Fdi Regime In India By Tarun Das

FDI Policies in India Prof. Tarun Das, IILM, New Delhi Annex-A: List of Activities for which RBI Automatic Route for FDI is not allowed 1. RBI Automatic route not available 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12

Domestic airlines Petroleum sector (except for private sector oil refining) Investing companies in infrastructure and services Defense and strategic industries Atomic minerals Print media Broadcasting Postal services Courier services Establishment and operation of satellite Development of integrated township Tea sector

2. List of activities for which FDI is prohibited 2.1 Chit fund 2.2 Nidhi company 2.3 Agriculture and plantation 2.4 Real estate or construction of farm houses 2.5 Trading in Transferable Development Rights 2.6 Retail trading (except single brand product retailing) 2.7 Atomic energy 2.8 Lottery business 2.9 Gambling and betting 2.10 Housing and real estate 2.11 Agriculture (except floriculture, development of seeds, animal husbandry, pisiculture and cultivation of vegetables and mushrooms etc.) 3. All activities/ sectors would require prior government approval for FDI in the following circumstances: i. Where provisions of Press Note 1 (2005 series) are attracted. ii. Where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for Small Scale Sector. 4. In sectors/ activities listed below, FDI is permitted up to 100% on the automatic route subject to applicable sectoral rules/ regulations.

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5. Sector-specific policy for FDI : In the sectors/ activities, FDI up to the limit indicated in Annex-B is allowed subject to other conditions as specified.

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Annex-B: FDI Regime in India Sectors

Cap on foreign equity

Approval process

1. Agriculture (except development of seeds, floriculture, animal husbandry, pisiculture, cultivation of vegetables and mushrooms) and Plantations (except tea plantations).

Not allowed

n.a.

100%

Automatic

100%

Automatic

100%

Automatic

Cap on Foreign Equity 100% through competitive bidding 60% for unincorporated JVs , 51% for incorporated JVs. 100%

Approval by FIPB

26%

FIPB

51%

FIPB

74%

FIPB

100% through wholly owned subsidiaries

FIPB

2. Mining 2.1 coal/lignite mines for captive consumption by power projects, iron and steel, cement production and other eligible activities permitted under the Coal Mines Nationalization Act 1973 2.2 Coal processing plant 2.3 Exploration and mining of diamond and precious stones, gold, silver and minerals 3. Petroleum 3.1 Exploration in small fields 3.2 Exploration in medium size fields 3.3 Oil Refining with private sector unit 3.4 Oil Refining with public sector unit 3.5 Petroleum products and pipelines 3.6 Infrastructure related to marketing of petroleum products 3.7 Market study and investment/ financing

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FIPB Automatic

4. Power Electricity generation, transmission and distribution 5. Atomic Energy 5.1 Mining and mineral separation, value addition and integrated projects 5.2 Others 6. Manufacturing 6.1 Small scale industries

6.2 Drugs/ pharmaceuticals (except for activities acquiring compulsory and drugs produced with the use of recombinant DNA technology and specific cell / tissue targeted formulations). 6.3 Telecommunications equipment 6.4 Pollution control equipment

Cap on Foreign Equity 100%

Approval by Automatic

Up to 74% and FDI beyond 74% subject to clearance by the Atomic Energy Commission Prohibited

FIPB

24% and beyond 24% is subject to a mandatory export obligation of at least 50% of annual products. 100% for bulk products, their intermediaries and formulations

FIPB

100% 100%

4

n.a.

Automatic. Exceptions require compulsory licensing. Automatic Automatic.

Sectors

Cap on foreign equity

6.5 Distillation and brewing of 100% alcoholic drinks 6.6 Cigars and cigarettes of tobacco 100% and manufacture of tobacco substitutes 6.7 Industrial explosives including 100% except for defense detonating fuses, safety fuses, gun related and SSI reserved items powder, nitrocellulose and matches 6.8 Hazardous chemicals 100% 6.9 Arms, ammunitions, items of 26% subject to the guidelines defense equipment, defense aircraft and licensing of the Min. of and warships Defense 7. Financial Services 7.1 Banking 74% subject to RBI guidelines Non-Banking Financial Up to 100% subject to Corporations minimum capitalization (Presently 19 NBFC activities norms as follows: allowed include merchant US$0.5 million for FDI up to banking, under writing, portfolio 51%, management, investment advisory US$5 million for FDI above services, financial consultancy, 51% and up to 75%, and stock broking, asset management, US$50 million for FDI above venture capital, custodial services, 75% and up to 100% to be factoring, credit reference brought upfront. agencies, credit rating, leasing and finance, housing finance, forex broking, credit card business, money changing business, micro credit and rural credit) 7.3 Insurance 26% subject to licensing issued by the IRDA 7.4 Venture Capital Fund and Caps subject to SEBI Venture Capital company regulations and sector specific FDI caps 8. Telecommunications services 8.1 Basic, cellular, value added 49% subject to licensing by service and global mobile personal the DOT and security communications by satellite requirements 8.2 ISPs with gateways, radio74% paging and end-to-end bandwidth 8.3 ISPs not providing gateways 100% subject to divestment of

