Chapter 1 Industry Policy_2008-09

8/2/2019 Chapter 1 Industry Policy_2008-09

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CHAPTER - I

INDUSTRIAL POLICY HIGHLIGHTS


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CHAPTER - I

1. INDUSTRIAL POLICY- INTRODUCTION

1.1 Industrial policy, inter-alia, covers the procedures, principles, rules & regulations, which impactthe industrial establishments of a country & shape the pattern of industrialization. The first industrialpolicy of the Government of India was announced in April 1948. Subsequently Industrial Policy

resolutions were announced in 1956, 1980, 1990 & 1991. The progress in industrial policy reformsenabled the country to pass through a long but successful journey. The policy changes brought outafter 1991 have been announced in the form of Press Notes by the Department of Industrial Policy

and Promotion.

1.2 Highlights of the Industrial Policy Statement of 1991 and subsequent Press Notes regarding

policy changes have been incorporated in the subsequent sections. The main features of the existingIndustrial Policy in the country are given below.

Objectives

1.3 Objectives of the Industrial Policy of the Government are to

maintain a sustained growth in productivity;

enhance gainful employment;

achieve optimal utilisation of human resources;

attain international competitiveness and transform India into a major player in the global arena.

Focus

1.4 Policy focus is on

Deregulating Indian industry;

Allowing the industry freedom and flexibility to respond to market forces and

Providing a policy regime that facilitates and fosters growth of Indian industry.

Policy measures

1.5 Some of the important policy measures announced and procedural simplifications undertaken

to pursue the above objectives are given below:

1.5.1 Liberalisation of Industrial Licensing Policy

The list of items requiring compulsory licensing is reviewed on an ongoing basis. At present, only fiveindustries are under compulsory licensing viz, environmental, safety and strategic considerations.

Similarly, there are only two industries reserved for the public sector. The list of industries reserved

for the public sector and of items under compulsory licensing are at Annex I & II respectively.

1: INDUSTRIAL POLICY - INTRODUCTION


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1.5.2 Introduction of Industrial Entrepreneurs Memorandum (IEM)

Industries not requiring compulsory licensing are to file an Industrial Entrepreneurs Memorandum

(IEM) to the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such

exempted industries.

1.5.3 Liberalisation of the Locational Policy

Vide notification dated 14.8.2008, the requirement of licensing for setting up of industries within 25

kms of the periphery of cities having population of more than million for a certain class of industries

has been done away with.

1.5.4 Policy for Small Scale Industries

In the early stages of industrialization, reservation of items of manufacture exclusively for the small

scale sector formed an important focus of the industrial policy as a measure of protecting this sector.

As per the MSME Act, which was notified on 29.9.2006, industrial undertakings with an investment

between Rs. 25 lakh to Rs. 5 crore are within the Small Scale sector and between Rs. 5 crore to Rs.

10 crore are in the Medium sector. The investment limit for Micro units is Rs. 25 lakhs.

As of now, only 21 items are reserved for manufacture exclusively in the small scale sector. All

undertakings other than the small scale sector dealingwith reserved items are required to obtain an

industrial licence and undertake an export obligation of 50% of the annual production. This condition

of licensing is however, not applicable for those undertakings operating under 100% Export OrientedUndertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Scheme

(SEZs).

1.5.5 Non-Resident Indians Scheme

The facilities for Foreign Direct Investment as available to foreign investors/company are fully applicable

to NRIs as well. In addition, Government has extended some concessions specially for NRIs and

overseas corporate bodies having more than 60% stake by the NRIs. These inter-alia includes (i)

NRI/OCB investment in the real estate and housing sectors upto 100% and (ii) NRI/OCB investment

in domestic airlines sector upto 100%.

NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all activities

except for a small negative list. Apart from this, NRI/OCBs are also allowed to invest on repatriation/

non-repatriation under the portfolio investment scheme.

1.5.6 Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP) scheme

For building up strong electronics industry and with a view to enhancing export, two schemes viz.

Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) are in operation.

Under EHTP/STP scheme, the inputs are allowed to be procured free of duties.

INDUSTRIAL POLICY - INTRODUCTION


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CHAPTER - I

The Directors of STPs have powers to approve fresh STP/EHTP proposals and also grant post-approval amendment in respect of EHTP/STP projects as have been given to the Development

Commissioners of Export Processing Zones in the case of Export Oriented Units. All other application

for setting up projects under these schemes, are considered by the Inter-Ministerial Standing Committee

(IMSC) Chaired by Secretary (Information Technology).

1.5.7 Policy for Foreign Direct Investment (FDI)

Promotion of foreign direct investment forms an integral part of the industrial policy. The role of

foreign direct investment in accelerating economic growth is by way of infusion of capital, technology

and modern management practices. The Department has put in place a liberal and transparent

foreign investment regime where most of the industries are open to foreign investment on automaticroute without any limit on the extent of foreign ownership. Some of the recent initiatives taken to

further liberalise the FDI regime, inter alia, include opening up of sectors such as Insurance (upto

26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation

(upto 100% subject to divestment of 26% within five years to FDI); Encenhancement of FDI limits in

private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing

activities in SEZs; opening up B2B e-commerce; Internet Service Providers (ISPs) without Gateways;

electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition etc.

The Department has also strengthened investment facilitation measures through Foreign Investment

Implementation Authority (FIIA).

***

INDUSTRIAL POLICY - INTRODUCTION


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2. SAILENT FEATURES OF INDUSTRIAL POLICY, 1991

2.1 An Overview of Industrial Policies till 1991 is as follows:

The Industrial Policy 1991 is preceded by the Industrial Policy Resolutions of 1948 & 1956 &

Industrial Policy Statements of 1973, 1977 & 1980, which are in brief as follows:

Industrial Policy Resolution, 1948 The Policy aimed at outlining the approach to Industrial growth

& development. It emphasised the importance to the economy of securing a continuous increase in

production and ensuring its equitable distribution

Industrial Policy Resolution, 1956 -Under the Policy therole of State was given more importance

as an engine for accelerating the economic growth and speeding up the industrialization as a means

of achieving a socialist pattern of society.

Industrial Policy Statement, 1973 The thrust of this Policy Statement was an identification of

high-priority industries where investment from large industrial houses and foreign companies were

permitted.

Industrial Policy Statement, 1977 - The Policy emphasized on decentralization and growth of

small scale industries.

Industrial Policy Statement, 1980 - The Policy einusaged promoting competition in domestic market,

technology upgradation and modernization. The policy laid the foundation for an increasingly

competitive export based and for encouraging foreign investment in high-technology areas.

Industrial Policy 1991Objectives

The main objectives of the Policy were as follows:

To maintain a sustained growth in productivity and gainful employment and attain international

competitiveness.

Self reliance or building up the ability to pay our import bills through our own foreign exchange

earnings and developing indigenous capacity in technology and manufacturing

Pursue sound policy framework encompassing encouragement to entrepreneurship,

development of indigenous technology, dismantling of the regulatory system.

