FIIA

and its e-mail address for investors to approach FIIA in case of any difficulties.

c. Directors/Deputy Secretaries of DIPP have been designated as Nodal Officers to

monitor FDI Mega projects with concerned State Governments. Names and e-mail

addresses of nodal officers are available on DIPP’s website (www.dipp.nic.in).

d. Indian Missions abroad, who already receive FDI applications on behalf of FIPB,

have been advised to monitor implementation of FDI approvals emanating from their

regions.

e. Embassies of top 10 investing Countries in India and Indian Embassies in these

Countries have been informed about FIIA and requested to bring to its notice any

issue hampering implementation.

f. Investors experiencing difficulties in the implementation of their projects can also

approach FIIA through the website (www.dipp.nic.in)

15. NODAL OFFICERS

15.1 The Department of Industrial Policy and Promotion has nominated officers at the Deputy

Secretary/Director level as Nodal officers for facilitation of the FDI. Details of the nodal officers is

also available at the web site (www.dipp.nic.in ) of the Department.

16. FOCUS WINDOWS

16.1 The Department of Industrial Policy and Promotion also has opened Country Focus

Windows for countries with sizeable investment interest in India. At present, the Focus Window

covers countries such as USA, Germany, France, Switzerland, Australia, Japan and Korea. For

each focus window a senior officer in the Department provides facilitation and assistance.

17. FOREIGN INVESTMENT PROMOTION COUNCIL (FIPC)

17.1 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 constituted a Foreign Investment Promotion Council (FIPC) in the Ministry of Commerce and

Industry. This comprises professionals from Industry and Commerce. It has been set up to have a

more target oriented approach toward Foreign Direct Investment promotion. The basic function of

the Council is to identify specific sectors/projects within the country that require Foreign Direct

Investment and target specific regions/countries of the world for its mobilisation.

18 SIA’s Promotional Activities

18.1 As an investor friendly agency, it provides information and assistance to Indian and foreign

companies in setting up industry and making investments. It guides prospective entrepreneurs

and disseminates information and data on a regular basis through its two monthly newsletters the

"SIA Newsletter" and the "SIA Statistics" as also through its Website address, i.e.

http://dipp.nic.in. It also assists potential investors in finding joint venture partners and provides

complete information on relevant policies and procedures, including those, which are specific to

sectors and the State Governments.

19 Investment Promotion and Infrastructure Development (IP & ID) Cell

19.1 In order to give further impetus to facilitation and monitoring of investment, as well as for

better coordination of infrastructural requirements for industry, a new cell called the "Investment

Promotion and Infrastructure Development Cell" has been created. The functions of the Cell

include: -

[a] Dissemination of information about investment climate in India;

[b] Investment facilitation;

[c] Developing and distributing multimedia presentation material and other publications;

[d] Organising Symposiums, Seminars, etc. on investment promotion;

[e] Liaison with State Governments regarding investment promotion;

[f] Documentation of single window systems followed by various States;

[g] Match-making service for investment promotion;

[h] Coordination of progress of infrastructure sectors approved for investment/technology

transfer, power, telecom, ports, roads, etc.;

[i] Facilitating Industrial Model Town Projects, and Industrial Parks, etc.;

[j] Promotion of Private Investment including Foreign Investment in the infrastructure sector;

[k] Compilation of sectoral policies, strategies and guidelines of infrastructure sectors, both in

India and abroad; and

[l] Facilitating preparation of a perspective plan on infrastructure requirements for industry.

20 Entrepreneurial Assistance Unit (EAU) of the SIA

20.1 The Entrepreneurial Assistance Unit functioning under the Secretariat for Industrial

Assistance, Department of Industrial Policy and Promotion provides assistance to entrepreneurs

on various subjects concerning investment decisions. The unit receives all papers/applications

related to industrial approvals and immediately issues a computerised acknowledgement, which

also has an identity/reference number. All correspondence with the SIA should quote this

number. In case of papers filed by post, the acknowledgement will be sent by post. The Unit

extends this facility to all papers/applications relating to IEMs, Industrial Licences, Foreign

Investment, Foreign Technology Agreements, 100 per cent EOUs, EHTP, STP Schemes, etc.

20.2 The Unit also attends to enquiries 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.

21 Web site, Online Chat and Bulletin Board Facilites

21.1 To facilitate the easy availability of information to the investors and provide information

about the investment climate in the country, state industrial policies, projects on offer, different

publications, notifications and press releases, Department is hosting a web site www.dipp.nic.in.

The web site contains the following

• Ready Reckoner for Investing in India

• Manual on Industrial Policy and Procedures

• Press Notes, Notifications and Press Releases

• Industrial Policy Statements

• Latest Annual Report

• Information about Intellectual Property Rights

• Status of PAB/IEM and LOI

• Profile of selected industrial sectors

• Important Legislations

• Information about Attached and Subordinate Offices

21.2 The web site has the facility of on line chat between 4.00 P.M. to 5.00 P.M. ( Indian

Standard Time, GMT+5 ½ ) on all working days. Investors can ask any question relating to FDI

Policies and related issues which is replied immediately. The on line chat facility is being utilized

by the investors. Nearly 2000 queries were responded during chat session in 2002.

21.3 The web site also has provision of bulletin board. If the investor cannot avail the on line chat

facility, he/she can post the question on bulletin board at any time of the day. All efforts are made

to send a reply within 24 hours. On an average about 3 to 4 questions are received everyday on

the bulletin board.

22. INTERNATIONAL CENTRE FOR ALTERNATIVE DISPUTE RESOLUTION

22.1 International Centre for Alternative Dispute Resolution (ICADR) has been established as an

autonomous organization under the aegis of Ministry of Law, Justice and Company Affairs to

promote settlement of domestic and international disputes by different modes of alternate dispute

resolution. ICADR has its headquarters in New Delhi and has regional office in Lucknow and

Hyderabad. More information on ICADR can be obtained from the website: http://www.icadr.org

23. PUBLICATIONS

SIA Newsletter

23.1 This is a monthly publication and covers information on data relating to Foreign Direct

Investment, NRI investment, sectoral break-ups, countrywise break-up, all approvals accorded for

Foreign Direct Investment, and NRI investment during the month, FDI inflows, and policy

notifications issued during the month.

Annual issues of SIA Newsletter for 1999 and 2000 have been officially released and is now

available and can be obtained on payment from Controller of Publications, 1 civil lines, Delhi -

110 054 or from any outlet dealing in Government publications.

SIA Statistics

23.2 This is also a monthly publication which contains data relating to Industrial Licences,

approvals granted for setting up 100 per cent Export Oriented Units, details of approvals for

Industrial Licences, EOUs, Foreign Technical Collaboration etc., monthly data on industrial

production of 209 select industry groups, as well as policy announcements by Government during

the month.

Annual issues of SIA Statistics have been officially released and is now available and can be

obtained on payment from Controller of Publications, 1 civil lines, Delhi - 110 054 or from any

outlet dealing in Government publications..

Other Publications

23.3 These publications include this Manual as well as sector specific publications, such as on

the Indian Automobile industry, Cement industry, Engineering industries, Leather industries, etc.

A set of publications relating to the Infrastructure sector with specific volumes on Ports, Roads,

Power, Telecom, and Railways is also published. Other publications include information on

Current taxation and duty structure, Entry options for business in India, and the like.

All or any of these publications are available through the EAU of the SIA, the Investment

Promotion and Infrastructure Development Cell, as also Indian Missions abroad. These can also

be down loaded from the SIA Web site.

