Chapter 4 FDI IN INDIA: POLICIES AND...
Transcript of Chapter 4 FDI IN INDIA: POLICIES AND...
Chapter 4
FDI IN INDIA: POLICIES AND TRENDS
This chapter studies the evolution of FDI policies in independent India and the trends of
FDI inflows into India from a historical as well as contemporary perspective. Official
views regarding the role of FDI in India's economic development, and the policies
governing FDI, have changed significantly since the beginning of the decade of the
1990s. Till the 1990s, FDI policies in India were heavily restrictive with majority
foreign equity participation permitted only in select export-oriented, high technology
industries. FDI was viewed essentially as an instrument for fulfilling the technological
requirements in sectors, where indigenous technology was underdeveloped. However, a
radical change in the views regarding FDI's role in the economic progress of the nation
took place during the early 1990s. The new outlook was a part of the overall process of
economic reforms initiated during the time, which entailed transition from a state-
dominated, inward-looking policy regime to a more market-oriented, deregulated policy
framework. Accordingly, FDI policies during the 1990s and thereafter, have also
become progressively more liberal with gradual lifting of external capital controls and
simplification of procedural requirements. '
In view of the sharp differences in policy stances before and after the early 1990s, this
chapter has been divided into two sections. The first examines FDI policies and trends
during the period 1948-1990, i.e. since independence till the beginning of economic
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reforms. The second focuses on policy developments and FDI inflows from 1991
onward.
4.1 FDI POLICIES AND TRENDS: 1948-1990
The section is divided into two parts. Part I examines the FDI policies and part 2
discusses the trends.
4.1.1 FDI Policies
Foreign investment policies adopted by India during the 1950s and 1960s can be
described as pragmatic, but cautious. There was a clear recognition of the importance of
private capital in supplementing domestic savings. The official position on foreign
investment was articulated in a statement made to the Constituent Assembly on April 6,
1949, by the then Prime Minister of India, Pandit Jawaharlal Nehru. The salient features
of the statement20 were:
1. Foreign capital was an important supplement to domestic savmgs as far as
economic and technological progress of the nation was concerned.
2. Private and foreign investors were not to be discriminated between. Foreign
investors'were to be allowed full freedom in remittance of profit and repatriation
of capital. They were also to be compensated in a just manner in the event of
nationalisation.
Despite following a reasonably liberal foreign investment policy, permission to invest
was allowed only after careful scrutiny of the proposed areas of investment. This was
felt necessary since India had balance of payments difficulties, which the authorities did
20 See IIC ( 1965), p. 7.
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not wish to aggravate, given the country's unconditional assurance of remittances and
repatriation to foreign investors. FDI, therefore, was attempted to be channelised into
industries, where the requirements of foreign capital were more urgent than others. As a
result of this cautious approach, till the middle of the 1950s, FDI had a largely limited
presence in the Indian economy (except the oil sector). The situation, however, changed
from the mid-fifties with the onset oflndia's 2nd Five-Year Plan.
The 2nd Five-Year Plan awarded topmost priority to rapid industrialisation of the
economy. This objective was attempted to be realised by outlining a new industrial
policy, which was given shape through the Industrial Policy Resolution, 1956. One of
the thrust areas of the new industrial policy was on enhancing the technological
capabilities of the Indian industry for producing high-quality capital, intermediate and
consumer goods. This thrust increased the importance of securing FDI given that FDI
was believed to act as a vehicle of technology transfer from advanced industrialised
nations.
Apart from the desire to achieve technological self-reliance, shortage of foreign
exchange in the Indian economy also increased the importance of securing FDI. During
1955-56 to 1957-58, India's foreign exchange reserves reduced by almost half on
account of an expanding trade deficit. 21 While foreign exchange difficulties had earlier
led to a • selective policy for FDI (on account of repatriation and remittance
considerations), aggravation of the difficulties increased the acceptance of FDI (Kidron
21 Several reasons were responsible for the growing trade deficit. These include: a) Increase in import prices following the Suez War, which also dampened world trade and reduced the prices for Indian exports. b) Heavy foreign exchange outgo on food imports due to bad harvests. c) Step-up in defence expenditure involving large imports on account of growing hostilities in the country's neighbourhood. d)
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1965), as it was realised that the country had limited foreign exchange resources for
obtaining imported machinery and equipment for domestic industry.
During the late 1950s and early 1960s, different fiscal incentives (e.g. concessional
rates of dividend tax for foreign investors, progressive lowering of taxes on technical
service fees and income from royalties' etc.) were offered to encourage FDI. There are
also instances of FDI being permitted in industries reserved exclusively for the public
sector.22 As a result of the policy encouragement, as well as the stringent import
restrictions imposed due to foreign exchange constraints, FDI emerged as a viable
option for servicing the domestic Indian market. This is evident from the increase in
number of foreign collaboration approvals from 81 in 1957 to 241 in 1965.23
FDI policies, however, became increasingly regulated during the decade of the 1970s.
Imposition of controls on FDI during this period can be traced to the heavy policy
emphasis on import-substitution. There was a growing feeling among the authorities
that reliance on technology imports had increased the foreign dependence of the Indian
industry (as recorded in the Report of the Industrial Licensing Policy Enquiry
Committee, 1968). It was also felt that domestic companies were resorting to 'over-
import' of technology for expanding market shares (Martinussen, 1988). Thus, in an
effort to reduce the foreign dependence of Indian industry and restrict the flow of
imported technology into 'inessential' areas, FDI was sought to be limited to only a .few
industries, which required sophisticated technology, but were lacking in indigenous
A surge in private imports during the mid-1950s, which had much to do with profligacy in government expenditure on inessential areas involving foreign exchange outgo. See Kidron (1965). 22 Phillips Petroleum of USA had a minority stake in Cochin Refinery Ltd. - a public sector undertaking. The International Telephone and Telegraphs Corporation of the US also collaborated with the Government in a similar manner for manufacturing telephone equipment. See IIC (1965), p.9.
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technological capabilities. At the same time, there was a deliberate attempt to divert
FDI from consumer goods industries to capital and intermediate goods (Martinussen,
1988).
From a broader perspective, the regulations imposed on FDI were also part of the
ongoing efforts aiming to extend state control in various sectors of the economy. The
late 1960s and early 1970s saw promulgation of restrictive legislations like the
Monopolies and Restrictive Trade Practices (MRTP) Act (1969), the Patent Act (1970)
and nationalisation of banks, insurance companies, coal mines etc. Fears in policy
circles over powerful foreign firms subverting national interests were attempted to be
alleviated by making them divest holdings in favour oflndian entities.