Development of capital markets and increasing competitiveness

Spread of industrialization to backward areas through appropriate incentives, institutions

and infrastructure investments

Encourage foreign investment and technology collaboration

Abolish monopoly of any sector or any individual enterprise in any field of manufacture except

on strategic and military considerations and open all manufacturing activity to competition

Ensure that public sector plays its rightful role in strategic areas of national importance.

Protect the interests of labour, enhance their welfare and equip them to deal with technology

change


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CHAPTER - I

To attain these objectives, Government took a series of initiatives in regard to policies in the following

areas.

a) Industrial Licensing

b) Foreign Investment

c) Foreign Technology agreements

d) Public Sector Policy

e) Monopolies and Restrictive Trade Practices (MRTP) Act, 1969

Industrial Licensing Policy

Industrial licensing was abolished for all industries irrespective of their level of investment except

specified industries. These specified industries will continue to be subject to compulsory licensing

for reasons related to security and strategic concerns, social concerns, problems related to safety

and environmental issues, manufacture of products of hazardous nature and articles of elitist

consumption. Industries where licensing is compulsory are in Annex II

Foreign Investment

In order to invite foreign investment in high priority industries requiring large investments and advanced

technology, it has been decided to provide approval for direct foreign investment upto 51% foreignequity in 33 industries. These industries are listed in Annex III.

Foreign Technology Agreement

With a view to injecting the desired level of technological dynamism in Indian industry, Government

will provide automatic approval for technology agreement related to high priority industries within

specified parameters. Similar facilities will be available for other industries as well if such agreements

do not require the expenditure of foreign exchange. Indian companies will be free to negotiate the

terms of technology transfer with their foreign counterparts according to their own commercial judgment.

Public Sector Policy

Government decided to strengthen the public enterprises, which fall in reserved areas of operation

or are in high priority areas or generating reasonable profit. Such enterprises were given a much

greater degree of management autonomy through the system of memoranda of understanding.

Competition was induced in these areas by inviting private sector participation. In the case of selected

enterprises, part of Government holding in equity share capital of these enterprises will be is invested

in order to provide further market discipline to the performance of public enterprises.

SAILENT FEATURES OF INDUSTRIAL POLICY, 1991


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Monopolies and Restrictive Trade Practices Act (MRTP), 1969

MRTP act was repealed and replaced by the Competition Act 2002 with effect from September, 2009.

The MRTP commission will to continue to exercise jurisdiction and power in respect of any case or

proceeding filed before September 2009 for a period of two years. After expiry of two years the

MRTP commission shall stand dissolved. Cases pending before MRTP commission pertaining to

monopolistic and restrictive trade practices having an element of unfair trade practice will be

transferred to the Competition Appellate Tribunal whereas cases relating solely to unfair trade practices

shall stand transferred to the National Commission. Cases related to giving false or misleading facts

disparaging the goods, services or trade of another person under the MRTP Act shall be transferred

to the Competition Appellate Tribunal.

3. THE COMPETITION ACT, 2002.

3.1 The Competition Act, 2002 (12 of 2003), was enacted on 13th January, 2003 and amended by

the Competition (Amendment) Act, 2007 in September, 2007. The Act provides, keeping in view the

economic development of the country, for the establishment of a Commission i.e. Competition

Commission of India, in terms of section 7 of the Act, to prevent practices having adverse effect on

competition, to promote and sustain competition in markets, to protect the interests of consumers

and to ensure freedom of trade carried on by other participants in markets in India and for matters

connected there with or incidental thereto.

3.2 To fulfill its mandate, the Act inter-alia enjoins upon the Commission to take up:

(i) Prohibition of anti-competitive agreements;

(ii) Prohibition of abuse of dominant position;

(iii) Regulations of Combinations; and

(iv) Competition advocacy.

3.3 Earlier, there was a school of thought that growth in size of enterprises leads to monopolies

and should be regulated. Inspired by such a philosophy, the Monopolies Restrictive Trade Practices

Act, 1969 (MRTPA), was enacted. That legislation required different enterprises to seek clearancesat different milestones of growth. With the advancement of economy, a realization dawned that such

an approach is not appropriate. The new approach focuses more on the behavior of enterprises and

not on the structure. The enactment of the Competition Act, 2002, in India is a move in this direction.

The Act does not discriminate between public and private enterprises as far as the competition law

enforcement is concerned. The definition of enterprise in section 2 (h) of the Act is wide enough to

include both public and private enterprises.



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CHAPTER - I

3.4 In addition to the aforementioned provisions relating to enforcement of the Act, the Act also

introduces extraterritoriality, in terms of section 32 of the Act, and this gives the Commission jurisdiction

over the acts taking place outside India but having the effect on competition in India. The Commission

is also empowered to issue interim orders restraining any party from carrying on an act where during

an enquiry, the Commission is satisfied that an act in contravention of section 3 or section 4 or

section 6 has been committed and continues to be committed or that such act is about to be committed.

3.5 Enquiry into anti-competitive agreements and abuse of dominant position of enterprises,

followed by orders of the Commission, can be triggered on receipt of information under section 19 of

the Act. On the other hand, enquiry into regulations of combinations may either be triggered by filing

of a notification under section 6 of the Act or action by the Commission under section 20 of the Act.

The procedure for enquiry into agreements and abuse of dominance position is given in section 26of the Act and the consequences for anti-competitive agreements, including cartels, in section 27 of

the Act.

3.6 One additional feature of the Act is that the Commission can divide an enterprise enjoying

dominant portion to ensure that such enterprise does not abuse its dominant position under the

provisions of Section 28 of the Act. On the other hand, the procedure for investigation of combinations

is given in section 30, section 29 and the orders for regulations of combinations under section 31 of

the Act.

3.7 Contravention of orders of the Commission attract penalties under the Act. This includes

penalty for failure to comply with directions of the Commission and power to impose penalty for non-furnishing of information on combinations, making a false statement or omission to furnish material

information or offences in relation to furnishing of information.

3.8 The appeals from the orders of the Commission can be filed before the Competition Appellate

Tribunal as provided under section 53A of the Act. Section 66 of the Act provides for repeal of

MRTPC Act, 1969 and the consequential actions.

3.9 Thus with the enactment of the Act, the country has moved onwards to a progressive modern

economic philosophy in regulation of markets for a competitive outcome and enhancement of overall

social welfare within limited resources.

{Policy changes in industry sector notified during 2008-09 through Press Notes No. 7(2008

Series) & Nos. 1 to 4 (2009 Series) i.e. up to 31 st March, 2009 are given in Box No. 1.1 to 1.6}.

***



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ANNEX I

LIST OF INDUSTRIES RESERVED FOR THE PUBLIC SECTOR

1. Atomic Energy Production, separation or enrichment of special fissionable materials and

substances and operation of the facilities, specified in notification No. S.O.2630(E) dated

19.10. 2009 of Department of Industrial Policy and Promotion, Ministry of Commerce & Industry,

Government of India.

2. Railway transport

ANNEX II

LIST OF INDUSTRIES FOR WHICH INDUSTRIAL LICENSING IS COMPULSORY ARE:-

6. Distillation and brewing of alcoholic drinks.

7. Cigars and cigarettes of tobacco and manufactures tobacco substitutes.

8. Electronic Aerospace and defense equipment: all types.

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

matches.