24. SUBMISSION OF MONTHLY PRODUCTION RETURNS

24.1 All industrial undertakings, whether exempt or not from compulsory industrial licensing, are

statutorily required to submit a monthly production return in the proforma to the

Deputy Director (Statistics),

Industrial Statistics Unit,

Department of Industrial Policy & Promotion,

Room No. 326, Udyog Bhawan,

New Delhi – 110 011

Fax: 011-301 4564/301 2626

Email: ipp_ddstat@ub.nic.in

every month, so as to reach him by the 7th of the following month positively. This information is

used to compile various industrial growth which is time bound monthly exercise. A copy of the

monthly production returns should also be submitted to the Concerned Administrative

ministry/Department and to the concerned technical authorities viz. Iron and Steel Controller;

Coal Controller, Directorate of Sugar; Directorate of Vanaspati, Vegetable Oils and Fats and

Textile Commissioner, as the case may be.

24.2 In the case of small scale industrial undertakings, the monthly production return should be

submitted to the appropriate State Government or Commissioner of Industries and to the

Department of Small Scale and Agro & Rural Industries, Government of India along with a copy to

the Small Industries Service Institute.

25. INFORMATION ABOUT VARIOUS OTHER CLEARANCES AND APPROVALS

25.1 In addition to the approval for bringing FDI in India, many other clearances and approvals,

such as registration of company, environment and forest clearance, permission for import of

plants and machinery, land acquisition, power and water connection, etc are required for starting

a business in India. Brief details of Departments/Agencies along with their web site addresses are

given in Annex VI.

26. GRIEVANCES AND COMPLAINTS

Business Ombudsperson

26.1 To facilitate expeditious redressal of grievances and attend to complaints relating to delays

in grant and implementation of industrial approvals and facilitate their disposal, the Government

has appointed a BUSINESS OMBUDSPERSON in the Ministry of Commerce & Industry.

Additional Secretary & Financial Adviser, Ministry of Commerce and Industry, Udyog Bhavan,

New Delhi-110011 has been nominated to act as Business Ombudsperson.

Grievances Officer & Joint Secretary

26.2 Grievances and complaints are also received by the Grievances Officer-cum-Joint

Secretary, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry,

Udyog Bhavan, New Delhi-110011, either through post or through the mail box in the EAU of the

SIA and at Reception of the Ministry of Commerce and Industry at Gate No.13 of Udyog Bhavan,

New Delhi-110011. Any such communication is handled expeditiously and steps are taken to

redress the grievance.

27. CITIZENS CHARTER

27.1 The Department of Industrial Policy and Promotion has also got its own Citizens Charter,

which outlines general procedures and standards of performance expected from the Department.

28 FREQUENTLY ASKED QUESTIONS

1. What are the forms in which business can be conducted by a foreign company in India?

Ans. Foreign companies can make investments or operate their business in a number of

ways such as Liaison/representative office, Project Office, Branch Office,100% Wholly owned

subsidiary2 andJoint venture company. The requisite approval can be granted by Reserve

Bank of India RBI) or Foreign Investment promotion Board ( FIPB. Any company set up with

FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies ,

Department of Company Affairs and all Indian operations would be conducted through this

company.

2. What proposals require an Industrial Licence(IL) and how is it obtained?

Ans. In the New Industrial Policy, all industrial undertakings are exempt from licencing except

for those products given in Annexure I and II of this Manual and those reserved for the Small

Scale Sector. The project should not be located within 25 kilometres of a city with a population of

more than one million as per 1991 Population Census.

The Government has substantially liberalised the procedures for obtaining an Industrial Licence.

The application in form IL-FC should be filed with the SIA. Approvals normally granted within 6-8

weeks.

3. What is the procedure for a delicensed sector?

Ans. An Industrial undertaking exempted from licencing needs only to file information in the

Industrial Entrepreneurs Memorandum (IEM) with the SIA , which will issue an acknowledgement.

No further approvals are required.

4. What is the Taxation Policy in India?

Ans. Since the onset of liberalization in the country, tax structure of the country is also being

rationalized keeping in view the national priorities and practices followed in other countries.

Foreign nationals working in India are generally taxed only on their Indian income. Income

received from sources outside India is not taxable unless it is received in India. The Indian tax

laws provide for exemption of tax on certain kinds of income earned for services rendered in

India. Further, foreign nationals have the option of being taxed under the tax treaties that India

may have signed with their country of residence.

Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration

includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to

salary, advance salary and perquisites. Taxable payments include all allowances and tax

equalisation payments unless specifically excluded. The stock options granted by the employer

are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

5. What are the important Labour Rules/ Regulations applicable in India?

Ans. Under the Constitution of India, Labour is a subject in the Concurrent List where both the

Central & State Governments are competent to enact legislation subject to certain matters being

reserved for the Centre. Some of the important Labour Acts, which are applicable for carrying out

business in India are:

Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 | Employees’ State

Insurance Act 1948

Workmen’s Compensation Act, 1923 | Maternity Benefit Act, 1961 | Payment of Gratuity Act,

1972, Factories Act, 1948

Dock Workers (Safety, Health & Welfare) Act, 1986 | Mines Act, 1972 | Minimum Wages Act |

Payment of Bonus Act 1965 Contract Labour [Ragulation & Abolition] Act 1970 | Payment of

Wages Act, 1936 |

6. What is the situation regarding Intellectual Property Rights protection in India?

India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and

establishing the World Trade Organisation (WTO). This Agreement, inter-alia, contains an

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which came into

force from 1st January 1995. It lays down minimum standards for protection and enforcement of

Intellectual Property Rights in member countries, which are required to promote effective and

adequate protection of Intellectual Property Rights with a view to reducing distortions and

impediments to international trade. The obligations under the TRIPS Agreement relate to

provision of minimum standards of protection within the member country's legal systems and

practices.

As regards the status of various Intellectual Property laws in India and standards in respect of

various areas of intellectual property, a law on Trade Marks has been passed by Parliament and

notified in the gazette on 30.12.1999. This law repeals and replaces the earlier Trade &

Merchandise Act, 1958. A new law for the protection of Geographical Indications, viz., the

Geographical Indications of Goods (Registration and the Protection) Act, 1999 has also been

passed by the Parliament and notified on 30.12.1999. A law called the Designs Act,2000 relating

to Industrial Designs which repeals and replaces the earliar Designs Act, 1911 has also been

passed by Parliament in its Budget Session, 2000. The Act has been brought into force from

11.05.2001. A Bill on Patents to amend the Patents Act, 1970 was passed by Parliament on

14.05.2002.

7. What are the Incentives offered by States?

India is a federal country consisting of States and Union Territories. States are also partners in

the economic reforms being undertaken in the country. Most of the States are making serious

efforts for simplifying the rules and procedures for setting up and operating the industrial units.

Single Window System is now in existence in most of the States for granting approval for setting

up industrial units. Moreover, with a view to attract foreign investors in their states, many of them

are offering incentive packages in the form of various tax concessions, capital and interest

subsidies, reduced power tariff, etc.

8. Is investment by Non-Resident Indians(NRIs) permitted?

Ans. The Government attaches importance to investments by NRIs and Overseas Corporate

Bodies(OCBs) i.e. corporate bodies in which NRIs hold at least 60% of equity. Government has

provided a liberalised policy framework for approval of NRI investments through both the

Automatic and the Government route. NRI/OCBs are permitted to invest upto 100% equity in the

Real Estate and Civil Aviation Sectors. Automatic Approval is given by the RBI to all NRI/OCB

proposals with their investment upto 100% for all items/activities except a few exceptions

mentioned in Press Note 2 (2000 series) read with sector specific guidelines. Government

approval is given for all proposals not qualifying for Automatic Approval.

9. Can profits, dividends, royalty, knowhow payments be repatriated from India?

Ans. All profits, dividends, royalty, knowhow payments that have been approved by the

Government/RBI can be repatriated. Some sectors like investment in development of integrated

township, NRI Investment in real estates, etc. may attract a lock-in period.

10. What are the formalities a joint venture company has to complete to increase the foreign

equity holding?