The Industrial Policy Resolution, 1973, restricted foreign participation to industries that
were export-oriented and strategically important for long term growth prospects of the
country, but outside the purview of items reserved for exclusive manufacture by the
public sector and the small-scale sector.Z4 The most restrictive controls on foreign
investment, however, were enforced through the enactment of the Foreign Exchange
Regulation Act (FERA), 1973, which came into force on January 1, 1974. FERA was
particularly noteworthy on account of its conscious effort to discriminate between
Indian and foreign investors. Section 29 of the FERA related to branches of foreign
companies operating in India and Indian joint stock companies having foreign
participation. The main features of the regulatory framework laid down by the FERA
were as follows: 25
23 See RBI (1968), p.l. 24 See Ministry of Commerce and Industry, Government oflndia (2001). 25 See RBI (1985) p. 5-6 and Martinussen (1988) pp.62-63.
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1. All companies (other than banking companies) incorporated outside India, and
Indian companies with more than 40 per cent equity participation were required to
obtain fresh permission from the RBI for carrying on business.
2. All branches of foreign companies were required to convert themselves into
Indian companies with minimum 60 per cent equity participation.
3. All subsidiaries of foreign companies were to bring down their foreign equity
share to 40 per cent or less.
While foreign equity levels across-the-board were announced to be brought down to 40
per cent, there were some exceptions where the 40 per cent ceiling could be exceeded.
These related to companies engaged in activities that were predominantly export
oriented, or producing items requiring sophisticated technology, and in tea plantation.
These companies had to satisfy certain conditions, which related to exporting a
minimum proportion of their annual turnovers and productions, for expanding equity
limits beyond 40 per cent.
Like FERA (1973), the Patent Act (1970), which replaced the erstwhile Patent Act
( 1911 ), was also argued to be a deterrent for FDI in Indian industry (Gupta and Mehra,
1995). The Act, aiming to facilitate creation of indigenous technological capability
(Bhaduri, 2001), confined grant of patents only to processes (and not products, as was
the case earlier) and decided to grant patents only to 'new' products manufactured in
India, not to imports. Duration of patents granted was also reduced to seven years.
Promulgation of the Patent Act (1970) sharply reduced the protection available to
intellectual properties of foreign firms, thereby reducing the possibilities of exploiting
their ownership advantages.
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In the Industrial Policy Resolution, 1977, a list of industries was announced where no
foreign collaboration (financial or technical) was considered necessaD;, since
indigenous technology was fully developed in these areas. Foreign companies, which
had brought down their equity levels to 40 per cent in line with the FERA provisions,
however, were assured treatment on par with their Indian counterparts. Despite
imposition of other sweeping controls, no restrictions, however, were imposed on
remittance of profits, royalties, dividends and repatriation of capital.
4.1.2 FDI Trends
A time-series of annual foreign investment flows into the Indian economy from 1948
onward is available from the BOP statistics compiled by RBI. 26 This data, however, has
some limitations, which constrains extensive statistical analysis. These are:
1. A continuous time series is available only from 1955 onward.
2. Beginning from 1953, till 1962, annual investment figures are available for
calendar years. From 1963-64 onward, the data is available for financial years.
3. Till 1963-64, annual net inflows of foreign investment are not disaggregated
into direct and portfolio inflows. 'Gross inflow' for a particular year provides
data on equity flows, which include portfolio flows as well. Disaggregated
figures are available only from 1964-65 onward.
4. Data for the decade of 1980s is not available since the RBI conducted no survey
on foreign investment during the period.
26 See RBI (1993)
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FDI stocks
Table 4.1 gives a time-series profile (the profile becomes continuous only from 1955
onward) ofFDI and portfolio stocks (at the end ofthe year) from the year 1948 onward.
Table 4.1: FDI and Portfolio Stocks (1948-1979-80) (in Rs crore)
Year FDI Portfolio Total Foreign Share of FDI in Share of Portfolio Investment Total Foreign in Total Foreign
Investment(%) Investment(%) 1948 211.1 44.7 255.8 82.5 17.5 1953 326.3 65.7 392 83.2 16.8 1955 386.5 55.9 442.4 87.3 12.7 1956 409.7 68.6 478.3 85.6 14.4 1957 430.6 101.4 532 80.9 19.1 1958 434.1 128.4 562.5 77.2 22.8 1959 443.7 139.1 582.8 76.1 23.9 1960 495.7 138.9 634.6 78.1 21.9 1961 527.2 152.6 679.8 77.6 22.4 1962 567.6 167.9 735.5 77.2 22.8
1963-64 565.5 63.5 629 89.9 10.1 1964-65 611.9 65.6 677.5 903 9.7 1965-66 628.2 67.9 696.1 90.2 9.8 1966-67 692 74.3 766.3 90.3 9.7 1967-68 ! 710.1 86.5 796.6 89.1 10.9 1968-69 737.7 88.7 826.4 89.3 10.7 1969-70 735.4 108.9 844.3 87.1 12.9 1970-71 767.3 111.4 878.7 87.3 12.7 1971-72 816.4 112.3 928.7 87.9 12.1 1972-73 867 129.1 996.1 87.0 13.0 1973-74 916.9 131.3 1048.2 87.4 12.6 1974-75 973.3 130.6 1103.9 88.2 11.8 1975-76 957.1 131.1 1088.2 87.9 12.1 1976-77 920.2 131.8 1052 87.5 12.5 1977-78 876 139.7 1015.7 86.2 13.8 1978-79 875.4 140.4 1015.8 86.2 13.8 1979-80 933.2 141.5 1074.7 86.8 13.2
Source: RBI (1993). Main features:
1. Beginning from 1948, the stock of FDI in the Indian economy increased
continuously ti111974-75. Thereafter, there was a decline in the stock ofFDI for
three years. This decline can be largely attributed to the enforcement of the
FERA from January 1, 1974. The sharp drop in the volume of fresh flows (as
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can be seen from Table 4.2 later), as well as divestment of foreign equity by
branches and subsidiaries subsequent to promulgation of FERA, explains the
reduction in the volume ofFDI stock after the middle of the 1970s.
2. Except for a brief period during 1958-1962, the share of portfolio stocks in total
stock of foreign investment remained below 15 per cent for· the entire time
series. Thus, longer term FDI flows were clearly the dominant form of foreign
investment for t~e period under consideration, accounting for more than four
fifth of the total stock of foreign investment.
FDI flows
A time-series of annual flows of FDI and portfolio investment (1964-65 to 1979-80) is
given in Table 4.2.