10. Specified Hazardous chemicals i.e. (i) Hydrocyanic acid and its derivatives, (ii) Phosgene and

its derivatives and (iii) Isocyanates & Diisocyanates of Hydrocarbon, not elsewhere specified

(example Methyl isocyanate).

Note: The compulsory licensing provisions would not apply in respect of the small-scale units taking

up the manufacture of any of the above items reserved for exclusive manufacture in small scale

sector.


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ANNEX III

LIST OF INDUSTRIES FOR AUTOMATIC APPROVAL OF FOREIGN TECHNOLOGY AGREEMENTS

AND FOR 51% FOREIGN EQUITY APPROVALS

1. Metallurgical Industries

i. Ferro alloys.

ii. Castings and forgings.

iii. Non-ferrous metals and their alloys.

iv. Sponge iron and pelletisation.

v. Large diameter steel welded pipes of over 300 mm diameter and stainless steel pipes.

vi. Pig iron.

2. Boilers and Steam Generating Plants

3. Prime Movers (other than electrical generators)

i. Industrial turbines.

ii. Internal combustion engines.

iii. Alternate energy systems like solar wind etc. and equipment therefor.

iv. Gas/hydro/steam turbines upto 60 MW.

4. Electrical Equipment

i. Equipment for transmission and distribution of electricity including power and distribution

transformers, power relays, HT-switch gear synchronous condensers.

ii. Electrical motors.

iii. Electrical furnaces, industrial furnaces and induction heating equipment.

iv. X-ray equipment.

v. Electronic equipment, components including subscribers end telecommunication equipments.

vi. Component wires for manufacture of lead-in wires.


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vii. Hydro/steam/gas generators/generating sets upto 60 MW.

viii. Generating sets and pumping sets based on internal combustion engines.

ix. Jelly-filled telecommunication cables.

x. Optic fibre.

xi. Energy efficient lamps and

xii. Midget carbon electrodes.

5. Transportation

i. Mechanised sailing vessels upto 10,000 DWT including fishing trawlers.

ii. Ship ancillaries.

iii. (a) Commercial vehicles, public transport vehicles including automotive commercial three

wheeler jeep type vehicles, industrial locomotives.

(b) Automotive two wheelers and three wheelers.

(c) Automotive components/spares and ancillaries.

iv. Shock absorbers for railway equipment and

v. Brake system for railway stock and locomotives.

6. Industrial Machinery

i. Industrial machinery and equipment.

ii. Machine tools and industrial robots and their controls and accessories.

iii. Jigs, fixtures, tools and dies of specilised types and cross land tooling, and

iv. Engineering production aids such as cutting and forming tools, patterns and dies and tools.

7. Agricultural Machinery

i. Tractors.

ii. Self-propelled Harvestor Combines.

iii. Rice transplanters.

8. Earth Moving Machinery and construction machinery and components thereof.

STATEMENT ON INDUSTRIAL POLICY, JULY 24, 1991


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9. Industrial Instruments - Indicating, recording and regulating devices for pressures,

temperatures, rate of flow weights levels and the like.

10. Scientific and Electromedical Instruments and Laboratory Equipment.

11. Nitrogenous & Phosphatic Fertilizers falling under

i. Inorganic fertilizers under 18-Fertilizers in the First Schedule to IDR Act, 1951.

12. Chemicals (other than fertilizers).

i. Heavy organic chemicals including petrochemicals.

ii. Heavy inorganic chemicals.

iii. Organic fine chemicals.

iv. Synthetic resins and plastics.

v. Man made fibres.

vi. Synthetic rubber.

vii. Industrial explosives.

viii. Technical grade insecticides, fungicides, weedicides, and the like.

ix. Synthetic detergents

x. Miscellaneous chemicals (for industrial use only)

a. Catalysts and catalyst supports.

b. Photographic chemicals.

c. Rubber chemicals.

d. Polyols.

e. Isocyanates, urethanes, etc.

f. Speciality chemicals for enhanced oil recovery.

g. Heating fluids.

h. Coal tar distillation and product therefrom.


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i. Tonnage plants for the manufacture of industrial gases.

j. High altitude breathing oxygen/medical oxygen.

k. Nitrous oxide.

l. Refrigerant gases like liquid nitrogen, carbondioxide etc. in large volumes.

m. Argon and other rare gases.

n. Alkali/acid resisting cement compound

o. Leather chemicals and auxiliaries.

13. Drugs and Pharmaceuticals

(As per the Drug Policy).

14. i. Paper and pulp including paper products.

ii. Industrial laminates.

15. i. Automobile tyres and tubes.

ii. Rubberised heavy duty industrial beltings of all types.

iii. Rubberised conveyor beltings.

iv. Rubber reinforced and lined fire fighting hose pipes.

v. High pressure braided hoses.

vi. Engineering and industrial plastic products.

16. Plate Glass

i. Glass shells for television tubes.

ii. Float glass and plate glass.

iii. H.T. insulators.

iv. Glass fibres of all types.

17. Ceramics

i. Ceramics for industrial uses and ordinary consumers.

18. Cement Products

i. Ordinary Portland cement (OPC), Portland Pozzolane Cement (PPC).

ii. Gypsum boards, wall boards and the like.


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19. High Technology Reproduction and Multiplication Equipment.

20. Carbon and Carbon Products

i. Graphite electrodes and anodes.

ii. Impervious graphite blocks and sheets.

21. Pretensioned High Pressure RCC Pipes.

22. Rubber Machinery

23. Printing Machinery.

i. Web-fed high speed off-set rotary printing machine having output of 30,000 or more

impressions per hour.

ii. Photo composing/type setting machines.

iii. Multi-colour sheet-fed off-set printing machines of sizes 18"x25" and above.

iv. High speed rotograture printing machines having output of 30,000 or more impressions

per hour.

24. Welding Electrodes other than those for Welding Mild Steel

25. Industrial Synthetic Diamonds.

26. i. Photosynthesis improvers.

ii. Genetically modified free living symbiotics nitrogen fixer.

iii. Pheromones.

iv. Bio-insecticides.

27. Extraction and Upgrading of Minor Oils

28. Pre-fabricated Building Material.

29. Soya Products

i. Soya texture proteins.

ii. Soya protein isolates.

iii. Soya protein concentrates.

iv. Other specialised products of soyabean.

v. Winterised and deodourised refined soyabean oil.


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30. (a) Certified high yielding hybrid seeds and synthetic seeds and

(b) Certified high yielding plantlets developed through plant tissue culture.

31. All food processing industries other than milk food, malted foods, and flour, but

excluding the items reserved for small-scale sector.

32. All items of packaging for food processing industries excluding the items reserved

for small scale sector.

33. Hotels and tourism-related industry.

Source: Ministry of Commerce & Industry, Department of Industrial Policy and Promotion, Competition

Commission of India.