Ans: The following formalities are required for the joint venture that want to increase in their

foreign equity holding by acquisition of shares or by any other means.

a) If only the quantum of foreign equity increased without change in percentage

then Press Note no. 7 (1999 series) may be followed.

b) For increase in percentage of foreign equity by way of expansion of capital

base, automatic route or FIPB / Government route would apply depending upon

the nature of proposal in terms of Press Note No. 2 (2000 series)

c) Cases involving increase in percentage in foreign equity by way of acquiring

existing shares in an Indian company would necessarily require prior approval of

FIPB/Government.

d) In cases involving inclusion of an additional foreign collaborator, guidelines

laid down in Press Note No. 18 (1998 series) would have to be satisfied.

11 What is the policy of conversion of non-repatriable shares into repatriable shares?

Ans. FIPB approval is required. Where original investment was made in foreign exchange, the

change is allowed without any conditions; if not, the sale proceed will have to be repatriated to

India by opening an NRO account.

12. What is the mechanism for publicizing the changes in the FDI Policies?

Ans. Changes in FDI policies are brought out in the form of Press Notes by Department of

Industrial Policy & Promotion (DIPP) . Soon after releasing the Press Notes to the media, it is also

loaded on the Departmental website (http://dipp.nic.in/).

13 What are the policies and procedures governing Indian Investment abroad?

Ans. The Direct Investment by Indian parties in Joint Ventures (JVs) and Wholly Owned

Subsidiaries(WOSs) abroad is encouraged. These Direct Investment by Indian parties can be in

newly promoted foreign concerns, to make initial or additional Direct Investment in existing

foreign concerns and for acquisition of overseas business. The foreign concern in which the

direct investment is proposed to be made may be engaged in industrial, commercial, trading or

service activities including hotel or tourism industries. These also include financial services such

as insurance, mutual funds, etc.

There are two categories of applications for setting up overseas JVs and WOSs, viz. category (a):

Fast Track and category (b): Normal Cases. All applications are to be made to and processed

by the Reserve Bank of India(RBI),

For Fast Track category, an application for Direct Investment in a JV/WOS abroad from a

private/public limited company will be eligible for automatic approval for RBI, provided the total

value of the investment by the Indian party does not exceed US $ 15 million and in respect of

Indian Rupee investment in Nepal and Bhutan, it does not exceed Rs.600 million and the amount

of investment is up to 25% of annual average export / foreign exchange earning of the Indian

party (other than equity exports to existing JVs/WOSs abroad) in the preceding three years, etc.

for Indian software companies norms are different.

All applications involving investment beyond US $ 4 million but not exceeding US $ 15 million or

those not qualifying for Fast Track clearance on the basis of applicable criteria will be processed

in the RBI through a Special Committee appointed by RBI in consultation with Government and

Chaired by the Commerce Secretary with the Deputy Governor, RBI, as the alternate Chairman.

Investment proposals in excess of US $ 15 million will be considered if the required resources

beyond US $ 15 million are raised through the GDR route. Up to 50% GDR resources raised

may be invested as equity in overseas JVs subject to specific approvals of the Government.

Indian parties seeking to acquire overseas ventures through time-bound bidding/tender

procedures are sometimes required to obtain "in-principle" approvals on an urgent basis. In such

special circumstances, RBI may grant such ‘in principle’ approval. RBI would formulate separate

guidelines/conditions on applications and approvals for such cases.

The detailed guidelines regarding the Indian investment abroad may be seen at the website

(www.iic.nic.in) of India Investment Centre, Department of Economic Affairs, Ministry of Finance.

Detailed FAQs are available on the Department’s web site ( www.dipp.nic.in)

Annexure-I

LIST OF INDUSTRIES RESERVED FOR THE

PUBLIC SECTOR

1. Atomic Energy

2. Railway transport.

ANNEXURE-II

LIST OF INDUSTRIES FOR WHICH INDUSTRIAL LICENSING IS COMPULSORY under Industries

(Development & Regulation) Act, 1951

1. Distillation and brewing of alcoholic drinks.

2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

3. Electronic Aerospace and defence equipment: all types.

4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and

matches.

5. Hazardous chemicals.

a. Hydrocyanic acid and its derivatives

b. Phosgene and its derivatives

c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example:

Methyl Isocyanate)

6. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994

and subsequently amended in February, 1999)

Note: Manufacture of SSI reserved items by other industrial undertakings and location of industrial

undertakings in relaxation of the notified locational policy will attract compulsory licensing.

ANNEXURE-III

GUIDELINES FOR THE CONSIDERATION OF FOREIGN DIRECT

INVESTMENT (FDI) PROPOSALS BY THE

FOREIGN INVESTMENT PROMOTION BOARD (FIPB)

(To be read with paragraph 2.11 of the Manual)

The following Guidelines are laid-down to enable the Foreign Investment Promotion Board (FIPB)

to consider the proposals for Foreign Direct Investment (FDI) and formulate its recommendations.

1. All applications should be put up before the FIPB by the SIA (Secretariat of Industrial

Assistance) within 15 days and it should be ensured that comments of the administrative

ministries are placed before the Board either prior to/or in the meeting of the Board.

2. Proposals should be considered by the Board keeping in view the time frame of 30 days for

communicating Government decision (i.e. approval of C&IM/CCEA or rejection as the case

may be).

3. In cases in which either the proposal is not cleared or further information is required, in order

to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to.

4. While considering cases and making recommendations, FIPB should keep in mind the

sectoral requirements and the sectoral policies vis-a-vis the proposal(s).

5. FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment,

technical collaboration/industrial licence) for composite approval or otherwise. However, the

FIPB’s recommendation would relate only to the approval for foreign financial and technical

collaboration and the foreign investor will need to take other prescribed clearances

separately.

6. The Board should examine the following while considering proposals submitted to it for

consideration:

(i) Whether the items of activity involve industrial licence or not and if so the considerations for

grant of industrial licence must be gone into;

(ii) Whether the proposal involves technical collaboration and if so:- (a) the source and nature of

technology sought to be transferred.

(iii) Whether the proposal involves any mandatory requirement for exports and if so whether the

applicant is prepared to undertake such obligation (this is for items reserved for small scale

sector as also for dividend balancing, and for 100% EOUs/EPZ units);

(iv) Whether the proposal involves any export projection and if so the items of export and the

projected destinations;

(v) Whether the proposal has concurrent commitment under other schemes such as EPCG

Scheme etc.

(vi) In the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition

norms and the minimum turn over of exports are met or not;

(vii) Whether the proposal involves relaxation of locational restrictions stipulated in the industrial

licensing policy;

(viii) Whether the proposal has any strategic or defence related considerations, and

(ix) Whether the proposal has any previous joint venture or technology transfer/trademark

agreement in the same or allied field in India, the detailed circumstance in which it is

considered necessary to set-up a new joint venture/enter into new technology transfer

(including trade mark), and proof that the new proposal would not in any way jeopardize the

interest of the existing joint venture or technology/trade mark partner or other stake holders.

7. While considering proposals the following may be prioritised.

(a) Items/activities covered under automotive route (i.e. those which do not qualify for

automatic approval).

(b) Items falling in infrastructure sector.

(c ) Items which have an export potential

(d) Items which have large scale employment potential and especially for rural people.

(e) Items, which have a direct or backward linkage with agro business/farm sector.

(f) Item which have greater social relevance such as hospitals, human resource

development, life saving drugs and equipment.

(g) Proposals, which result in induction of technology or infusion of capital.

8. The following should be especially considered during the scrutiny and consideration of

proposals:

(a) The extent of foreign equity proposed to be held (keeping in view sectoral caps if any -

e.g. 24% for SSI units, 40% for air taxi/airlines operators, 49% in basic/cellular/paging,

etc. in Telecom sector).