Table 4.2: Annual FDI and Portfolio Flows and Share of the Flows in Total Foreign Investment (1964-65- 1979-80) (in Rs crore)
Share of FDI in Share of Portfolio total foreign in total foreign
Year FDI Portfolio Total investment(%) investment(%) ---
1964-65 44.9 2.1 47 95.5 4.5 ·--
1965-66 15.4 2.3 17.7 87.0 13.0
1966-67 25.4 6.4 31.8 79.9 20.1
1967-68 25.7 12.3 38 67.6 32.4
1968-69 27.3 2.2 29.5 92.5 7.5
1969-70 23.1 2.5 25.6 90.2 9.8
1970-71 34.1 2.5 36.6 93.2 6.8
1971-72 46.3 0.7 47 98.5 1.5
1972-73 29.1 2 31.1 93,6 6.4
1973-74 57.1 3.2 60.3 94.7 5.3
1974-75 80.5 -0.8 79.7 110.0 -10.0
1975-76 2.4 0.5 2.9 82.8 17.2
1976-77 9.2 0.7 9.9 92.9 7.1
1977-78 -5.5 7.9 2.4 -229.0 329.0
1978-79 39.6 0.7 40.3 98.2 1.8
1979-80 76.1 1.1 77.2 98.6 1.4 Source:FUBI(l993)
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Main features
1. Annual FDI inflows reached a peak ofRs 80.5 crore in 1974-75. Thereafter, the
inflows dropped sharply during the next three years and became net outflows
during 1977-78. The trend clearly points to the effect of the FERA in bringing
down vo1ume of fresh inflows and corroborates our findings in the earlier
analysis of stocks.
2. As proportions of total foreign investment inflows, annual FDI inflows, on an
average, comprised 91 per cent of the total inflows. While this share was
somewhat lower during the middle of the 1960s (1965-66 to 1967-68), it rose
sharply again from the late 1960s.
Annual FDI inflows reflected in. Table 4.2 have been aggregated after taking into
account gross inflows for foreign controlled rupee companies27 and branches of foreign
companies in India. It is possible to obtain clearer insights into the trend behaviour of
overall FDI inflows by examining the inflows through foreign controlled Rupee
companies and branches separately (Table 4.3). It is, however, mentionable that while
gross inflows data is available for foreign controlled Rupee companies, the data f~3r
branches pertains to net annual investment and therefore has negative values in certain
years.
27 Foreign controlled Rupee companies are Indian joint stock companies, including subsidiaries of foreign companies, and companies in which 40 per cent of equity share capital are held by foreign companies or their nominees. See RBI (1993) p.450.
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Table 4.3: Annual FDI materialising through Foreign Controlled Rupee Companies and Branches (1964-65 -1979-80) (in Rs crore)
Years Foreign controlled
Branches Total FDI Rupee companies
1964-65 42.8 2.1 44.9
1965-66 33.5 -18.1 15.4
1966-67 25.6 -0.2 25.4
1967-68 30.8 -5.1 25.7
1968-69 30.8 -3.5 27.3
1969-70 35.6 -12.5 23.1
1970-71 38.1 -4 34.1
1971-72 37.6 8.7 46.3
1972-73 35.5 -6.4 29.1
1973-74 40.1 17 57.1
1974-75 95.5 -15 80.5
1975-76 48 -45.6 2.4
1976-77 42.1 -32.9 9.2
1977-78 60.1 -65.6 -5.5
1978-79 65 -25.4 39.6
1979-80 72.8 3.3 76.1 Source:FUBI(l993)
The pattern of inflows through foreign controlled rupee companies and branches
is depicted in Figure 4.1.
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120 -
100 --
80-;-
60--
40 .'-lnfl ow s 20 --(in Rs era re)
·80 --
Main features
Figure 4.1
Annual FDIInflows for Foreign Controlled Rupee Companies and Branches of Foreign Companies (1964-65 • 1979-80)
----
,~,
I I I I
I 1 I I
I 1 I I J \ //
I ' ' I I /
I ' ' / .... ____ ,..,"" -------- _..., ______ - _,..;,.,.
--------
Years - - - - For.cntld. Re cmpns. ~Branches
Foreign controlled Rupee companies
From 1966-67 onward, gross inflows of foreign controlled Rupee companies exhibit a
flat, almost horizontal trend, till 1973-74. Thereafter, the trend reaches a peak in 1974-
75 (Rs 95.5 crore) and declines during the following two years (1975-76 and1976-77).
The inflows are s'e.en to recover during the last two years of the period. The overall
decline in FDI inflows after 1974-75, therefore, can be traced to the reduction in FDI
from foreign controlled Rupe:e companies, since these enterprises were the main sources
ofFDI in India, as can be seen from Table 4.3.
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Branches
Net investments by branches were almost consistently negative during the period except
for the years 1964-65, 1971-72, and 1973-74. What is, however, noticeable is that after
1973-74 net investment by branches declined to a trough ofRs -65.6 crore in 1978-79.
In the earlier years of the period, despite being negative, the amounts were not as high
as those during the later years of the period, underlying the effect of FERA guidelines
on branches of foreign companies.
4.2 FDI POLICIES AND TRENDS: 1991-2002
4.2.1 FDI Policies
During the 1990s and thereafter, FDI policies and procedures in India have undergone
radical transformations. From the selective, tightly controlled regulatory framework of
the 1970s and 1980s, FDI policies during the 1990s became progressively more liberhl,
bringing almost all sectors of the economy under their coverage. The policy I
transformation was on account of the government's increasing reliance on stable non-
debt creating long-term capital flows as a major source of funds for supplementing
domestic savings. The positive outlook towards FDI was a part of the paradigmatic shift
in the policy perspective towards future socio-economic development of the country
that occurred during the early 1990s. The new perspective led to introduction of
economic reforms for moving away from a rigidly controlled, inward-looking, state-
dominated economic framework to a more decontrolled, open and market-oriented
system. Strengthening of economic reforms through the 1990s and thereafter, has
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resulted in progressive relaxation of FDI policies, accompanied by far-reaching reforms
in other sectors of the economy.
On July 24, 1991, the Government of India announced a new industrial poli£y. The
policy was significantly different from earlier industrial policies in terms of its emphasis
on encouragement of private entrepreneurship and initiative in industrial development.
Entry barriers to private participation in various industries were sought to be removed
by reducing the scope of industrial licensing, redefining the role of the public sector by
restricting its presence to only core areas of vital national importance, and withdrawing
several existing prohibitions under the MRTP Act (1969) relating to expansion of
industrial investment. The new policy also underlined the government's intention of
welcoming foreign investment in the country's industrial development by removing
several procedural controls on inflow ofFDI in domestic industries.