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Approval process FIPB FIPB FIPB FIPB FIPB

Automatic Automatic

Automatic Automatic

Automatic Automatic up to 49% otherwise FIPB Automatic up to

(both for satellite and submarine cables), infra-structure providers providing dark fibre (IP category I), electronic mail and voice mail 8.4 Postal and courier services 8.5 Broadcasting

8.6 Information technology 9. Transport 9.1 Airlines

9.2 Airports

26% equity to Indian firms within five years, and licensing by the DOT and security requirements 100% in courier services excluding distribution of letters Up to 49% in uplinking hub or teleport facilities for leasing or hiring out facilities. Up to 20% in DTH broadcasting service. 100%

49% otherwise FIPB on case by case basis

Up to 40% with no direct/ indirect equity participation by foreign airlines, 100% investment allowed for NRIs and OCBs 100%

FIPB

FIPB FIPB

Automatic

Automatic up to 74% otherwise FIPB Approval process

Sectors

Cap on foreign equity

9.3 Shipping 9.4 Railways 9.5 Construction and maintenance of ports and harbours, roads, toll roads, vehicular bridges and highways 9.6 Mass rapid transit system 10. Other services 10.1 Trading

100% Reserved for public sector 100%

Automatic n.a. Automatic

100%

Automatic

Prohibited in retail trading. 51% FDI is allowed in the case of export-oriented activities. FDI is not allowed except for development of integrated townships and settlements where 100% FDI is allowed. NRIs/OCBs are allowed to invest up to 100% in other housing and real estate activities (including residential and commercial

Automatic up to 51% for export activities, FIPB for other cases. FIPB

10.2 Housing and real estate

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10.3 Townships and resorts 10.4 Print media 10.5 Hotels, tourism and restaurants 10.6 Consultancy for pollution control and management 10.7 Advertising 10.8 Films 10.9 Professional services 10.10 Education College) 10.11 E-commerce

(University/

10.12 Investing companies infrastructure and services

in

10.13 Health and medical 10.14 Special Economic Zones 11. Trading 11.1 Primary export activities and the undertaking of an export house, trading house, super trading house or star trading house 11.2 Trading houses for the activities such as exports, bulk imports, cash and carry wholesale trading 11.3 E-commerce

premises). 100% 100% for some activities

Automatic FIPB

100% 100%

Automatic Automatic

100% 100% 51% except for legal service, where FDI is not permitted. 100%

Automatic Automatic Automatic

Except for retail e-commerce where FDI is not permitted subject to divestment of 26% equity to Indian firms within five years. Up to 49% subject to the condition that the management is with the Indian nationals 100% 100%

FIPB

Automatic Automatic

51%

Automatic

100%

FIPB

100%

FIPB

Automatic

FIPB

Selected References Das, Tarun (1993) Macro-economic Framework, Export Promotion Zones and Foreign Investment in India, Ad-Hoc Working Group on Investment and Financial Flows, pp.175, TD/B/WG.1/Misc.3/ Add.3, UNCTAD, Geneva.

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Das, Tarun (1996) Policies and Strategies for Promoting Private Sector’s Role in Industrial and Technological Development Including Privatisation in the Asian Economies, pp.1-171, ST/ESCAP/1696, United Nations, New York. Das, Tarun (1997) Foreign Investment- Technology Transfer- and Growth Nexus Towards Greater Regionalisation And Complementation of Manufacturing Production and Technology Upgrading, pp.1-158, ESCAP, United Nations, Bangkok. Das, Tarun (1998) Private Sector Development Programmes in Selected Countries in Asia and Lessons for Africa, pp.1-165, Economic Commission for Africa, United Nations, Addis Ababa, November 1998. Das, Tarun (2002) Implications of Globalisation on Industrial Diversification Process and Improved Competitiveness of Manufacturing in ESCAP Countries, ST/ESCAP/2197, United Nations, Bangkok: ESCAP. Das, Tarun (2003a) Economic Reforms in India- Rationale, Scope, Progress and Unfinished Agenda, Pune, India: Bank of Maharashtra. Das, Tarun (2003b) An Assessment of Trade in Services- A Case Study for India, Indian Council for Research on International Economic Relations (ICRIER), New Delhi. Das, Tarun (2004) Financing International Co-operation- A Case Study for India, UNDP, New York. Das, Tarun, Rajaram Dasgupta, Rohit Parmer and Ashis Saha, (2003) Preparation of An Index of Services Production, National Institute for Bank Management, Pune. Dunning, J. H. (2002) Determinants of Foreign Direct investment: Globalisation Induced Changes and the Role of FDI Policies, in Editors, Reforms, Globalisation and Knowledge Based Economy, ed. Oxford University Press. Kumar, Nagesh (2001) Globalisation and Quality of Foreign Direct Investment, London and New York: Routledge. Rashmi Banga (2004) Impact of government policies and investment agreements on FDI inflows, ICRIER, Delhi. World Bank (2004) World Development Report- Making Services Work for Poor People, Oxford University Press.

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