(b) Extent of equity with composition of foreign/NRI (which may include OCB)/resident

Indians.

(c ) Extent of equity from the point of view whether the proposed project would amount to a

holding company/wholly owned subsidiary/a company with dominant foreign investment

(i.e. 75% or more) joint venture.

(d) Whether the proposed foreign equity is for setting up a new project (joint venture or

otherwise) or whether it is for enlargement of foreign/NRI equity or whether it is for fresh

induction of foreign equity/NRI equity in an existing Indian company.

(e) In the case of fresh induction of foreign/NRI equity and/or cases of enlargement of

foreign/ NRI equity in existing Indian companies whether there is a resolution of the

Board of Directors supporting the said induction/enlargement of foreign/NRI equity and

whether there is a shareholders agreement or not.

(f) In the case of induction of fresh equity in the existing Indian companies and/or

enlargement of foreign equity in existing Indian companies, the reason why the proposal

has been made and the modality for induction/enhancement [i.e. whether by increase of

paid up capital/authorised capital, transfer of shares (hostile or otherwise) whether by

rights issue, or by what modality].

Cases pertaining to FIPB approvals, which involve increase in the non-resident equity

within the approved percentage of non-resident equity in a joint venture company and

enhancement of paid-up capital in a wholly owned subsidiary do not require FIPB

approval provided the intent for increase in the amount of foreign equity is duly notified to

SIA and formal documentation by way of intimation is made to SIA within 30 days of

receipt of funds and allotment of shares (to non-resident shareholders).

(g) Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines.

(h) Whether the activity is an industrial or a service activity or a combination of both.

(i) Whether the item of activity involves any restriction by way of reservation for the small

scale sector.

(j) Whether there are any sectoral restrictions on the activity (e.g. there is ban on foreign

investment in real estate while it is not so for NRI/OCB investment).

(k) Whether the item involves only trading activity and if so whether it involves export or both

export and import, or also includes domestic trading and if domestic trading whether it

also includes retail trading.

(l) Whether the proposal involves import of items which are either hazardous, banned or

detrimental to environment (e.g. import of plastic scrap or recycled plastics).

9. In respect of activities to which equity caps apply, FIPB may consider recommending higher

levels of foreign equity as compared to the prescribed caps, keeping in view the special

requirements and merits of each case.

10. In respect of other industries/activities the Board may consider recommending 51 per cent

foreign equity on examination of each individual proposal. For higher levels of equity up to 74

per cent the Board may consider such proposals keeping in view considerations such as the

extent of capital needed for the project, the nature and quality of technology, the

requirements of marketing and management skills and the commitment for exports.

11. FIPB may consider recommending proposals for 100 percent foreign owned

holding/subsidiary companies based on the following criteria:

(a) where only "holding" operation is involved all subsequent/downstream investments to be

carried out would require prior approval of the Government;

(b) where proprietary technology is sought to be protected or sophisticated technology is

proposed to be brought in;

(d) proposals for consultancy; and

(e) proposals for industrial model towns/industrial parks or estates.

12. In special cases, where the foreign investor is unable initially to identify an Indian joint

venture partner, the Board may consider and recommend proposals permitting 100 per cent

foreign equity on a temporary basis on the condition that the foreign investor would divest to

the Indian parties (either individual, joint venture partners or general public or both) at least

26 per cent of its equity within a period of 3-5 years.

13. Similarly in the case of a joint venture, where the Indian partner is unable to raise resources

for expansion/technological upgradation of the existing industrial activity the Board may

consider and recommend increase in the proportion/percentage (up to 100 per cent) of the

foreign equity in the enterprise.

14. In respect of trading companies, 100 per cent foreign equity may be permitted in the case of

the activities involving the following:

(i) exports;

(ii) bulk imports with ex-port/ex-bonded warehouse sales;

(iii) cash and carry wholesale trading;

(iv) other import of goods or services provided at least 75% is for procurement and sale of

goods and services among the companies of the same group.

15. In respect of the companies in the infrastructure/services sector where there is a prescribed

cap for foreign investment, only the direct investment should be considered for the

prescribed cap and foreign investment in an investing company should not be set off against

this cap provided the foreign direct investment in such investing company does not exceed

49 per cent and the management of the investing company is with the Indian owners.

16. No condition specific to the letter of approval issued to a foreign investor would be changed

or additional condition imposed subsequent to the issue of a letter of approval. This would

not prohibit changes in general policies and regulations applicable to the industrial sector.

17. Where in case of a proposal (not being 100% subsidiary) foreign direct investment has been

approved up to a designated percentage of foreign equity in the joint venture company the

percentage would not be reduced while permitting induction of additional capital

subsequently. Also in the case of approved activities, if the foreign investor(s) concerned

wished to bring in additional capital on later dates keeping the investment to such approved

activities, FIPB would recommend such cases for approval on an automatic basis.

18. As regards proposal for private sector banks, the application would be considered only after

"in principle" permission is obtained from the Reserve Bank of India (RBI).

19. The restrictions prescribed for proposals in various sectors as obtained, at present, are given

in the annexure - IV and these should be kept in view while considering the proposals.

The Guidelines are meant to assist the FIPB to consider proposals in an objective and

transparent manner. These would not in any way restrict the flexibility or bind the FIPB from

considering the proposals in their totality or making recommendation based on other criteria

or special circumstances or features it considers relevant. Besides these are in the nature of

administrative Guidelines and would not in any way be legally binding in respect of any

recommendation to be made by the FIPB or decisions to be taken by the Government in

cases involving Foreign Direct Investment (FDI).

These guidelines are issued without prejudice to the Government’s right to issue fresh

guidelines or change the legal provisions and policies whenever considered necessary.

The above mentioned guidelines stands modified to the extend changes have been notified by

Secretariat for Industrial Assistance from time to time.

ANNEXURE IV

SECTOR SPECIFIC GUIDELINES FOR

FOREIGN DIRECT INVESTMENT

Sl.No. Sector Guidelines

1. Private Sector 49% from all sources on the automatic route subject to guidelines issued from RBI

from time to

Banking time. Consolidated guidelines are given at Appendix-A

Non Banking (a) FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall

be as per levels

Financial Companies indicated below:

(NBFC)

i) Merchant banking

ii) Underwriting

iii) Portfolio Management Services

iv) Investment Advisory Services

v) Financial Consultancy

vi) Stock Broking

vii) Asset Management

viii) Venture Capital

ix) Custodial Services

x) Factoring

xi) Credit Reference Agencies

xii) Credit rating Agencies

xiii) Leasing & Finance

xiv) Housing Finance

xv) Forex Broking

xvi) Credit card business

xvii) Money changing Business

xviii) Micro Credit

xix) Rural Credit

(b) Minimum Capitalisation Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought

upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be

brought upfront

iii) 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

Minimum capitalisation norm of US $ 0.5 million is applicable in

respect of all permitted non- fund based NBFCs with foreign

investment

(d) Foreign investors can set up 100% operating subsidiaries

without the condition to disinvest a minimum of 25% of its equity to

Indian entities, subject to bringing in US$ 50 million as at (b) (iii)

above (without any restriction on number of operating subsidiaries

without bringing in additional capital)

(e) Joint Venture operating NBFC’s that have 75% or less than

75% foreign investment will also be allowed to set up

subsidiaries for undertaking other NBFC activities, subject to

the subsidiaries also complying with the applicable minimum

capital inflow i.e. (b)(i) and (b)(ii) above

(f) FDI in the NBFC sector is put on automatic route subject to

compliance with guidelines of the Reserve Bank of India. RBI

would issue appropriate guidelines in this regard

Insurance FDI up to 26% in the Insurance sector is allowed on the automatic

route subject to obtaining licence from Insurance Regulatory &

Development Authority (IRDA)

