 |
 |
|
|
| search a lawyer |
|
|
| ACTS, STATUTES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Home > Business Law > Investment in India |
|
|
|
 |
 |
| Approval of Foreign Direct Investment By FIPB |
|
APPROVAL OF FOREIGN DIRECT INVESTMENT BY FIPB
FOREIGN DIRECT INVESTMENT (FDI) PROPOSALS BY THE FOREIGN INVESTMENT PROMOTION BOARD (FIPB)
- 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.
- 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.
- Proposals should be considered by the Board keeping in view the time-frame of 6 weeks for communicating Government decision (i.e. approval of IM/ CCFI of rejection as the case may be.
- 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.
- While considering cases and making recommendations, FIBP should keep in mind the sectoral requirements and the sectoral policies vis-à-vis the proposals.
- FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment, technical collaboration/ industrial license) 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 clearance separately.
- The Board should examine the following while considering proposals submitted to it for consideration:
- Whether the items of activity involve industrial license or not and if so the considerations for grant of industrial license must be gone into;
- Whether the proposal involves technical collaboration and if so, (a) the source and nature of technology sought to be transferred, (b) the terms of payment (payment of royalty by 100% subsidiaries is not permitted);
- Whether the proposal involves any mandatory requirements for exports and if so, whether the applicant is prepared to undertake such obligation (this is for Small Industrial units, as also for dividend balancing, and for 100% EOUs/ EPZ units);
- Whether the proposal involves any export projection and if so, the items of export and the projected destinations;
- Whether the proposal has concurrent commitment under other schemes such as EPCG Scheme, etc;
- In the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition norms and the minimum turnover of exports are met or not;
- Whether the proposal involves relaxation of locational restrictions stipulated in the industrial licensing policy; and
- Whether the proposal has any strategic or defence related considerations.
- While considering proposals, the following may be prioritized:
- Items falling within Annexure III of the New Industrial Policy (i.e., those which do not qualify for automatic approval).
- Items falling in infrastructure sector.
- Items that have an export potential.
- Items which have large scale employment potential and especially for rural people.
- Items that have a direct or backward linkage with agro-business/farm sector.
- Items that have greater social relevance such as hospitals, human resource development, life saving drugs and equipment.
- Proposals that result in induction of technology or infusion of capital.
- The following should be especially considered during the scrutiny and consideration of proposals:
- 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 operator, 49% in basic/cellular/paging, etc. in Telecom sector.)
- Extent of equity with composition of foreign/ NRI (which may include OCB)/ Resident Indians.
- 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. 76% or more)/joint venture.
- 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.
- In the case of fresh induction of foreign/ NRI equity and/ or in 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.
- 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/ authorized capital, transfer of shares (hostile or otherwise) whether by rights issue, or by what modality].
- Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines.
- Whether the activity is an industrial or a service activity or combination of both.
- Whether the item of activity involves any restriction by way of reservation for small-scale sector.
- 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).
- Whether the item involves only trading activity and if so whether it involves export or both export or import, or also includes domestic trading and if domestic trading, whether it also includes retail trading.
- Whether the proposal involves import of items, which are hazardous, banned or detrimental to environment (e.g. import of plastic scrap and recycled plastics).
- In respect of the industries/activities listed in Annex III of the New Industrial Policy, automatic approval for majority equity holding (50/51/74 per cent) is accorded by the Reserve Bank of India. FIPB may consider recommending higher levels of foreign equity in respect of these activities keeping in view the special requirements and merit of each case.
- In respect of other industries/activities listed, the Board may consider recommending 51% foreign equity on examination of each individual proposal. For higher levels of equity upto 74%, 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, the management skills and the commitment for exports.
- FIPB may consider and recommend proposals for 100% foreign owned holding/subsidiary companies based on the following criteria:
- Where only "holding" operation is involved and all subsequent/ downstream investments to be carried out would require prior approval of the Government;
- Where proprietary technology is sought to be protected or sophisticated technology is proposed to be brought in;
- Where at least 50% of production is to be exported;
- Proposals for consultancy; and
- Proposals for power, roads, ports and industrial model towns/industrial parks or estates;
- 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 % foreign equity on a temporary basis on the condition that the foreign investor would divest to the Indian parties (either individuals joint venture partners or general public or both) at least 26 per cent of its equity within a period of 3-5 years.
- Similarly in the case of a joint venture, where the Indian partner is unable to raise resources for expansion/technological up gradation of the existing industrial activity, the Board may consider and recommend increase in the proportion/percentage (upto 100 per cent ) of the foreign equity in the enterprise.
In respect of trading companies, 100 per cent foreign equity may be permitted in the case of the activities involving the following:- Exports.
- Bulk imports with export/expanded warehouse sales;
- Cash and carry wholesale trading;
- 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.
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 the 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.
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.
Where in case of a proposal (not being 100% subsidiary) foreign direct investment has been approved upto 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 wishes 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.
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).
The restrictions prescribed for proposals in various sectors as obtained at present, are given in the Annex and these should be kept in view while considering the proposals.