The main features of the new industrial policy with respect to foreign investment
were:28
1. Automatic approval for FDI upto 51 per cent in high-priority industries (the
list of such industries was given in Annexure III of the industrial policy
statement). In this regard, necessary changes were to be made in the FERA
(1973).29 However, automatic approval was subject to the amount of foreign
equity covering the foreign exchange requirement for imported capital goods.
2. For all companies receiving automatic approval for FDI upto 51 per cent in
line with the provisions of ( 1) above, payments of dividends were to be
28 See Ministry of Commerce and Industry, Government of India (2001); pp.15-16. 29 FERA (1973) has been subsequently withdrawn and replaced by the Foreign Exchange Management Act (FEMA), 1999.
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balanced by export earnings over a period of seven years from the date of
commencement of production. 30
3. FDI in industries other than those mentioned in Annexure III of the policy
statement (including proposals upto 51 per cent FDI in high-priority
industries failing to meet the foreign exchange requirement in (1) above)
continued to be subject to existing procedures and required prior clearance.
4. Majority foreign equity holding upto 51 per cent was allowed for trading
enterprisesprimarily engaged in exports.
5. Foreign equity holding upto 51 per cent was also permitted in hotels and
tourism related industry. 31
6. It was not necessary for foreign equity proposals to be accompanied by
foreign technology agreements.
7. A special empowered Board was to be set up for nbgotiating with large
multinationals and approving FDI proposals in select areas.
Subsequent to the new industrial policy of 1991, several relaxations in FDI policies and
procedures have been announced at later dates. Details of these measures are provided
chronologically in Appendix 1. At present, FDI is permitted in almost all sectors
including the services sector, subject to the existing sectoral limits on FDI. For most
items/activities, FDI can be brought in through the automatic route administered by the
RBI. For the remaining items/activities, FDI proposals require government approval.
The details of sector-specific FDI ceilings and amount of FDI permitted under
automatic and government routes are given in Appendix 2.
30 See Ministry of Commerce and Industry, Government oflndia (2001); pp.15-16.
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The highlights of the current FDI policy regime in India are given below:
Automatic approval
The bulk of incoming FDI proposals in different sectors qualify under the automatic
approval route. Under this route, FDI proposals do not require prior approval. However,
investors (including NRis and OCBs) are required to submit the necessary documents to
the RBI within 30 days after issue of shares to foreign investors. Certain categories of
FDI proposals, however, do not qualify for the automatic route. Such proposals require
prior approval from the government and are considered by the Foreign Investment
Promotion Board (FIPB).
Government approval
The FIPB is commonly referred to as the government route for FDI proposals. The
FIPB considers proposals, which belong to the following categories:
a. Proposals requiring industrial licences, which include:
~ Items requiring licences under the Industries (Development and
Regulation) Act, 1951.
~ FDI proposals involving more than 24 per cent share in equity capitals of
enterprises manufacturing items reserved for small-scale industries.
~ All items requiring licences in terms of the locational policy notified by
Government under the New Industrial Policy of 1991.
b. Proposals in which the foreign collaborator has a previous venture/tie-up in
India (the restriction does_ not apply to investments by multilateral financial
institutions (e.g. ADB, IFC, etc) as also for investment in IT sector).
31 See Ministry of Commerce and Industry, Government of India (2001); pp.15-16.
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c. Proposals relating to acquisition of shares in an existing Indian company in
favour of a foreign/NRI/OCB investor.
d. Proposals falling outside notified sectoral policy/caps on FDI, or under sectors
in which FDI is not permitted.
NRls and OCBs
The existing FDI policies are more liberal for NRls (which also includes PIOs, i.e.
Persons of Indian Origin) and OCBs (overseas corporate bodies, which are companies
or other entities owned directly or indirectly to the extent of at least 60 per cent by
NRis). The liberal facilities comprise higher investment ceilings in different activities
vis-a-vis non-expatriate FDI and greater number of sectors permitted for investment.
Though over time the discrimination between NRI and non-NRI investors have reduced,
NRls continue to enjoy specific advantages in some-key sectors. For example, NRls and
OCBs can invest in several activities pertaining to housing and real estate, where FDI is
otherwise not permitted (except for development of integrated townships where I 00 per
cent FDI is permitted with government approval; see Appendix 2). Moreover, NRls can
also invest upto 100 per cent in domestic airlines (where non-NRI FDI is permitted only
up to 40 p'er cent). In general, NRls are permitted to invest through the automatic route
in all sectors excluding those falling under government approval.
Small scale industries
FDI in small scale industries is permitted upto 24 per cent of total equity capital. There
is, however, no bar on higher levels of FDI if the concerned unit agrees to surrender its
small scale status. As mentioned earlier, FDI proposals involving more than 24 per cent
share in equity capitals of enterprises manufacturing items reserved for small-scale
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industries require prior government approval. However, even if such proposals get
approved, they are subject to a mandatory export obligation of 50 per cent of output.
Special Economic Zones (SEZs) and Industrial Parks
FDI upto 100 per cent is permitted under the automatic route for setting up Industrial
Park/Industrial Model Town/Special Economic Zones in the country, and for all
manufacturing activities in Special Economic Zones (SEZs), except for the following
activities:
o Arms and ammunition, explosives and allied items of defence equipments,
defence aircraft and warships;
o Atomic substances;
o Narcotics and psychotropic substances and hazardous chemicals;
o Distillation and brewing, of alcoholic drinks; and cigarettes/cigars and
manufactured tobacco substitutes.
FDI Policies post-1991: A Critical Analysis
FDI policies underwent comprehensive changes during the 1990s. The strict
regulations, prevailing earlier, gave way to a more decontrolled framework 'facilitating
automatic entry ofFDI in practically all sectors of the economy. Sector-specific ceilings
on FDI, however, still exist, indicating the extents by which FDI can flow into the
concerned sectors through the automatic route. Apart from a few sectors like banking,
insurance; basic_ and cellular telecom services, and defence, majority foreign equity
participation is allowed in all other sectors. Besides, incoming FDI is no longer
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contingent upon technology transfer, foreign exchange requirements or export
obligations.