2. Domestic Airlines (Detailed guidelines have been issued by Ministry of Civil Aviation)

In the domestic Airlines

i) FDI up to 40% permitted subject to no direct or indirect equity

participation by foreign airlines

ii) 100% investment by NRIs/OCBs

iii) The automatic route is not available

Airports Up to 100% with FDI, beyond 74% requiring Government approval

3. Telecommunication i) In basic, cellular, value added services and global mobile

personal communications by satellite, FDI is limited to 49%

subject to licensing and security requirements and adherence

by the comapanies (who are investing and the companies in

which the investment is being made) to the licence conditions

for foreign equity cap and lock- in period for transfer and

addition of equity and other licence provisions

ii) In ISPs with gateways, radio-paging and end-to-end bandwidth,

FDI is permitted up to 74% with FDI, beyond 49% requiring

Government approval. These services would be subject to

licencing and security requirements

iii) No equity cap is applicable to manufacturing activities

iv) FDI upto 100% is allowed for the following activities in the

telecom sector :

a. ISPs not providing gateways (both for satellite and

submarine cables)

b. Infrastructure Providers providing dark fibre (IP Category

c. Electronic Mail; and

d. Voice Mail

The above would be subject to the following conditions:

a. FDI up to 100% is allowed subject to the condition that

such companies would divest 26% of their equity

in favour of Indian public in 5 years, if these companies are

listed in other parts of the world

b. The above services would be subject to licensing and

security requirements, wherever

required

c. Proposals for FDI beyond 49% shall be considered by FIPB on

case to case basis

4. Petroleum a. Under the exploration policy, FDI up to 100% is allowed for

small fields through competitive

(other than Refining) bidding; upto 60% for unincorporated JV; and up to 51% for

incorporated JV with a No Objection Certificate for medium size

fields

b. For petroleum products and pipeline sector, FDI is permitted up

to 51%

c. FDI is permitted up to 74% in infrastructure related to marketing

and marketing of petroleum products

d. 100% wholly owned subsidiary(WOS) is permitted for the

purpose of market study and formulation

e. 100% wholly owned subsidiary (WOS) is permitted for

investment/Financing

f. For actual trading and marketing, minimum 26% Indian equity is

required over 5 years

The automatic route is not available

Petroleum a. FDI is permitted up to 26% in case of public sector units(PSUs).

PSUs will hold 26% and balance

(Refining) 48% by public. Automatic route is not available

b. In case of private Indian companies, FDI is permitted upto

100% under automatic route

5. Housing & No foreign investment is permitted in this sector except for

development of integrated townships and

Real Estate settlements where FDI upto 100% is permitted with prior Government

approval. NRIs/OCBs are allowed to invest in the following activities

a. Development of serviced plots and construction of built up

residential premises

b. Investment in real state covering construction of residential and

commercial premises including business centres and offices

c. Development of townships

d. City and regional level urban infrastructure facilities, including

both roads and bridges

e. Investment in manufacture of building materials, which is also

open to FDI

f. Investment in participatory ventures in (a) to (e) above

g. Investment in housing finance institutions, which is also open to

FDI as an NBFC

6. Coal and Lignite i. Private Indian companies setting up or operating power projects

as well as coal or lignite mines for captive consumption are

allowed FDI up to 100%

ii. 100% FDI is allowed for setting up coal processing plants

subject to the condition that the company shall not do coal

mining and shall not sell washed coal or sized coal from its coal

processing plants in the open market and shall supply the

washed or sized coal to those parties who are supplying raw

coal to coal processing plants for washing or sizing

iii. FDI up to 74% is allowed for exploration or mining of coal or

lignite for captive consumption

iv. In all the above cases, FDI is allowed up to 50% under the

automatic route subject to the condition that such investment

shall not exceed 49% of the equity of a PSU

7. Venture Capital Offshore Venture Capital Funds/Companies are allowed to invest in

domestic venture capital undertaking

Fund(VCF) and as well as other companies through the automatic route, subject only

to SEBI regulations and sector

Venture Capital specific caps on FDI

Company(VCC)

8. Trading Trading is permitted under automatic route with FDI up to 51%

provided it is primarily export activities, and the undertaking is an

export house/trading house/super trading house/star trading house.

However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the

following activities:

œ exports

œ bulk imports with ex-port/ex-bonded warehouse sales

œ cash and carry wholesale trading

œ other import of goods or services provided at least 75% is

for procurement and sale of goods and services among the

companies of the same group and not for third party use or

onward transfer/distribution/sales

ii. The following kinds of trading are also permitted, subject to

provisions of EXIM Policy:

a. Companies for providing after sales services (that is not

trading per se)

b. Domestic trading of products of JVs is permitted at the

wholesale level for such trading companies who wish to

market manufactured products on behalf of their joint

ventures in which they have equity participation in India

c. Trading of hi-tech items/items requiring specialised after

sales service

d. Trading of items for social sector

e. Trading of hi-tech, medical and diagnostic items

f. Trading of items sourced from the small scale sector under

which, based on technology provided and laid down quality

specifications, a company can market that item under its

brand name

g. Domestic sourcing of products for exports

h. Test marketing of such items for which a company has

approval for manufacture provided such test marketing

facility will be for a period of two years, and investment in

setting up manufacturing facilities commences

simultaneously with test marketing

i. FDI up to 100% permitted for e-commerce activities subject

to the condition that such companies would divest 26% of

their equity in favour of the Indian public in five years, if

these companies are listed in other parts of the world. Such

companies would engage only in business to business

(B2B) e-commerce and not in retail trading

9. Investing companies In respect of the companies in infrastructure/service sector, where

there is a prescribed cap for foreign

in infrastructure/ investment, only the direct investment will be considered for the

prescribed cap and foreign investment in

service sector an investing company will not be set off against this cap provided the

foreign direct investment in such investing company does not exceed

49% and the management of the investing company is with the Indian

owners. The automatic route is not available

10. Atomic minerals The following three activities are permitted to receive FDI/NRI/OCB

investments through FIPB (as per detailed guidelines issued by

Department of Atomic Energy vide Resolution No.8/1(1)/97-PSU/1422

dated 6.10.98):

a. Mining and mineral separation

b. Value addition per se to the products of (a) above

c. Integrated activities (comprising of both (a) and (b) above.)

The following FDI participation is permitted:

(i) Up to 74% in both pure value addition and integrated projects

(ii.) For pure value addition projects as well as integrated projects with

value addition upto any intermediate stage, FDI is permitted upto

74% through joint venture companies with Central/State PSUs in

which equity holding of at least one PSU is not less than 26%

(iii.) In exceptional cases, FDI beyond 74% will be permitted subject to

clearance of the Atomic Energy Commission before FIPB

approval

11 Defence and Foreign Direct Investment, including NRI/OCB investment, is permitted

up to 26% with prior Government

strategic industries approval subject to licensing and security requirements. Detailed

guidelines for participation of private sector and foreign investors in

this sector are given in Appendix-B

12. Agriculture No FDI/NRI/OCB investment is permitted other than Tea sector, where

(including plantation) FDI permitted up to 100% in Tea sector, including tea plantations, with

prior Government approval and subject to following conditions:

• Compulsory divestment of 26% equity in favour of Indian

partner/Indian public within a period of five years, and

• Prior State government approval required in case of any future

land use change.

The above dispensation would be applicable to all fresh

investments (FDI) made in this sector.

13. Print media The following FDI participation in Indian entities publishing News

Papers and periodicals is permitted:

(a) FDI up to 74% in publishing scientific/technical and speciality

magazines/periodicals/journals

(b) FDI up to 26% in publishing News Papers and Periodicals dealing in News and Current

Affairs subject to verification of antecedents of foreign investor, keeping editorial and

management control in the hands of resident Indians and ensuring against dispersal of

Indian equity.