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BOX 1.1

PRESS NOTE NO. 7 (2008 SERIES)

CONSOLIDATED POLICY ON FOREIGN DIRECT INVESTMENT

After the review of the policy on Foreign Direct Investment (FDI) undertaken in 2005-06,

summary of the policy was notified vide Press Note 4 (2006).

2. Thereafter, further policy revisions were issued vide Press Note 5(2006) and Press Note 2

(2007) and 3(2007). A comprehensive review of the FDI policy was undertaken in 2007-08 and the

policy measures were notified vide Press Note 1-6 (2008).

3. A summary of the FDI policy and regulations applicable in various sectors and activities afterincorporating the policy changes up to 31-3-2008 is at Annex.

(Gopal Krishna)

Joint Secretary to the Government of India

No. 5(10)/2006-FC dated 16th

June 2008

Note: Earlier Press Notes can be seen from our earlier publications.


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POLICY ON FOREIGN DIRECT INVESTMENT (FDI)

I. Sectors prohibited for FDIi. Retail Trading (except single brand product retailing)ii. Atomic Energyiii. Lottery Businessiv. Gambling and Bettingv. Business of chit fundvi. Nidhi Companyvii.Trading in Transferable Development Rights (TDRs).viii. Activity/sector not opened to private sector investment

II. Sector-specific policy for FDI:

In the following sectors/activities, FDI is allowed up-to the limit indicated belowsubject to other conditions as indicated.

ANNEX to Press Note 7 (2008)

Sr.

No.

Sector/Activity FDI Cap /Equity

EntryRoute

Other conditions

I AGRICULTURE

1. Floriculture, Horticulture,Development of Seeds, AnimalHusbandry, Pisciculture, Aqua-culture and Cultivation ofVegetables & Mushroomsunder controlled conditions andservices related to agro andallied sectors.

Note: Besides the above, FDIis not allowed in any otheragricultural sector/activity

100% Automatic

2. Tea Sector,including tea

plantation

Note: Besides the above, FDIis not allowed in any otherplantation sector/activity

100% FIPB Subject to divestment of 26%equity in favour of Indianpartner/Indian public within 5years and prior approval of StateGovernment concerned in case ofany change in future land use.

II INDUSTRY

II A MINING

3. Mining covering

exploration and

mining of diamonds

& precious stones;

gold, silver and

minerals.

100% Automatic Subject to Mines & Minerals(Development & Regulation) Act,1957 www.mines.nic.in

Press Note 18 (1998) and PressNote 1 (2005) are not applicablefor setting up 100% ownedsubsidiaries in so far as themining sector is concerned,subject to a declaration from theapplicant that he has no existingjoint venture for the same area

and /or the particular mineral.


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4. Coal & Lignitemining for captiveconsumption bypower projects,

and iron & steel, cementproduction and other eligibleactivities permitted under theCoal Mines

(Nationalisation) Act, 1973.

100% Automatic Subject to provisions of CoalMines(Nationalization) Act, 1973

www.coal.nic.in

5. Mining and mineralseparation of titaniumbearing minerals and ores,its value addition andintegrated activities.

Note: FDI will not be allowed

in mining of prescribedsubstances listed inGovernment of Indianotification No. S.O. 61(E) dt.18.1.2006 issued by theDepartment of AtomicEnergy under the AtomicEnergy Act, 1962.

100% FIPB Subject to sectoral regulationsand the Mines and Minerals(Development & Regulation) Act,1957 and the followingconditions-

i. value addition facilities are setup within India along with transferof technology;

ii. disposal of tailing during themineral separation shall becarried out in accordance withregulations framed by the AtomicEnergy Regulatory Board suchAtomic Energy (RadiationProtection) Rules 2004 and theAtomic Energy (Safe Disposal ofRadioactive Wastes) Rules 1987.

II B MANUFACTURING

6. Alcohol-

Distillation &

Brewing

100% Automatic Subject to license by appropriateauthority

7. Cigars &Cigarettes-Manufacture

100% FIPB Subject to industrial license underthe Industries (Development &Regulation) Act, 1951

8. Coffee& Rubberprocessing &

warehousing

100% Automatic

9. Defence

production

26% FIPB Subject to licensing underIndustries (Development &Regulation) Act, 1951 andguidelines on FDI in production ofarms & ammunition.

10. Hazardous

chemicals, viz.,

hydrocyanic acid

and its derivatives;

phosgene and its

derivatives; and

isocyanates and diisocyantesof hydrocarbon.

100% Automatic Subject to industrial license underthe Industries (Development &Regulation) Act, 1951 and othersectoral regulations.

11. Industrial

explosives -

Manufacture

100% Automatic Subject to industrial license underIndustries (Development &Regulation) Act, 1951 andregulations under Explosives Act,

1898


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12. Drugs & Pharmaceuticalsincluding those involving useof recombinant DNAtechnology

100% Automatic

II C POWER

13. Power including generation(except Atomic energy);transmission, distribution andPower Trading.

100% Automatic Subject to provisions of theElectricity Act, 2003www.powermin.nic.in

III SERVICES

14. CIVIL AVIATION SECTOR

(i) Airports-

a. Greenfield projects 100% Automatic Subject to sectoral regulationsnotified by Ministry of CivilAviation www civilaviation.nic. in

b. Existing projects 100% FIPB

beyond74%

Subject to sectoral regulations

notified by Ministry of CivilAviation www.civilaviation.nic. in

(ii) Air Transport Services including Domestic Scheduled Passenger Airlines; Non-SchedulesAirlines; Chartered Airlines; Cargo Airlines; Helicopter and Seaplane Services

c. Scheduled Air TransportServices/ Domestic ScheduledPassenger Airline

49%- FDI;100%- forNRIinvestttment

Automatic Subject to no direct or indirectparticipation by foreign airlinesand sectoral regulations..

d. Non-Scheduled Air TransportService/ Non-Scheduledairlines, Chartered airlines, andCargo airlines

74%- FDI

100%- forNRIsinvestment

Automatic Subject to no direct or indirectparticipation by foreign airlines inNon-Scheduled and Charteredairlines. Foreign airlines are allowedto participate in the equity ofcompanies operating Cargo airlines.

Also subject to sectoral regulationse. Helicopter Services/Seaplane

services requiring DGCAapproval

100% Automatic Foreign airlines are allowed toparticipate in the equity ofcompanies operating Helicopterand seaplane airlines. Alsosubject to sectoral regulations.

(iii) Other services under Civil Aviation Sector

f. Ground Handling Services 74%- FDI100%- forNRIsinvestment

Automatic Subject to sectoral regulationsand security clearance.

g. Maintenance and Repairorganizations; flying traininginstitutes; and technicaltraining institutions

100% Automatic

15. Asset

Reconstruction

Companies

49%

(onlyFDI)

FIPB Where any individual investmentexceeds 10% of the equity,provisions of Section 3(3)(f) ofSecuritization and Reconstructionof Financial Assets andEnforcement of Security InterestAct, 2002 should be compliedwith. www.finmin.nic.in

16. Banking -

Private sector

74%

(FDI+FII)

Automatic Subject to guidelines for settingup branches / subsidiaries offoreign banks issued by RBI.www.rbi.org.in


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17. Broadcasting

a. FM Radio FDI +FII

investment

up to 20%

FIPB Subject to Guidelines notified byMinistry of Information &Broadcasting. www.mib.nic.in

b. Cable network 49%

(FDI+FII)

FIPB Subject to Cable TelevisionNetwork Rules (1994) Notified byMinistry of Information &Broadcasting. www.mib.nic.in

c. Direct-To-Home 49% (FDI+FII).

