Economy - India Means Business

Since 1991, the regulatory environment in the country has been largely decontrolled with the removal of many cumbersome licensing procedures. This has made the business environment investor friendly, and is one of the major attractions for fresh investments.

I n d u s t r i a l P o l i c y

The Industrial Policy Resolution of 1956 and the Statement on Industrial Policy of 1991 provides the basic framework for the overall industrial policy of the government. The system of obtaining government approvals has been progressively liberalised over the 1980s. This process culminated in the watershed changes in Industrial Policy announced on 24th July 1991 which substantially abolished industrial licensing, announced measures facilitating foreign investment and technology transfers and threw open most areas earlier reserved for the public sector.

List of industries reserved for the public sector

1. Arms and ammunition and allied items of defence equipment, defence aircraft and warships.

2. Atomic Energy.

3. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.

4. Railway transport.

I n d u s t r i a l L i c e n s i n g

The requirement of obtaining an industrial licence for manufacturing activity is limited to:

Industries reserved for the public sector.
6 industries of strategic, social or environmental concern (see box - "List of Industries for which Industrial Licensing is Compulsory").
Industries reserved for the small scale sector.

All other industries are exempt from licensing, subject to certain locational restrictions in metropolitan areas.

List of Industries for which Industrial Licensing is Compulsory

1. Distillation and brewing of alcoholic drinks.

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

3. Electronic Aerospace and equipment: all types.

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

5. Hazardous chemicals.

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

F o r e i g n I n v e s t m e n t P o l i c y

India's economic policies are designed to attract significant capital inflows into India on a sustained basis and to encourage technology collaboration between Indian and foreign fimms. Policy initiatives taken over the last few years have resulted in significant inflows of foreign investment in diverse areas of the economy. India welcomes direct foreign investment in virtually every sector, except those of strategic concern such as defence, railway transport, atomic energy and where the existing and notified sectorial policy does not permit FDI beyond a ceiling. (See Annexure 1 -- Guidelines for Foreign Investment and Foreign Technology Collaborations).

The cumulative foreign direct investments (FDI) approved by the Government since 1991 total to Rs 1,735 billion, while actual inflows add up to Rs 458 billion.

Salient Features of the Economic Policies and Incentives for Foreign Investment

Automatic approval for several key areas for foreign equity participation upto 50/51/74/100 per cent, as the case may be (see Annexure 3 for list of industries).
Based on the merits of the case the Foreign Investment Promotion Board (FIPB) may grant approval for foreign participation in cases that do not qualify for automatic approval.
Decisions on all foreign investment proposals are normally taken within a maximum period of 90 days of application.
For each foreign investment proposal in excess of Rs 1 billion, an officer of the Administrative Ministry is designated as a monitoring officer to help processing and implementation of the project in conjunction with Central and State authorities.
Free repatriation of profits and capital investment is permitted, except for a specified list of consumer goods industries where it is subject to dividend balancing against export earnings (Annexure 2).
Use of foreign brand names/trade marks for sale of goods in India is allowed.
Indian capital markets are open to foreign institutional investors.
Indian companies are permitted to raise funds from international capital markets.
India has entered into agreements for avoidance of double taxation with over 45 countries.
India has signed several bilateral investment protection agreements.
Special investment and tax incentives are given for exports and certain infrastructure sectors, IT, etc.
'Single window' clearance facilities and 'investor escort services' have been provided in various states to simplify the approval and implementation process for new ventures.

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