The detailed guidelines had been issued by Ministry of Information and Broadcasting.

14. Broadcasting Broadcasting

a) TV Software Production

100% foreign investment allowed subject to:

(i) all future laws on broadcasting and no claim of any privilege or

protection by virtue of approval accorded, and

(ii) not undertaking any broadcasting from Indian soil without

Government approval

b) Setting up hardware facilities, such as uplinking, HUB, etc.

Private companies incorporated in India with permissible

FII/NRI/OCB/PIO equity within the limits (as in the case of

telecom sector FDI limit up to 49% inclusive of both FDI and

portfolio investment) to set up uplinking hub (teleports) for

leasing or hiring out their facilities to broadcasters

Foot note: As regards satellite broadcasting, all TV channels

irrespective of management control to uplink from India

provided they undertake to comply with the broadcast

(programme & advertising) code

c) Cable Network

Foreign investment allowed up to 49% (inclusive of both FDI and

portfolio investment) of paid up share capital. Companies with

minimum 51% of paid up share capital held by Indian citizens

are eligible under the Cable Television Network Rules (1994) to

provide cable TV services

d) Direct-to-Home

Company with a maximum of foreign equity including

FDI/NRI/OCB/FII of 49% would be eligible to obtain DTH

License. Within the foreign equity, the FDI component not to

exceed 20%

e) Terrestrial Broadcasting FM

The licensee shall be a company registered in India under the

Companies Act. All share holding should be held by Indians

except for the limited portfolio investment by FII/NRI/PIO/OCB

subject to such ceiling as may be decided from time to time.

Company shall have no direct investment by foreign entities,

NRIs and OCBs. As of now, the foreign investment is

permissible to the extent of 20% portfolio investment

f) Terrestrial TV

No private operator is allowed in terrestrial TV transmission

15. Power Up to 100% FDI allowed in respect of projects relating to electricity

generation, transmission and distribution, other than atomic reactor

power plants. There is no limit on the project cost and quantum of

foreign direct investment

16. Drugs & FDI up to 100% is permitted on the automatic route for manufacture of

drugs and pharmaceutical,

Pharmaceuticals provided the activity does not attract compulsory licensing or involve

use of recombinant DNA technology, and specific cell / tissue targeted

formulations

FDI proposals for the manufacture of licensable drugs and

pharmaceuticals and bulk drugs produced by recombinant DNA

technology, and specific cell / tissue targeted formulations will require

prior Government approval

17. Roads & Highways, FDI up to 100% under automatic route is permitted in projects for

construction and maintenance of roads,

Ports and Harbours. highways, vehicular bridges, toll roads, vehicular tunnels, ports and

harbours

18. Hotels & Tourism 100% FDI is permissible in the sector on the automatic route

The term hotels include restaurants, beach resorts, and other tourist

complexes providing accommodation and/or catering and food

facilities to tourists. Tourism related industry include travel agencies,

tour operating agencies and tourist transport operating agencies, units

providing facilities for cultural, adventure and wild life experience to

tourists, surface, air and water transport facilities to tourists, leisure,

entertainment, amusement, sports, and health units for tourists and

Convention/Seminar units and organisations

For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid

for technical and consultancy services including fees for

architects, design, supervision, etc.

ii. up to 3% of net turnover is payable for franchising and

marketing/publicity support fee, and

iii. up to 10% of gross operating profit is payable for management

fee, including incentive fee

19. Mining. i. For exploration and mining of diamonds and precious stones FDI

is allowed up to 74% under automatic route

ii. For exploration and mining of gold and silver and minerals other

than diamonds and precious stones, metallurgy and processing

FDI is allowed up to 100% under automatic route

iii. Press Note No. 18 (1998 series) dated 14.12.98 would not be

applicable for setting up 100% owned subsidiaries in so far as

the mining sector is concerned, subject to a declaration from the

applicant that he has no existing joint venture for the same area

and / or the particular mineral

20. Postal services FDI up to 100% is permitted in courier services with prior

Government approval excluding distribution of letters, which is

reserved exclusively for the state

21. Pollution Control FDI up to 100% in both manufacture of pollution control

equipment and consultancy for integration

and management of pollution control systems is permitted on the automatic route

22. Advertising and films a) Advertising sector

FDI up to 100% allowed on the automatic route

b) Film sector

(film production, exhibition and distribution including related

services/products)

FDI up to 100% allowed on the automatic route with no entrylevel

condition

23. Mass Rapid Metro FDI up to 100% is permitted on the automatic route in mass

rapid transport system in all metros

Transit System including associated real estate development

24. Township FDI up to 100% is permitted for development of integrated

townships including houses, commercial

Development premises, hotels, resorts, city and regional level urban

infrastructure facilities such as roads and bridges, mass rapid

transit system; and manufacture of building materials.

Development of land and providing allied infrastructure will form

an integral part of township’s development. FDI in this sector

would be permissible with prior Government approval. Detailed

guidelines regarding investment in this sector are given at

Appendix-C

25. Establishment and FDI up to 74% is permitted with prior Government approval

Operation of satellite

26. Lottery business, Government has reiterated prohibition of foreign direct investment

gambling & betting (FDI) / Foreign technical collaboration (FTC) in any form in lottery

business, gambling and betting sector.

APPENDIX - A

GUIDELINES FOR FOREIGN DIRECT INVESTMENT (FDI) IN

THE BANKING SECTOR

1. Limit for FDI under automatic route in private sector banks

a. In terms of the Press Note no. 4 (2001 series) dated May 21, 2001 issued by Ministry

of Commerce & Industry, Government of India, FDI up to 49% from all sources will be

permitted in private sector banks on the automatic route, subject to conformity with the

guidelines issued by RBI from time to time.

b. For the purpose of determining the above-mentioned ceiling of 49% FDI under the

"automatic route" in respect of private sector banks, following categories of shares will

be included.

(i) IPOs,

(ii) Private placements,

(iii) ADRs/GDRs, and

(iv) Acquisition of shares from existing shareholders [subject to (d) below]

c. It may be clairified that as per Government of India guidelines, issue of fresh shares

under automatic route is not available to those foreign investors who have a financial

or technical collaboration in the same or allied field. This category of investors require

FIPB approval.

d. It may be further clarified that, as per Government of India guidelines, automatic route

is not applicable to transfer of existing shares in a banking company from residents to

non–residents. This category of investors require approval of FIPB followed by "in

principle" approval by Exchange Control Department (ECD), RBI. The "fair price" for

transfer of existing shares is determined by RBI broadly on the basis of SEBI

guidelines for listed shares and erstwhile CCI guidelines for unlisted shares. After

receipt of "in principle" approval, the resident seller can receive funds and apply to

ECD, RBI for obtaining final permission for transfer of shares.

e. Under the Insurance Act, the maximum foreign investment in an insurance company

has been fixed at 26%. Application for foreign investment in banks, which have joint

venture/subsidiary in insurance sector, should be made to RBI. Such applications will

be considered by RBI in consultation with Insurance Regulatory and Development

Authority (IRDA).

f. Foreign banks having branch presence in India are eligible for FDI in the private sector

banks subject to the overall cap of 49% mentioned above with the approval of RBI.

2. Limit for FDI in public sector banks

FDI and portfolio investment in nationalised banks are subject to overall statutory limits of

20% as provided under Section 3 (2D) of the Banking Companies (Acquisition and Transfer

of Undertakings) Acts, 1970/80. The same ceiling would also apply in respect of such

investments in State Bank of India and its associate banks.