Within this

limit, FDI componentnot to exceed 20%

FIPB Subject to guidelines issued byMinistry of Information &Broadcasting. www.mib.nic.in

d. Setting uphardware facilitiessuch as up-linking,HUB, etc

49% (FDI+FII) FIPB Subject to Up-linking Policynotified by Ministry of Information& Broadcasting. www.mib.nic.in

e. Up-linking a News& Current AffairsTV Channel

26% FDI+FII FIPB Subject to guidelines issued byMinistry of Information &Broadcasting. www.mib.nic.in

f. Up-linking a Non-news & CurrentAffairs TVChannel

100% FIPB Subject to guidelines issued byMinistry of Information &Broadcasting. www.mib.nic.in

18. CommodityExchanges

49% (FDI+FII)

Investment byRegistered FII underPIS will be limited to23% and

Investment under FDIScheme limited to26%.

FIPB FII purchases shall be restrictedto secondary market only.No foreign investor/entity,including persons acting inconcert, will hold more than 5% ofthe equity in these companies.

19. ConstructionDevelopmentprojects, including

housing, commercial

premises, resorts,

educationalinstitutions,recreational facilities,city and regional

level infrastructure,

townships.

Note:: FDI is notallowed in RealEstate Business

100% Automatic Subject to conditions notified videPress Note 2(2005 Series) including:a. minimum capitalization of US$10 million forwholly owned subsidiaries andUS$ 5 million for joint venture.The funds would have to bebrought within six months ofcommencement of business ofthe Company.

b. Minimum area to be developedunder each project- 10 hectaresin case of development ofserviced housing plots; and built-up area of 50,000 sq. mts. in caseof construction developmentproject; and any of the above incase of a combination project.[Note 1: For investment by NRIs,the conditions mentioned in PressNote 2 / 2005 are not applicable.Note 2: For investment in SEZs,Hotels & Hospitals, conditionsmentioned in Press Note 2(2005)

are not applicable]


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20. Courier services forcarrying packages,parcels and otheritems which do not

come within theambit of the IndianPost Office Act, 1898.

100% FIPB Subject to existing laws andexclusion of activity relating todistribution of letters, which isexclusively reserved for the State.

www.indiapost.gov.in

21. Credit InformationCompanies

49 % (FDI+FII)

Investment byRegistered FII underPIS will be limited to24% only in the CICslisted at the StockExchanges within theoverall limit of 49%foreign investment.

FIPB Foreign Investment in CIC will besubject to Credit InformationCompanies (Regulation) Act,2005.

FII investment will be subject tothe conditions that:(a) No single entity should directlyor indirectly hold more than 10%equity

(b) Any acquisition in excess of1% will have to be reported to RBIas a reporting requirement; and(c) FIIs investing in CICs shall notseek a representation on theBoard of Directors based upontheir shareholding.

22. Industrial Parks bothsetting up and inestablished IndustrialParks

100% Automatic Conditions in Press Note 2(2005)applicable for constructiondevelopment projects would notapply provided the IndustrialParks meet with the under-mentioned conditions-

i. it would comprise of a minimumof 10 units and no single unit shalloccupy more than 50% of theallocable area;ii. the minimum percentage of thearea to be allocated for industrialactivity shall not be less than 66%of the total allocable area.

23 Insurance 26% Automatic Subject to licensing by theInsurance Regulatory &Development Authoritywww.irda.nic.in

24. Investing companiesin infrastructure /

services sector(except telecomsector)

100% FIPB Where there is a prescribed capfor foreign investment, only thedirect investment will beconsidered for the prescribed capand foreign investment in aninvesting company will not be setoff against this cap provided theforeign direct investment in suchinvesting company does notexceed 49% and themanagement of the investingcompany is with the Indianowners.


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CHAPTER - I

25. Non Banking Finance Companies

i)ii)

iii)

iv)v)vi)vii)viii)ix)x)xi)xii)xiii)xiv)

xv)xvi)

xvii)xviii)

Merchant BankingUnderwriting PortfolioManagement Services

Investment AdvisoryServicesFinancial ConsultancyStock BrokingAsset ManagementVenture CapitalCustodial ServicesFactoringCredit Rating AgenciesLeasing & FinanceFinanceHousing FinanceForex Broking

Credit card BusinessMoney changingbusinessMicro creditRural credit

100% Automatic Subject to:a. minimum capitalization normsfor fund based NBFCs - US$

0.5 million to be brought upfrontfor FDI up to 51%; US$ 5 millionto be brought upfront for FDIabove 51% and up to 75%; andUS$ 50 million out of which US$7.5 million to be brought upfrontand the balance in 24 monthsfor FDI beyond 75% and up to100%.b. minimum capitalization normsfor non-fund based NBFCactivities- US$ 0.5 million.c. foreign investors can set up

100% operating subsidiarieswithout the condition todisinvest a minimum of 25% ofits equity to Indian entitiessubject to bringing in US$ 50million without any restriction onnumber of operatingsubsidiaries without bringingadditional capital.d. joint venture operatingNBFCs that have 75% or lessthan 75% foreign investmentwill also be allowed to set up

subsidiaries for undertakingother NBFC activities subject tothe subsidiaries also complyingwith the applicable minimumcapital inflow.e. compliance with theguidelines of the RBI.f. The minimum capitalizationnorms would apply would beapplicable where the foreignholding in a NBFC(both directand foreign holding in aNBFC(both direct and indirect)exceeds the limits indicated at

(a) aboveg. The capital for the purpose ofminimum capitalization normsshall consist of ordinary sharesonly.

26. Petroleum & Natural Gas sector

a. Refining 49% in caseof PSUs100% in caseof Privatecompanies

FIPB(in case ofPSUs)Automatic(in case ofprivate

companies)

Subject to Sectoral policywww.petroleum.nic.in and nodivestment or dilution of domesticequity in the existing PSUs.


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b. Other than Refining andincluding marketstudy and formulation;investment/financing; setting

up infrastructure formarketing in Petroleum &Natural Gas sector.

100% Automatic Subject to sectoral regulationsissued by Ministry of Petroleum &Natural Gaswww.petroleum.nic.in

27. Print Media

a. Publishing of newspaper andperiodicals dealing with newsand current affairs

26% FIPB Subject to Guidelines notified byMinistry of Information &Broadcasting. www.mib.nic.in

b. Publishing of scientificmagazines/specialtyjournals/ periodicals

100% FIPB Subject to guidelines issued byMinistry of Information &Broadcasting. www.mib.nic.in

28. Telecommunications

a. Basic and cellular, UnifiedAccess Services, National/

International Long Distance, V-Sat, Public Mobile RadioTrunkedServices (PMRTS),

Global Mobile PersonalCommunications Services(GMPCS) and other valueadded telecom services

74%(Including

FDI, FII, NRI,FCCBs,ADRs,GDRs,convertible

preferenceshares, andproportionateforeign equity

in Indianpromoters/InvestingCompany)

Automaticup to

49%.FIPB

beyond49%.