The Industrial Policy Statement of 1991 marked the onset of the new policies. The new .
industrial policy was drafted against the backdrop of probably the most serious balance
of payments difficulties experienced by independent India. The external sector crisis
highlighted some major structural problems of the Indian economy. Foremost among
these was the country's heavy reliance on high-cost external debt for financing balance
of payments deficits. While large inflows of concessional assistance helped in covering
the balance of payments deficits during the decades of the fifties, sixties, and seventies,
non-concessional loans on market terms were the main sources of finance during the
eighties (Jalan, 1992), leading to rapid increase in debt-service obligations. It was,
therefore, imperative for the country to reduce reliance on debt flows in favour of
stable, non-debt creating flows like FDI.
Liberalisation of FDI policies also requires to be viewed in the light of the widespread
economic restructuring initiated in the Indian economy during the 1990s. Right from the
beginning of the nineties, the country made efforts for moving away from the inward
looking development strategy of import substitution that it had followed so far, to a
more liberal import regime, by gradually reducing import restrictions. Removal of
import restrictions was accompanied by other significant measur.es like moving to a
market-based exchange rate management system, convertibility of the Rupee in the
current account of the balance of payments and phased withdrawal of restrictions on
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capital account transactions. The highly restrictive FERA ( 1973) has smce been
replaced by the Foreign Exchange Management Act (FEMA), 1999.32
Prior to the 1990s, ·given the heavy protection offered to domestic industries through
tariff and other trade barriers, FDI in India was largely of the 'tariff-jumping' variety.
The welfare effects of FDI induced by high levels of effective protection have been
found to be weak for host countries (Lall and Streeten, 1977). This policy distortion,
however, has been corrected in the 1990s by progressively reducing tariff rates on
imports.
A review of the FDI policies during the nineties and thereafter, indicates that though the
system of automatic approval was introduced as early as in 1991, its scope remained
restricted till February 2000. Since February 2000, the coverage of the automatic route
has been significantly expanded. In some areas, however, which are mostly of a
strategic nature, FDI continues to require prior government approval (e.g.
telecommunications, atomic minerals, defence and strategic industries, tea plantations,
broadcasting, petroleum (other than refining), postal services, satellite operations etc.).
It is clear, therefore, that despite providing significant relaxation's, the government
wishes to retain some policy control over FDI in select industries and services
32FEMA (1999) has replaced FERA (1973) from June 1, 2000. Under FEMA (1999), there are no restrictions on current account transactions involving foreign exchange. Capital account transactions (e.g. investment by non-resident entities in India and investment by Indian entities abroad) continue to be regulated by the RBI. FEMA indicates a move from a regulatory arrangement in the Indian foreign exchange market to a management mechanism.
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4.2.2 FDI Trends
This section attempts to study the pattern of FDI inflows into India after the
liberalisation of the FDI policies from the early 1990s. The analysis is based upon data
on foreign investment inflows provided by the RBI. It is mentionable in this regard that
the RBI revised the annual data on FDI inflows from the year 2000-01 onward after
adopting an expanded definition for FDI flows. While for the earlier years, FDI inflows ·
comprise of only equity capital, data from 2000-01 onward include reinvested earnings
and other capital (inter-corporate debt transactions of FDI entities), in addition to equity
capital, as components of FDI. Data on FDI inflows from 2000-01 therefore, is not
strictly comparable with the data for the earlier years.33
FDI and Portfolio flows: A Comparison
The Table below indicates the volume of annual FDI and portfolio investment inflows
into India from 1990-91 to 2002-03.
Table 4 4· Annual FDI and Portfolio Inflows (1990-91- 2003-04) (in US$ million)
Total Foreign FDI as% of Portfolio Investment
Year FDI Portfolio Total Foreign as % of Total Foreign Investment
Investment Investment 1990-91 97 6 103 94.2 5.8 1991-92 129 4 133 97.0 3.0 1992-93 315 244 559 56.4 43.6 1993-94 586 3567 4153 14.1 85.9 1994-95 1314 3824 5138 25.6 74.4 1995-96 2144 2748 4892 43.8 56.2 1996-97 2821 3312 6133 46.0 54.0 1997-98 3557 1828 5385 66.1 33.9 1998-99 2462 -61 2401 102.5 -2.5 1999-00 2155 3026 5181 41.6 58.4 2000-01 4029 2760 6789 59.3 40.7 2001-02 6131 2021 8152 75.2 24.8
·--2002-03 4660 979 5639 82.6 17.4
Source: RBI (2004); Note: Figures from 2000-01 onward are estimates subsequently revised by RBI.
33 See RBI (May, 2004)
90
The trends of FDI and portfolio investment inflows are depicted pictorially in Figure
4.2.·
Figure 4.2
FDI and Portfolio inflows : 1990-91 - 2002-03
7000.---------------------------------~--------------------~
6000.
c .2 5000-
.E 4ooo-~
~ 3000-
..:. 2000 -
~ 0 1000-
;;::: c
0 -
-1000 - 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002: 91 92 93 94 95 96 97 98 99 00 01 02 03
I -- -- -· FDI Portfolio : Years
Main features:
The following are the highlights of Table 4.4 and Figure 4.2.
1. In the early years of the 1990s, FDI inflows were the dominant contributors to
total foreign investment flows. Thus, the trend was similar to that in the pre-reform
period. From 1993-94 onward, portfolio inflows replaced FDI as the more dominant
contributor. This was probably on account of the upbeat trends in the Indian stock
market during the time, which is likely to have encouraged large portfolio inflows.
Portfolio inflows are seen to have declined sharply during1997-98 and 1998-99, which
can be attributed to the depressed state of Indian stock markets during the period, as
well as the overall reduction in portfolio flows to South East Asia, following the
outbreak of the East Asian crisis in middle of 1997.
91
2. FDI inflows on the other hand, despite being generally lower than portfolio
inflows in volume maintained an increasing trend till 1997-98. Thereafter, there was a
decline for two years (1998-99 and 1999-00), till a revival again from 2000-01 onward.
The decline in FDI inflows during 1998-99 and 1999-00 can probably be traced to
exogenous factors like an unstable political climate (two general elections to the Indian
Parliament were held during the period), imposition of economic sanctions after the
nuclear explosion at Pokhran (May, 1998), investor apprehensions arising from political
uncertainties in India's neighbourhood (e.g. the Kargil War in June 1999), and
disturbing developments like the Gujarat earthquake (January 2000). The recovery of
FDI inflows in the later years can be explained by non-occurrence of exogenous shocks,
and implementation of significantly liberal policy measures, particularly expansion of
/ the scope of the automatic route in early 200034 (see Appendix 1).
Route-wise FDI inflows
As mentioned earlier, FDI inflows in India materialise either through the automatic
route, or through the government route administered by the FIPB. The table below
indicates the volume of incoming FDI through the two routes over the period 1991-92
to 2002-03 and also their respective shares to total FDI.