3. Voting rights of foreign investors

In terms of the statutory provisions under the various banking acts, the voting rights, when

exercised, which are stipulated as under:

Private sector banks – [Section 12 (2) of Banking Regulation Act, 1949]

No person holding shares, in respect of any share held by him, shall exercise voting rights

on poll in excess of ten per cent of the total voting rights of all the share holders

Nationalised Banks – [Section 3(2E) of Banking Companies (Acquisition and Transfer of

Undertakings) Acts, 1970/80]

No shareholder, other than the Central Government, shall be entitled to exercise voting

rights in respect of any shares held by him in excess of one per cent of the total

voting rights of all the share holders of the nationalised banks

State Bank of India (SBI) – (Section 11 of State Bank of India Act, 1955)

No shareholder, other than RBI, shall be entitled to exercise voting rights in excess of ten

per cent of the issued capital (Government, in consultation with RBI can raise the

above voting rate to more than ten per cent).

SBI Associates – [Section 19(1)&(2) of SBI (Subsidiary Bank) Act, 1959]

No person shall be registered as a shareholder in respect of any shares held by him in

excess of two hundred shares.

No shareholder, other than SBI, shall be entitled to exercise voting rights in excess of one

per cent of the issued capital of the subsidiary bank concerned.

4. Approval of RBI and reporting requirements

(i) Under extant instructions, transfer of shares of 5 per cent and more of the paid-up

capital of a private sector banking company, requires prior acknowledgments of RBI.

For FDI of 5 per cent and more of the paid–up capital, the private sector banking

company has to apply in the prescribed form to the Department of Banking Operations

and Department in the Regional Office of RBI, where the bank’s Head Office is

located.

(ii) Under the provisions of FEMA 1999, any fresh issue of shares of a banking company,

either through the automatic route or with the specific approval of FIPB, does not

require further approval of Exchange Control Department (ECD) of RBI from the

exchange control angle. The Indian banking company is only required to undertake 2-

stage reporting to the ECD as follows:

a. In the first stage, the Indian company has to submit a report within 30 days of

the date of receipt of amount of consideration indicating the name and address

of foreign investors, date of receipt of funds and their rupee equivalent, name of

bank through whom funds were received and details of Government approval, if

any.

b. In the second stage, the Indian banking company is required to file within 30

days from the date of issue of shares, a report in form FC-GPR together with a

certificate from the Company Secretary of the concerned company certifying

that various regulations have been complied with. The report will also be

accompanies by a certificate from a Chartered Accountant indicating the

manner of arriving at the price of the shares issued.

5. Conformity with SEBI Regulations and Companies Act provisions

Wherever applicable, FDI in banking companies should conform to the provisions regarding

shareholding and share transfer, etc. as stipulated by SEBI, Companies Act, etc.

6. Disinvestments by Foreign Investors

In terms of regulation 10 and 11 of RBI Notification No. FEMA/20/2000-RB dated May 3,

2000 issued under FEMA 1999; disinvestments by foreign investors would be governed by

the following:

(i) Sale of shares by non-residents on a stock exchange and remittance of the proceeds

thereof through an authorized dealer does not require RBI approval.

(ii) Sale of shares by private arrangement requires RBIs prior approval. RBI grants

permission for sale of shares at a price that is market related and is arrived at in terms

of guidelines indicated in Regulation 10 above.

7. All commercial banks, which either have foreign investments or intending to have foreign

investments, need to observe the above guidelines.

APPENDIX-B

GUIDELINES FOR LICENSING PRODUCTION

OF ARMS & AMMUNITIONS

In pursuance of the Government decision to allow private sector participation up to 100% in the

defence industry sector with foreign direct investment (FDI) permissible up to 26%, both subject to

licensing as notified vide Press Note No. 4 (2001 series), the following guidelines for licensing

production of arms and ammunitions are hereby notified:

1. Licence applications will be considered and licences given by the Department of Industrial

Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of

Defence.

2. Cases involving FDI will be considered by the FIPB and licences given by the Department of

Industrial Policy & Promotion in consultation with Ministry of Defence.

3. The applicant should be an Indian company / partnership firm.

4. The management of the applicant company / partnership should be in Indian hands with

majority representation on the Board as well as the Chief Executive of the company /

partnership firm being resident Indians.

5. Full particulars of the Directors and the Chief Executives should be furnished along with the

applications.

6. The Government reserves the right to verify the antecedents of the foreign collaborators and

domestic promoters including their financial standing and credentials in the world market.

Preference would be given to original equipment manufacturers or design establishments,

and companies having a good track record of past supplies to Armed Forces, Space and

Atomic energy sectors and having an established R & D base.

7. There would be no minimum capitalization for the FDI. A proper assessment, however,

needs to be done by the management of the applicant company depending upon the product

and the technology. The licensing authority would satisfy itself about the adequacy of the net

worth of the foreign investor taking into account the category of weapons and equipment that

are proposed to be manufactured.

8. There would be a three-year lock-in period for transfer of equity from one foreign investor to

another foreign investor (including NRIs & OCBs with 60% or more NRI stake) and such

transfer would be subject to prior approval of the FIPB and the Government.

9. The Ministry of Defence is not in a position to give purchase guarantee for products to be

manufactured. However, the planned acquisition programme for such equipment and overall

requirements would be made available to the extent possible.

10. The capacity norms for production will be provided in the licence based on the application as

well as the recommendations of the Ministry of Defence, which will look into existing

capacities of similar and allied products.

11. Import of equipment for pre-production activity including development of prototype by the

applicant company would be permitted.

12. Adequate safety and security procedures would need to be put in place by the licensee once

the licence is granted and production commences. These would be subject to verification by

authorized Government agencies.

13. The standards and testing procedures for equipment to be produced under licence from

foreign collaborators or from indigenous R & D will have to be provided by the licensee to the

Government nominated quality assurance agency under appropriate confidentiality clause.

The nominated quality assurance agency would inspect the finished product and would

conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Selfcertification

would be permitted by the Ministry of Defence on case to case basis, which may

involve either individual items, or group of items manufactured by the licensee. Such

permission would be for a fixed period and subject to renewals.

14. Purchase preference and price preference may be given to the Public Sector organizations

as per guidelines of the Department of Public Enterprises.

15. Arms and ammunition produced by the private manufacturers will be primarily sold to the

Ministry of Defence. These items may also be sold to other Government entities under the

control of the Ministry of Home Affairs and State Governments with the prior approval of the

Ministry of Defence. No such item should be sold within the country to any other person or

entity. The export of manufactured items would be subject to policy and guidelines as

applicable to Ordinance Factories and Defence Public Sector Undertakings. Non-lethal

items would be permitted for sale to persons / entities other than the Central or State

Governments with the prior approval of the Ministry of Defence. Licensee would also need

to institute a verifiable system of removal of all goods out of their factories. Violation of these

provisions may lead to cancellation of the licence.

16. Government decision on applications to FIPB for FDI in defence industry sector will be

normally communicated within a time frame of 10 weeks from the date of acknowledgment

by the Secretariat for Industrial Assistance in the Department of Industrial Policy &

Promotion.

APPENDIX-C

GUIDELINES FOR FDI IN DEVELOPMENT OF INTEGRATED

TOWNSHIP INCLUDING HOUSING AND BUILDING MATERIAL

Government vide Press Note No. 4 (2001 series) permitted FDI up to 100% for development of

integrated townships, including housing, commercial premises, hotels, resorts, city and regional

level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and

manufacture of building materials. Development of land and providing allied infrastructure will form

an integrated part of township’s development.

2. FDI in the development of integrated townships will be subject to the following guidelines:

i) The foreign company intending to invest, shall be registered as an Indian Company

under Companies Act 1956 and will henceforth be allowed to take up land assembly

and its development as a part of Integrated Township Development. All such cases

would be processed by FIPB on the recommendation of Ministry of Urban

Development & Poverty Alleviation and other concerned Ministries / Departments.