Subject to guidelines notified inthe PN 3(2007)

b. ISP with gateways, radio-paging, end-to- end bandwidth.

74% Automatic

up to49%.

FIPB

beyond

49%.

Subject to licensing and securityrequirements notified by the Dept.of Telecommunications.

www.dotindia.com

c. (a) ISP without gateway, (b)infrastructure provider providingdark fibre, right of way, ductspace, tower (Category I); (c)electronic mail and voice mail

100% Automatic

up to49%.

FIPB

beyond

49%.

Subject to the condition that suchcompanies shall divest 26% oftheir equity in favour of Indianpublic in 5 years, if thesecompanies are listed in otherparts of the world. Also subject tolicensing and securityrequirements, where required.

www.dotindia.com

d. Manufacture of telecomequipments

100% Automatic Subject to sectoral requirements.www.dotindia.com


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CHAPTER - I

Automatic route subject to sectoral rules/ regulations applicable.

III. Prior Government approval for FDI required in the following circumstances:

i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted;

ii) where more than 24% foreign equity is proposed to be inducted for manufacture of itemsreserved for the Small Scale sector.

29. Trading

a.

b.c.

d.

e.

Wholesale/cash & carry trading

Trading for exportsTrading of itemssourced from small scale sectorTest marketing of such itemsfor which a company hasapproval for manufactureSingle Brand product retailing

100%

100%100%100%51%

Automatic

AutomaticFIPBFIPBFIPB

Subject to the condition that the

test marketing approval will be fora period of two years and Investment in setting upmanufacturing facilitiescomomences simultaneously withtest marketing.Subject to guidelines for FDI intrading issued by Department ofIndustrial Policy & Promotion videPress Note 3 (2006 Series).

30. Satellites -

Establishment

and operation

74% FIPB Subject to Sectoral guidelinesissued by Department ofSpace/ISRO

www.isro.org

31. Special Economic Zones andFree Trade WarehousingZones covering

setting up of these Zones andsetting up units in the Zones

100% Automatic Subject to Special EconomicZones Act, 2005 and the ForeignTrade Policy.

www.sezindia.nic.in


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BOX 1.2


GUIDELINES FOR FOREIGN INVESTMENT IN COMMODITY EXCHANGES

Government of India had laid the guidelines for foreign investment in Commodity Exchanges

vide Press Note 2(2008) dated 12th March 2008. As per the guidelines, a composite ceiling for

foreign investment of 49% was allowed with prior Government approval subject to the condition that

investment under the Portfolio Investment Scheme will be limited to 23% and that under the FDI

Scheme will be limited to 26%. Further no foreign investor/entity including persons acting in concert

will hold more than 5% of the equity in these companies.

2. It has been brought to the notice of the Government that some of the existing Commodity

Exchanges had foreign investment above the permitted level as on the date of issue of the said

Press Note.

3. In order to facilitate the existing Commodity Exchanges to comply with the guidelines notified

vide Press Note 2(2008), it has now been decided to allow a transition / complying/correction time to

the existing Commodity exchange(s). The Commodity Exchange(s) would be required to divest foreign

equity equal to the amount by which the cap was being exceeded in accordance with Press Note

2(2008). Accordingly, all such Commodity Exchanges are hereby advised to adhere to the conditionsof Press Note 2(2008) by 30.6.2009.

4. All Commodity Exchanges shall furnish a compliance report informing the foreign investment

in the Commodity Exchange as on 30.6.2009, along with details of equity structure, to the Department

of Industrial Policy & Promotion, Department of Consumer Affairs, Foreign Investment Promotion

Board, the Forward Market Commission and SEBI.

5. Non-compliance of the conditions of Press Note 2(2008) after 30.6.2009 would be a violation

of the Foreign Exchange Management Act, 1999.

(Gopal Krishna)

Joint Secretary to the Government of India.

D/o IPP F.No. 12(58)/2005-FC dated 19th August 2008


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CHAPTER - I

BOX 1.3


FOREIGN INVESTMENT IN PRINT MEDIA DEALING WITH NEWS AND CURRENT AFFIARS

On a review of the extant policy on Foreign Direct Investment, Government of India has decided to

allow foreign investment in publication of facsimile edition of foreign newspapers and Indian edition

of foreign magazines dealing with news and current affairs as under.

2. Policy for foreign direct investment (FDI) in publication of facsimile edition of foreign

newspapers

2.1 FDI up to 100% is permitted with prior approval of the Government in publication of facsimile

edition of foreign newspapers provided the FDI is by the owner of the original foreign

newspaper(s) whose facsimile edition is proposed to be brought out in India.

2.2 Publication of facsimile edition of foreign newspapers can be undertaken only by an entity

incorporated or registered in India under the provisions of the Companies Act, 1956.

2.3 Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for

publication of newspapers and periodicals dealing with news and current affairs and publication

of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on

31.3.2006, as amended from time to time.

3. Policy for foreign investment in publication of Indian editions of foreign magazinesdealing with news and current affairs.

3.1 Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26%, is permitted

with prior approval of the Government.

3.2 Magazine, for the purpose of these guidelines, will be defined as a periodical publication,

brought out on non-daily basis, containing public news or comments on public news.

3.3 Foreign investment would also be subject to the Guidelines for Publication of Indian editions of

foreign magazines dealing with news and current affairs issued by the Ministry of Information &

Broadcasting on 4.12.2008.

4. FDI Policy announced vide Annex to Press Note 7(2008) dated 16th

June 2008 against entry No.

27 stands amplified to the above extent.

GOPAL KRISHNA


F.No. 9(6)/2008-FC dated 14th

January, 2009.


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BOX 1.4


GUIDELINES FOR CALCULATION OF TOTAL FOREIGN INVESTMENT i.e. DIRECT AND INDIRECT

FOREIGN INVESTMENT IN INDIAN COMPANIES

Investment in Indian companies can be made both by non-resident as well as resident Indian

entities. Any non-resident investment in an Indian company is direct foreign investment. Investment

by resident Indian entities could again comprise of both resident and non-resident investment. Thus,

such an Indian company would have indirect foreign investment if the Indian investing company has

foreign investment in it. The indirect investment can be a cascading investment i.e. through multi-

layered structure also.