34 It should be noted that FDI figures from 2000-01 onward relate to an expanded definition ofFDI, and therefore, are not strictly comparable with figures for earlier years.
92
:rable 4.5: FDI inflows through FIPB and Automatic Routes (1991-92 to 2002-03) (In US$ million)
Year Total FDI FIPB Automatic Share of FIPB Share of route in Total FDI Automatic route
in Total FDI 1991-92 129 66 0 51.16 0.00 1992-93 315 222 42 70.48 13.33 1993-94 586 280 89 47.78 15.19 1994-95 1314 701 171 53.35 13.01 1995-96 2144 1249 169 58.26 7.88 1996-97 2821 1922 135 68.13 4.79 1997-98 3557 2754 202 77.42 5.68 1998-99 2462 1821 179 73.96 7.27 1999-00 2155 1410 171 65.43 7.94 2000-01 4029 1456 454 36.14 11.27 2001-02 6131 2221 767 36.23 12.51 2002-03 4660 919 739 19.72 15.86 Source: RBI (2004)
A pictorial depiction of the share of FDI inflows through the two routes is given in
Figure 4.3 below.
Figure 4.3
----------------------~~----------
Share of FDI inflows through Government route and automatic route (1991-92 to 2002-03)
90.------------------------------------------------------.
80-
70 '2 60-0
50 E 40 ih
·= 30-- 20-
10 0 -t-, .L......I..---,....1..-
- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002-92 93 94 95 96 97 98 99 00 01 02 03
!oFIPB •Automaticr~e l 1
L__ __ ------------ ____________ __j
93
Main features:
1. Inflows through the FIPB route are seen to have formed the bulk of total FDI
inflows. However, from 2000-01, the share of the government route has reduced in
total FDI inflows, while that ofthe automatic route has increased. This change in the
pattern of contribution of the two routes reflects the impact of the expansion in the
scope of the automatic route from early 2000.
2. During the middle of the 1990s, i.e. from 1994-95 onward, inflows through the
automatic route are seen to have declined in volume. There was no such decline for
inflows through the FIPB route. However, it must be remembered in this context
that inflows through the government route can materialise with lags, i.e. with gaps
between their time of approval and actual time of entry (a detailed analysis of the
nature of lags between approved and actual investment flows is presented in chapter
6). A substantial part of the inflows through the government route, therefore, can be
materialisation of investment approved in the past. Such gaps can not take place in
the automatic route. A decline in inflows under the automatic route, therefore, is
possibly indicative of the larger issue of a lack of investment interest on part of the
foreign direct investors as far as the host economy is concerned. The middle and /
later years of the 1990s experienced several ex~genous disturbances mentioned
earlier, whi~h might have affected these investment decisions, as reflected by the
lower volume of inflows under the automatic route.
NRI investment
One of the major features of the foreign investment policy pursued in the post-
reform period has been the conscious attempt to encourage expatriate investment in
94
India. The table below indicates the pattern of non-resident investment in India since
1991-92 and its share in total FDI inflows.
Table 4 6· NRI Investment Inflows (1991-92 to 2002-03) (in US$ million) .. Year Total FDI NRI Share ofNRI
investment in total FDI
1991-92 129 63 48.8% 1992-93 315 51 16.2% 1993-94 586 217 37.0% 1994-95 1314 442 33.6% 1995-96 2144 715 33.3% 1996-97 2821 639 22.7% 1997-98 3557 241 6.8% 1998-99 2462 62 2.5% 1999-00 2155 84 3.9% 2000-01 4029 67 2.9% 2001-02 6131 35 0.9% 2002-03 4660 - -
Source: RBI (2004)
Main features:
1. Non-resident inflows are seen to have contributed quite significantly to total
FDI till the middle of the 1990s. But from 1997-98 onward, there has been a sharp
decline in the share of NRI investment to total FDI flows. While various exogenous
factors discouraging FDI in general may have been at work in dampening NRI
investment inflows, it is also important to consider the intricacies involved in
interpreting the data on NRI investment. The specific category for NRI investment
under overall FDI figures reported by the RBI relates to inflows under specific
investment schemes designed for non-residents, offering higher investment ceilings
in various sectors. In addition, expatriate investment can also materialise through the
other routes i.e. government or automatic routes. Thus, NRI investment inflows are
not completely distinguishable in the disaggregated category-wise break-up for total
95
FDI flows. Moreover, since the introduction of FEMA in 1999, there is no separate
route for NRI investment. This explains the very low volume of NRI investment
during the later points of the series.
4.3 A SUMMARY
In this chapter we tried to study the evolution of FDI policies in independent India,
along with the trends ofFDI flows.
India followed a reasonably liberal policy towards foreign investment during the
decades of the 1950s and 1960s. Foreign capital was viewed as a supplement to
domestic savings. It was also considered as an important vehicle of technology
transfer, since, scarcity of foreign exchange restricted the nation's capability to
secure imported technology and know-how.
From the 1970s, however, FDI policies became tightly regulated. The regulations
were part of the overall change in policy perspective, which emphasised heavily
upon import-substitution, and aimed to achieve technological self-reliance by
reducing dependence on foreign imports. The scope of FDI was restricted to only a
handful of high technology sectors, where domestic capabilities were
underdeveloped. Further, there were conscious efforts to discriminate between
Indian and foreign investors through legislations like the FERA (1973) which forced
majority of foreign incorporated enterprises to bring down the equity holdings to
minority levels. The Patent Act (1970) also restricted the scope of FDI by reducing
the degree of patent protection on imported products.
96
Our study of the trends of FDI and portfolio investment inflows prior to the 1990s
indicates that longer-term FDI inflows were the major source of foreign capital
during the period. We observe a sharp decline in FDI stocks from 1974-75 onward,
subsequent to promulgation of FERA. The decline was on account of a
corresponding reduction in volume of fresh investment inflows, particularly for joint
stock companies. It is clear that the introduction of FERA had a major impact in
curtailing FDI flows. Unfortunately, we could not analyse the trends of FDI during
the decade of 1980s due to unavailability of data.
FDI policies experienced radical changes from the beginning of the decade of 1990s
after the onset of economic reforms. The thrust on FDI arose from the conscious
policy decision to replace debt flows by non-debt creating flows as supplements to
domestic resources. The gradual transition of India from an inward-looking,
controlled economy, to an outward-looking, market-oriented economic system, saw
progressive liberalisation of external sector policies, including those for FDI.