Ministry of Urban Development & Poverty Alleviation will develop an exclusive cell to

deal with such cases.

ii) The core business of the company seeking to make investment, should be integrated

township development with a record of successful execution of such projects

elsewhere.

iii) The minimum area to be developed by such a company should be 100 acres for which

norms and standards are to be followed as per local bylaws / rules. In the absence of

such bylaws / rules, a minimum of two thousand dwelling units for about ten thousand

population will need to be developed by the investor.

iv) The investing foreign company should achieve clear milestones once their proposal

has been approved.

a) The minimum capitalisation norm shall be US$ 10 million for a wholly owned

subsidiary and US$ 5 million for joint ventures with Indian partner/s. The funds

would have to be brought in upfront.

b) A minimum lock-in period of three years from completion of minimum

capitalisation shall apply before repatriation of original investment is permitted.

c) A minimum of 50% of the integrated project development must be completed

within a period of five years from the date of possession of the first piece of

land. However, if the investor intends to exit earlier due to reasons beyond his

control, it shall be decided by FIPB on a case-to-case basis.

v) Conditions regarding the use of land for commercial purposes, development charges,

external development charges and other charges as laid down in Master Plan /

Bylaws, preparation of layout and building plan, development of internal and peripheral

development, development of other infrastructure facilities including the trunk services

etc., will be the responsibility of the investor as per planning norms and standards on

similar lines as those applicable to local investors. In the absence of such standards

and norms, every State Government may decide their own conditions for which the

Urban Development Plan Formulation and Implementation guidelines circulated by the

Ministry of Urban Development & Poverty Alleviation may serve as a guiding principle.

vi) Land with assembled area for peripheral services such as police stations, milk booths

will be handed over free of cost to the Government / local authority / agency as the

case may be.

vii) The Developer will retain the lands for community services such as (i) schools (ii)

shopping complex (iii) community centres (iv) ration shop (v) hospital / dispensary.

These services will be developed by developer himself and shall be made operational

before the houses are occupied.

viii) The developer, after properly developing playgrounds, park, will make it available to

the local authorities free of cost.

ix) The developer will ensure the norms and standards as applicable under local laws /

rules.

x) For companies investing in Special Economic Zones, Foreign Investment Promotion

Board may accord exemption to any of the above mentioned conditions on a case-tocase

basis. This will, however, be an interim measure till guidelines are evolved in due

course in a need based manner.

ANNEXURE-V

LIST OF CITIES WITH POPULATION OF 10 LAKHS (1 MILLION)

AND ABOVE ACCORDING TO THE PROVISIONAL

RESULTS OF 1991 CENSUS

Name of the Cities

1. Greater Mumbai U.A.

2. Kolkata U.A.

3. Delhi U.A.

4. Chennai U.A.

5. Hyderabad U.A.

6. Bangalore U.A.

7. Ahmedabad U.A.

8. Pune U.A.

9. Kanpur U.A.

10. Nagpur U.A.

11. Lucknow U.A.

12. Surat U.A.

13. Jaipur U.A.

14. Kochi U.A.

15. Coimbatore U.A.

16. Vadodara U.A.

17. Indore U.A.

18. Patna U.A.

19. Madurai U.A.

20. Bhopal M.C.

21. Visakhapatnam, U.A.

22. Varanasi U.A.

23. Ludhiana M.C.

Note: U.A. = Urban Area M.C. = Municipal Corporation

Annex VI

Details of Selected Agencies/ Departments involved with

Various Clearnces/Approvals and their Web-Sites

Subject Matter Concerned Ministry/Department

of Govt. of India

Website address

Registration as a company &

certificate of commencement of

business

Department of Company Affairs

(Registrar of Companies)

http://dca.nic.in

Approval for foreign collaboration &

Technology Transfer:

(i) Automatic route

(ii) Government approval (FIPB)

Reserve Bank of India

Department of Economic Affairs

http://www.rbi.org.in

http://finmin.nic.in

Matters relating to FDI policy and its

promotion and facilitation as also

promotion and facilitation of

investment by Non- resident Indians

( NRIs) and Overseas Corporate

Bodies ( OCBs)

Department of Industrial Policy &

Promotion

http://dipp.nic.in

Matters relating to Foreign Exchange Reserve Bank of India

http://www.rbi.org.in

Matters relating to Taxation

Matters relating to Direct Taxation

Matters relating to Excise & Customs

Department of Revenue

Central Board of Direct Taxes

Central Board of Excise & Custom

http://finmin.nic.in

http://incometaxindia.g

ov.in

http://www.cbec.gov.in

Matters relating to Industrial

Relations

Ministry of Labour http://labour.nic.in

Import of Goods Directorate General of Foreign

Trade

http://dgft.delhi.nic.in

Matters relating to Environment &

Forest clearance

Ministry of Environment and

Forests

http://envfor.nic.in

Overseas investment by Indians India Investment Centre,

Department of Economic Affairs

http://iic.nic.in

Allotment of land/Shed in Industrial

areas, acquisition of land, change in

land use, approval of building plan,

release of water connection etc.

Concerned Departments of State

Governments

Click on ‘State Policies’

of the website –

http://dipp.nic.in

Website addresses of important Ministries/Departments

Department of Industrial Policy & Promotion – http://dipp.nic.in

Secretariat for Industrial Assistance – http://siadipp.nic.in

Ministry of Information and Broadcasting – http://pib.nic.in

Ministry of Information Technology – http://www.mit.gov.in

Ministry of Chemicals & Petrochemicals – http://www.nic.in/cpc

Department of Mines – http://www.nic.in/mines

Ministry of Power - http://powermin.nic.in

Ministry of Biotechnology – http://www.nic.in/dbt

Ministry of Tourism – http://tourisminindia.com

Department of Commerce – http://comerce.nic.in

Directorate General of Foreign Trade – http://dgft.delhi.nic.in

Department of Explosives – http://explosives.nic.in

Ministry of Environment and Forests – http://envfor.nic.in

Department of Telecommunication – http://www.dotindia.com

Department of Education – http://www.education.nic.in

Ministry of Labour – http://labour.nic.in

Ministry of Non-conventional Energy Sources – http://mnes.nic.in

Ministry of Petroleum and Natural Gas – http://petroleum.nic.in

Ministry of Small Scale Industries & Agro and Rural Industries – http://ssi.nic.in

Ministry of Textiles – http://texmin.nic.in

Reserve Bank of India – http://www.rbi.org.in

Ministry of Civil Aviation – http://civilaviation.nic.in

Ministry of Finance – http://finmin.nic.in

Ministry of Law, Justice & Company Affairs – http://www.nic.in/lawmin

Ministry of Railways – http://www.indianrailways.gov.in

Ministry of Coal – http://coal.nic.in

Ministry of External Affairs – http://www.meadev.nic.in

Department of Heavy Industries – http://dhi.nic.in

Department of Programme Implementation – http://www.nic.in/dpi

Ministry of Shipping – http://shipping.nic.in

Ministry of Road Transport & Highways – http://morth.nic.in

Ministry of Urban Development– http://urbanindia.nic.in

Department of Company Affairs – http://dca.nic.in

CONTACT ADDRESSES:

Joint Secretary

Tel: 011-23011714

FAX:011-23013656

E-Mail : umeshgupta@ub.nic.in

Director

(FDI Policy, FIIA, 100% EOUs & NRI)

Tel: 011-23013196

FAX: 011-23015245

E-Mail: julaniya@ub.nic.in

Director

(Investment Promotion &

Infrastructure Development Cell)

Tel: 011-23014820

FAX: 011-23011770

E-mail: rnpandey@ub.nic.in

Director

(Industrial Licensing & Technology

Collaboration)

Tel: 011-23013596

FAX: 011-23014564

E Mail: cbs@ub.nic.in

Public Relations Officer

Entrepreneurs Assistance Unit SIA

Udyog Bhavan, New Delhi – 110011

Tel: 011-23014088

E-Mail: ipp_prc@ub.nic.in

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