2.0 The method of calculation of total foreign investment in an Indian company including indirect

foreign investment through other Indian companies has been detailed out in entry 10 of Press Note

2(2000), Press Note 1(2006), Press Note 3(2007) and entry 24 of Press Note 7 (2008). The

methodology for some sectors is also separately contained in either sectoral regulations or rules

and regulations under specific statutes. Essentially the present FDI guidelines provide for three

different regimes for calculation of Indirect Foreign Equity-

2.1 Proportionate method is used in Telecom/ Broadcasting sectors through Press Note 5 of

2005 (modifying Press Note 2 of 2000), Press Note 1(2006) and Press Note 3(2007)

2.2 Insurance: outlined in IRDA regulations (IRDA (Registration of Indian Insurance Companies)

Regulations, 2000) and

2.3 In all other sectors, for an investing company in the infrastructure / service sector attracting

equity caps, indirect equity is calculated as was given in Press Note 2 of 2000 : Investing companies

in infrastructure/service sectors (entry no. 10). This policy was reiterated by Press Note 4 of 2006(Entry

no.18) which was modified by a Press release dated November 13, 2006 and Press Note 7(2008)

(entry 24). According to this, foreign investment in an investing company will not be set off againstthis cap where the foreign equity in the investing company does not exceed 49% and the Management

of the investing company is with Indian owners. FIPB approval is required by Investing Companies for

downstream investment.

3.0 Recognising the need to bring in clarity, uniformity, consistency and homogeneity into the

exact methodology of calculation across sectors/activities for all direct and indirect foreign investment

in Indian companies, Government of India now proposes to issue the following guidelines for calculation

of direct and indirect foreign investment.


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CHAPTER - I

4.0 Definitions:

4.1For the purpose of computation of indirect Foreign investment, Foreign Investment in Indian

company shall include all types of foreign investments i.e. FDI, investment by FIIs(holding as on

March 31), NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and convertible

preference shares, convertible Currency Debentures regardless of whether the said investments

have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons

Resident Outside India) Regulations.

4.2 The term Resident Indian Citizen shall be interpreted in line with the definition of person resident

in India as per FEMA, 1999, read in conjunction with the Indian Citizenship Act.

4.3 A non resident entity means a person resident outside India as defined under FEMA 1999.

4.4 The term Indian Company means a company registered or incorporated in India as per the

Indian Companies Act, 1956.

4.5 Investing Company means an Indian Company making equity/preference/CCD investment into

another Indian Company.

4.6 Holding Company would have the same meaning as defined in Indian Companies Act 1956.

5.0 Guidelines for calculation of total foreign investment i.e. direct and indirect foreign

investment in an Indian company.

5.1 Counting the Direct Foreign Investment:

5.1.1. All investment directly by a non-resident entity into the Indian company would be counted

towards foreign investment.

5.2 Counting of indirect foreign Investment:

5.2.1 The foreign investment through the investing Indian company would not be considered for

calculation of the indirect foreign investment in case of Indian companies which are owned and

controlled by resident Indian citizens and/or Indian Companies which are owned and controlled by

resident Indian citizens.


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For this purpose, an Indian company may be taken as being:

owned by resident Indian citizens and Indian companies, which are owned and controlled by

resident Indian citizens, if more than 50% of the equity interest in it is beneficially owned by resident

Indian citizens and Indian companies, which are owned and controlled ultimately by resident Indian

citizens; and

controlled by resident Indian citizens and Indian companies, which are owned and controlled by

resident Indian citizens, if the resident Indian citizens and Indian companies, which are owned and

controlled by resident Indian citizens, have the power to appoint a majority of its directors .

5.2.2 For cases where condition 5.2.1 above is not satisfied or if the investing company is owned or

controlled by non resident entities, the entire investment by the investing company into the subjectIndian Company would be considered as indirect foreign investment,

5.2.2.1 Provided that, as an exception, the indirect foreign investment in only the 100% owned

subsidiaries of operating-cum-investing/investing companies, will be limited to the foreign investment

in the operating-cum-investing/ investing company. For the purposes of explanation, it is clarified

that this exception is being made since the downstream investment of a 100% owned subsidiary of

the holding company is akin to investment made by the holding company and the downstream

investment should be a mirror image of the holding company.

5.2.2.2 For the above purpose, an Indian company may be taken as being:

owned by non resident entities, if more than 50% of the equity interest in it is beneficially owned

by non-residents

controlled by non resident entities, if non-residents have the power to appoint a majority of its

directors

5.2.2.3 Illustration

To illustrate, if the indirect foreign investment is being calculated for Company A which has investment

through an investing company B having foreign investment, the following would be the method of

calculation:

(ii) where Company B has foreign investment of say 75% and:

a. invests 26% in Company A, the entire 26% investment by Company B would be treated as indirect

foreign investment in Company A;


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CHAPTER - I

b. Invests 80% in Company A, the indirect foreign investment in Company A would be taken as 80%

c. where Company A is a wholly owned subsidiary of Company B (i.e. Company B owns 100% shares

of Company A), then only 75% would be treated as indirect foreign equity and the balance 25%

would be treated as resident held equity. The indirect foreign equity in Company A would be computed

in the ratio of 75: 25 in the total investment of Company B in Company A.

5.3 The total foreign investment would be the sum total of direct and indirect foreign investment.

5.4 The above methodology of calculation would apply at every stage of investment in Indian

Companies and thus to each and every Indian Company.

5.5 Additional conditions:

5.5.1 The full details about the foreign investment including ownership details etc. in Indian company(s)

and information about the control of the company(s) would be furnished by the Company(s) to the

Government of India at the time of seeking approval.

5.5.2 In any sector/activity, where Government approval is required for foreign investment and in

cases where there are any inter-seagreements between/amongst share-holders which have an

effect on the appointment of the Board of Directors or on the exercise of voting rights or of creating

voting rights disproportionate to shareholding or any incidental matter thereof, such agreements will

have to be informed to the approving authority. The approving authority will consider for determiningownership and control such inter-seagreements when considering the case for granting approval

for foreign investment.

5.5.3 In all sectors attracting sectoral caps, the balance equity i.e. beyond the sectoral foreign

investment cap, would specifically be beneficially owned by/held with/in the hands of resident Indian

citizens and Indian companies, owned and controlled by resident Indian citizens.

5.5.4 In the I& B and Defense sectors where the sectoral cap is less than 49%, the company would

need to be owned and controlled by resident Indian citizens and Indian companies, which are owned

and controlled by resident Indian citizens.

5.5.4.1 For this purpose, the equity held by the largest Indian shareholder would have to be at least

51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial

Institutions, as defined in Section 4A of the Companies Act, 1956. The term largest Indian shareholder,

used in this clause, will include any or a combination of the following:

(i) In the case of an individual shareholder,

(a) The individual shareholder,


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(b) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956.

(c) A company/ group of companies in which the individual shareholder/HUF to which he belongs has

management and controlling interest.

(ii) In the case of an Indian company,

(a) The Indian company

(b) A group of Indian companies under the same management and ownership control.

5.5.4.2 For the purpose of this Clause, Indian company shall be a company which must have a

resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either

singly or in combination holding at least 51% of the shares.

5.5.4.3 Provided that, in case of a combination of all or any of the entities mentioned in Sub-Clauses(i) and (ii) of clause 5.5.4.1 above, each of the parties shall have entered into a legally binding

agreement to act as a single unit in managing the matters of the applicant company.