Currently, India has a liberal FDI policy regime, with foreign investment permitted
in almost all sectors through the automatic route. The procedures for FDI have also
been considerably relaxed.
An analysis of the trend of FDI flows after 1991 indicates that FDI responded
positively to the policy changes. However, FDI flows declined during the later part
of the 1990s, which could be on account of various exogenous shocks experienced
by the Indian economy during the period. We also found inflows through the
government (FIPB) route to form the bulk of FDI inflows into India. The share of
the automatic route, however, has increased in recent years indicating greater
97
inflows through the route subsequent to the significant expansion of its scope after
March2000.
98
Appendix J_
A Chronological Evolution ofFDI Policies during the 1990s and thereafter35
1. November 19, 1991: Companies already holding foreign equity were permitted to expand the foreign equity levels to 51 per cent, as part of an expansion programme, in the high-priority industries figuring in Annexure III of the industrial policy statement of 1991. It was not necessary for the companies themselves to be engaged primarily in activities relating to Annexure III - only the expansion programmes were to be exclusively in such areas. Dividend balancing conditions were to be applicable. 2. June 26, 1992: The dividend balancing condition was withdrawn for all foreign investment approvals except in consumer goods industries. 3. October 25, 1994: FDI upto 51 per cent in bulk drugs, intermediates and formulations were granted automatic approval. Though bulk drugs were included in Annexure III of the new industrial policy, till now, foreign investment approvals were guided according to provisions of the Drug Policy of 1986. 4. November 5, 1996: The earlier condition of the amount of foreign equity covering foreign exchange requirements for import of capital goods - as applied to automatic approvals for 51 per cent FDI- was withdrawn. 5. January 17, 1997 : The existing list of industries eligible for automatic approval of FDI upto 51 per cent was expanded by adding three categories of industries with automatic approval up to 50 per cent, thirteen more categories for approval upto 51 per cent and nine categories for approval upto 74 per cent. 6. June 13, 1998: Projects for electricity generation, transmission, and distribution, were permitted for automatic approval up to 100 per cent FDI provided the amount of foreign equity involved was not more than Rs 1 ,500 crore. 7. August 26, 1998: FDI upto 100 per cent was permitted in manufacture of cigarettes (subject to licensing provisions under the Industries (Development and Regulation) Act, 1951. 8. September 1, 1998 : For attracting FDI in private sector banks upto the permissible level of 40 per cent in case of NRI involvement, multilateral financial institutions were allowed to contribute foreign equity by the extent of shortfalls in NRI contributions. 9. October 15, 1998: FDI upto 49 per cent of total equity was permitted in licensee companies operating global mobile personal communications by satellite (GMPCS) services. 10. January 4, 1999 : Projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours were perinitted FDI upto 100 percent under the automatic approval route subject to a ceiling ofRs 1,500 crore. 11. April 12, 1999 : Foreign owned Indian holding companies were allowed to make downstream investments, without prior approvals, in activities eligible for the automatic route and within the specified foreign equity ceilings. , 12. February 11, 2000: FDI in all items/activities was put under the automatic route except for the following: i) Proposals requiring industrial licenses under the Industries (Development and Regulation) Act, 1951. ii) All proposals involving FDI greater than 24 per cent of equity capital in items reserved for small-scale industries.
35 See Ministry of Commerce and Industry, Government oflndia (2001)
99
iii) Proposals requiring industrial licenses in terms of locational policy requirements under the Industrial Policy of 1991. · iv) All proposals in which the foreign collaborator has a previous venture/tie-up in India. v) All proposals relating to acquisition of shares in existing Indian companies in favour of foreign/NRRl/OCB investors. vi) All proposals falling outside notified sectoral policy/caps relating to the automatic route, or in sectors where FDI is not permitted. FDI proposals qualifying under (i)-(vi) above were to be considered by the FIPB. The list subsequently came to be defined as the 'negative list'. 13. March 31, 2000: Holding companies with 100 per cent foreign equity engaged irr. nonbanking financial services, and having minimum capital of US$ 50 million, were allowed to set up 100 per cent downstream subsidiaries. Such subsidiaries, however, were required to disinvest 25 per cent of their equity through public offering within three years. 14. July 14, 2000: FDI upto 100 per cent was permitted in e-commerce subject to the condition that companies would divest 26 per cent of their equity in favour of the Indian public within five years. The dividend balancing condition was withdrawn from the remaining twenty two consumer goods industries. The investment ceiling of Rs 1,500 crore on FDI under the automatic route for projects involved in electric generation, transmission, and distribution, was taken off, and FDI in oil refining was permitted up to 100 per cent under the automatic route. 15. September 8, 2000 · i) FDI upto 100 per cent was pern1itted under the automatic route in all manufacturing activities located in Special Economic Zones (SEZs), except for arms & ammunition, explosives and allied items of defence equipment, defence aircraft, warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, and cigarettes, cigars and manufactured tobacco substitutes. ii) FDI up to 100 per cent was allowed in the telecommunications sector for _Internet Service Providers (ISPs) not providing gateways, infrastructure providers providing dark fi.bre, electronic mail and voice mail. 16. October 19, 2000: FDI under the automatic route was permitted upto 26 per cent in the insurance sector subject to approval from the Insurance Regulatory and Development Authority (IRDA). 17. April 17, 2001: Foreign investors were allowed to set up 100 per cent operating subsidiaries in non-banking financial activities without the condition of disinvesting 25 per cent of equity to Indian entities. 18. May 21, 2001: The following announcements were made: a. FDI upto 100 per cent was permitted under the automatic route for manufacture of drugs and pharmaceuticals. b. FDI upto 100 per cent was permitted in airports (proposals beyond 74 per cent to be decided by the FIPB). c. FDI was permitted upto 26 per cent in defence industry subject to licensing. d. FDI upto 100 per cent was permitted for development of integrated townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities like roads and bridges, mass rapid transit systems and manufacture of building materials. · e. FDI upto 100 per cent was permitted under the automatic route in hotel and tourism. f. FDI upto 100 per cent was permitted in courier services with prior government approval. g. FDI upto 100 per cent under automatic route was permitted in mass rapid transport systems in all metropolitan cities, including associated commercial development of real estate.
100
h. FDI upto 74 per cent was permitted for Internet service providers with gateways, radio paging and end-to-end bandwidth. i. FDI upto 49 per cent was permitted in the banking sector under the automatic route. 19. April 2002: FDI upto 100 per cent was permitted in the automatic route for advertising. While FDI in films was already permitted upto 100 per cent under the automatic route, accompanying restrictions (track records of companies, minimum paid-up capital, dividend balancing etc.) were withdrawn. 20. July 5, 2002 : FDI upto 100 per cent was allowed in tea industry, including plantations,
with the specific condition of divestment of 26 percent equity in favour of Indian entities.