These 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 recommendations based on other criteria or special circumstance 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 to change the legal provisions and policies whenever considered necessary.
SECTOR SPECIFIC GUIDELINES FOR FOREIGN DIRECT INVESTMENT
| S.No. | Sector
| Guidelines
| | 1. |
Banking | NRI 40%.
Foreign investment of upto 20% is permitted.
| 2.
|
Non-Banking Financial Services
| - Upto 51% foreign equity, no special conditions are attached except those requiring approval of SEBI/ RBI, etc.
- For foreign equity beyond 51% but upto 75%, it is necessary that
foreign investment should be minimum US$ 5 million and it should come
in one lot.
- For foreign investment beyond 75%, minimum foreign investment should be US $ 50 million.
| 3.
|
Domestic Air-Taxi Operations/Airlines
| - Foreign equity upto 40% can be permitted on a case-by-case basis.
- 100% by NRIs.
| 4.
|
Power
|
Foreign investment in power sector can either be in the form of a joint
venture with an Indian partner or as a fully owned operation with 100%
foreign equity.
| 5.
|
Telecommunications (Basic, Value Added)
| In basic, Cellular Mobile and Paging Services, foreign investments are limited to 49% subject to grant of license from DoT.
| 6.
|
Drugs and Pharmaceutical Industry
| Foreign investment upto 51% in the case of bulk drugs, their
intermediates and formulations thereof (except those produced by the
use of recombinant DNA technology) are granted automatic approval by
the RBI. Other proposals are considered on merit on a case-by-case
basis by the Government Manufacturing activity essential for FDI above
51% as per Drug Policy.
| 7.
|
Petroleum
|
Foreign companies can invest upto 100% of the equity in any venture in petroleum sector.
| | 8. |
Real Estate
|
No foreign investment in this sector is permitted. NRIs/ OCBs are allowed.
| 9.
|
Roads and Highways
|
Private sector, including foreign equity participation upto 100% in the
highways is envisaged on Build, Operate and Transfer (BOT) concept
Investors in identified highway projects would be permitted to recover
their investment by way of collection of tolls for specified periods.
At the end of the agreed concession period, the facilities will revert
to the Government. Construction of by-passes, bridges and widening of
high density corridors, of National Highways have been identified for
four laning through the BOT route. The Government has, in the Budget
Session of 1995, passed the necessary legislation for collection of
toll tax. The rates of toll charges as well as the period of concession
will be on the basis of competition/ bids and the Government free from
encumbrances would provide land requirement for the construction and
operation of the facilities. Private parties would also be allowed to
develop service and the rest areas along the road entrusted to them.
| 10.
|
Ports
| Indian ports offer significant potential to foreign investors in major
operational and infrastructural areas. The following areas have been
identified for participation/investment by the private sector:
- Leasing our existing assets of the Port
- Construction/creation of additional assets, such as:
- Construction and operation of container terminals.
- Construction and operation of bulk, break bulk, multipurpose and specialized cargo berths.
- Warehousing, container freight stations, storage facilities and tank farms.
- Cranage/Handling equipment.
- Setting up of captive power plants.
- Dry-docking and ship repair facilities.
- Leasing of equipment for port handling and leasing of floating crafts from the private sector.
- Captive facilities for Port based industries.
These areas are indicative in nature. Further details regarding
participation by the foreign investors are available with individual
port authorities and the Ministry of Surface Transport, Government of
India.
| 11.
|
Tourism
| This is a sector with immense possibilities for foreign investment.
100% foreign equity is permissible in the sector and automatic
approvals are also granted by the Reserve Bank of India for foreign
equity upto 51% and subject to specified parameters.
| 12.
|
Mining
| - Foreign equity participation of upto 50% in the mining sector would
be automatic, except for gold, silver, diamonds and precious stones.
- For gold, silver, diamonds and precious stones, approvals would be
given keeping in view, inter alia, the following parameters:
- The size of the project.
- Commitment of external resources for funding project cost.
- Track record of company in the mining sector.
- The level of the technology sought to be employed in the project.
- Financial strength of the company.
- Level of the Indian equity in the joint venture at the mining stage for the JV partner/Indian partner.
| 13.
|
Coal | While this has been reserved for the public sector, private and foreign
investment is permitted in coal for captive consumption only
(generation of power) and for washeries, etc.
| 14.
|
Venture Capital Fund
| An offshore venture capital company may contribute 100% of the capital
of domestic venture capital fund and may also set up a domestic asset
management company to manage the fund.
VCFs and VCCs are permitted upto 40% of paid up corpus of the domestic VCFs/ VCCs.
|
BACK NEXT |
|
|
|
|
|
|
 |
 |
|
 |
 |
|
|
|
|
|
| Personal Phone Legal conference |
Discuss your legal concerns from anywhere in the world in person, on phone
Click here for appointment |
|
|
|
|
|
| Property / Real Estate |
Legal verified real estate. Choose from our list of properties with clear title.
Search property |
|
|
|
|
|
|
|
|