101
Appendix 2
A Summary of Sector-Specific Guidelines for FDI36
1. Private banks FDI upto 74 per cent is permitted from all sources under the automatic route.
2. Non-Banking Financial Companies CNBFCs). a. FDI/NRI investments are permitted under the automatic route 1n the following NBFC
activities: merchant banking, underwriting, portfolio management services, investment advisory services, financial consultancy, stock braking, asset management, venture capital, custodial services·, factoring, credit reference, credit rating, leasing & finance, housing finance, foreign exchange braking, credit card business, money changing, micro credit and rural credit.
b. Fund based NBFCs have to satisfy some minimum capitalisation norms. For projects involving foreign equity upto 51 per cent, a minimum of US$ 0.5 million is to be brought upfront. Similarly for FDI levels between 51-75 per cent, US$ 5 million is required to be brought upfront. Finally, for FDI between 75-100 per cent, the minimum capitalisation is US$50 million, out of which US$7.5 million is required upfront, and the rest within 24 months. For all non-fund based NBFCs, the minimum capitalisation level is US$ 0.5 million upfront.
c. Foreign investors can establish 100 per cent operating subsidiaries in all NBFC activities mentioned in (a).
3. Insurance FDI is permitted upto 26 per cent under the automatic route.
4. Domestic Airlines FDI is pem1itted upto 40 per cent. However, NRI investment is allowed upto 100 per cent.
5. Airports FDI is pem1itted upto 100 per cent (upto 74 per cent under the automatic route).
6. Telecommunications a. In basic, cellular, value~added services, and global mobile personal communications by
satellite, FDI is permitted upto 49 per cent. b. In ISPs with gateways, radio paging, and end-to-end bandwidth, FDI is permitted upto 74
per cent (upto 49 per cent under automatic route). c. FDI upto 100 per cent is allowed in ISPs not providing gateways (both satellite and
submarine cables), infrastructure providers providing dark fibre, electronic mail and voice mail. In all these activities, FDI upto 49 per cent can be brought in through the automatic route. However, for all proposals involving FDI upto 100 per cent, there is the condition to divest 26 per cent of equity in favour of Indian stakeholders within five years.
36 For detailed guidelines, See Ministry of Commerce, Government oflndia (2004)
102
7. Petroleum (other than refining) a. FDI upto 100 per cent is permitted under the automatic route in oil exploration in small and
medium size fields, petroleum product marketing and petroleum product pipeline. b. FDI upto 100 per cent is permitted for natural gas/LNG pipelines. c.. Establishment of 100 per cent Wholly Owned Subsidiaries (WOS) is permitted for market
study and formulation and for investment/financing.
8. Petroleum refining FDI is permitted upto 26 per cent in Public Sector Undertakings (PSUs) and upto 100 per cent under the automatic route in private Indian companies.
9. Housing and Real Estate a. FDI is permitted up to 100 per cent only in development of integrated townships and
settlements. However, NRis are allowed to invest in development- of serviced plots and construction of built up residential premises, construction of residential and commercial premises (including business centres), development of townships, urban infrastructure facilities, manufacture of building materials and housing finance institutions.
10. Coal and Lignite a. FDI upto 100 per cent (upto 50 per cent under automatic route) is allowed in private
Indian companies setting up or operating power projects and coal or lignite mines for captive consumption.
b. FDI up to 100 per cent (upto 50 per cent under automatic route) is allowed for establishing coal processing plants provided the company does not undertake coal mining and does not sell washed/sized coal from its plants in the open market.
c. FDI upto 74 per cent (upto 50 per cent under automatic route) is allowed for exploration/coal mining/lignite for captive consumption.
11. Venture capital a. Offshore venture capital funds/companies are permitted to invest in domestic venture
capital funds and undertakings as well as other companies through the automatic route subject to SEBI regulations.
12. Trading a. FDI is permitted upto 51 per cent under automatic route in trading provided it is
, primarily meant for export activities. b. FDI upto 100 per cent is permitted in trading companies forexports, bulk imports, cash
and carry wholesale trading, after sales services, trading of hi-tech items requiring specialized after sales services, items for social sector, trading of hi-tech medical and diagnostic items, domestic sourcing of products for exports, test marketing of items for which companies have approval for manufacture and fore-commerce activities37
•
37 All the activities are subject to provisions ofEXIM Policy.
103
13. Investing companies in infrastructure/services sector a. FDI is permitted upto 49 per cent provided the management of the company is with
Indian owners.
14. Atomic minerals a. FDI/NRI investments are permitted in mining and mineral separation, value addition to
products of mining and mineral separation and integrated activities of mining and mineral separation.
b. FDI is permitted upto 74 per cent for both pure value addition and integrated projects.
15. Defence and strategic industries a. FDI/NRI investment is permitted upto 26 per cent with prior government approval.
16. Agriculture (including plantation) a. FDI/NRI investment upto 100 per cent is permitted only in tea plantation with the
condition of compulsory divestment of 26 per cent equity in favour of Indian partners within five years.
1 7. Print media a. FDI up to 100 per cent is permitted in publishing/printing scientific and technical
magazines, periodicals and journals. b. FDI upto 26 per cent is permitted in newspapers and periodicals dealing in news and
current affairs provided the managements rests with Indian residents.
18. Broadcasting
a. FDI upto 100 per cent is allowed in TV software production provided no broadcasting is undertaken from Indian soil without Government approval. '
b. FDI is allowed upto 49 per cent in cable network and direct-to-home broadcasting facilities.
19. Power a. FDI is allowed upto 100 per cent in respect of projects relating to electricity generation,
transmission, and distribution, other than atomic reactor power plants.
20. Drugs & Pharmaceuticals a. FDI upto 100 per cent is permitted under the automatic route for manufacture of drugs
and pharmaceuticals.
21. Roads & highways, ports and harbours a. FDI upto 100 per cent is permitted for construction and maintenance of roads,
highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours.
22. Hotels & tourism a. FDI up to 100 per cent is permissible under the automatic route.
23. Mining a. FDI upto 74 per cent is allowed under the automatic route for exploration and mining of
diamonds and precious stones.
104
b. FDI upto 100 per cent under the automatic route is allowed for exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing.
24. Postal services a. FDiupto 100 per cent is permitted in courier services, excluding distribution of letters.
105