5.5.5 If a declaration is made by persons as per section 187C of the Indian Companies Act about a

beneficial interest being held by a non resident entity, then even though the investment may be

made by a resident Indian citizen, the same shall be counted as foreign investment.

6.0 The above mentioned policy and the methodology would be applicable for determining the total

foreign investment in all sectors, excepting in sectors where it is governed specifically under anystatutes or rules thereunder. Thus, for the present purposes this methodology will not be applicable

in the Insurance Sector where it will continue to be governed by the relevant Regulation.

7.0 Policy for downstream investment by investing companies:

Based on the above methodology for calculation of total foreign investment in Indian companies, the

policy on downstream investment-i.e. for only operating companies, operating-cum-investing

companies, investing companies and for holding companies without any downstream investment and

operations would be notified separately in amendment to Press Note 3 of 1997, Press Note 9 of

1999, entry 10 under Press Note 2 of 2000, entry 18 under Press Note 4 of 2006 as amended by the

Press release dated 13th November, 2006, and entry 24 of Press Note 7(2008).

8.0 Any foreign investment already made in accordance with the guidelines in existence prior to

issue of this Press Note would not require any modification to conform with these guidelines. All other

investments, past and future, would come under the ambit of these new guidelines.

8.1 Any violation of these guidelines and noncompliance would be a violation under FEMA 1999 and

would lead to action under the relevant regulations under the Act.


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CHAPTER - I

9.0 Entry 10 under Press Note 2(2000), entry 18 under Press Note 4(2006), as amended by the

Press Release dated 13th

November 2006 and entry 24 under Press Note 7(2008) stand deleted.

10.0 The relevant entry pertaining to calculation of foreign equity of the applicant company under

paragraph 2(c) of Press Note 1 of 2006 and paragraph 2.A.(ii) of Press Note 3 of 2007 stand deleted.

11.0 These guidelines will be effective from the date of issue of this Press Note.

GOPAL KRISHNA


D/o IPP F.No. 12/22/2007-FC dated the 13 th February 2009


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BOX 1.5


GUIDELINES FOR TRANSFER OF OWNERSHIP FOR TRANSFER OF OWNERSHIP OR

CONTROL OF INDIAN COMPANIES IN SECTORS WITH CAPS FROM RESIDENT

INDIAN CITIZENS TO NON-RESIDENT ENTITIES

At present, the transfer of shares from residents to non-residents, including acquisition of shares

in an existing company, is on the automatic route, subject to the sectoral policy on FDI. Concerns

have been raised on recent acquisitions of certain Indian companies by non-resident entities in

sectors with caps. Accordingly, guidelines for transfer of ownership or control of Indian companies

in sectors with caps from resident Indian citizens to non-resident entities have been formulated

and are enumerated below.

2.0 Definitions:

2.1 The term Resident Indian Citizen shall be interpreted in line with the definition of person

resident in India as per FEMA, 1999, read in conjunction with the Indian Citizenship Act.

2.2 A non resident entity means a person resident outside India as defined under FEMA 1999.

2.3 The term Indian Company means a company registered or incorporated in India as per the

Indian Companies Act, 1956.

2.4 For the purpose of these guidelines, an Indian company may be taken as being:

owned by resident Indian citizens and Indian companies, which are owned and controlled by

resident Indian citizens, if more than 50% of the equity interest in it is beneficially owned by resident

Indian citizens and Indian companies, which are owned and controlled ultimately by resident Indian

citizens;

controlled by resident Indian citizens and Indian companies, which are owned and controlled

by resident Indian citizens, if the resident Indian citizens and Indian companies, which are owned

and controlled by resident Indian citizens, have the power to appoint a majority of its directors.

2.5 Further, for the above purpose, an Indian company may be taken as being:

owned by non resident entities, if more than 50% of the equity interest in it is beneficially

owned by non-residents


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CHAPTER - I

controlled by non resident entities, if non-residents have the power to appoint a majority of

its directors.

2.6 Foreign investment shall include all types of foreign investments i.e. FDI, investment by FIIs,

NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and convertible preference shares,

regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of

FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

3.0 Guidelines for transfer of ownership or control of Indian companies in sectors with

caps from resident Indian citizens to non-resident entities in sectors with caps:

3.1 In sectors with caps, including interaliadefence production, air transport services, groundhandling services, asset reconstruction companies, private sector banking, broadcasting, commodity

exchanges, credit information companies, insurance, print media, telecommunications and satellites,

Government approval/FIPB approval would be required in all cases where:

3.1.1 An Indian company is being established with foreign investment and is owned by a non-

resident entity or

3.1.2 An Indian company is being established with foreign investment and is controlled by a non-

resident entity or

3.1.3 The control of an existing Indian company, currently owned or controlled by resident Indian

citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is

being transferred/passed on to a non-resident entity as a consequence of transfer of shares to

non-resident entities through amalgamation, merger, acquisition etc. or

3.1.4 The ownership of an existing Indian company, currently owned or controlled by resident

Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will

be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares

to non-resident entities through amalgamation, merger, acquisition etc.

3.2 It is clarified that these guidelines will not apply for sectors/activities where there are no foreign

investment caps, that is, 100% foreign investment is permitted under the automatic route.


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4.0 These guidelines will issue in modification of paragraph 2(e) of Press Note 4 of 2006 and will be

effective from the date of issue of this Press Note. FDI policy announced vide Annex to Press Note7(2008) dated 16

th

June 2008 stands amplified to the above extent.

GOPAL KRISHNA


D/o IPP F.No. 12/22/2007-FC dated the 13th

February 2009


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CHAPTER - I

BOX 1.6


CLARIFICATORY GUIDELINES ON DOWNSTREAM INVESTMENT BY INDIAN COMPANIES

The Policy for downstream investment by Indian companies seeks to lay down and clarify about

compliance with the Foreign investment norms on entry route, conditionalities and sectoral caps.

The guiding principle is that downstream investment by companies owned or controlled by non

resident entities would require to follow the same norms as a direct foreign investment i.e. only as

much can be done by way of indirect foreign investment through downstream investment in terms of

Press Note 2 (2009 series) as can be done through direct foreign investment and what can be done

directly can be done indirectly under same norms.

2.0 The Guidelines for calculation of total foreign investment, both direct and indirect in an Indian

company, at every stage of investment, including downstream investment, have been detailed in

Press Note 2 of 2009 which enables determination of total foreign investment in any/all Indian

Companies.

3.0 Definitions:

3.1 The term Indian Company means a company registered or incorporated in India as per theIndian Companies Act, 1956

3.2 Operating Company is an Indian company which is undertaking operations in various economic

activities and sectors.

3.3 Downstream investment means indirect foreign investment by one Indian company into another

Indian company by way of subscription or acquisition in terms of Press Note 2 of 2009. Para 5.2 of

the said Press Note provides the guidelines for calculation of indirect foreign investment with conditions

specified in para 5.5.

3.4 Investing Company means an Indian Company holding only investments in another Indian

company, directly or indirectly, other than for trading of such holdings/securities.

3.5 Foreign Investment would have the same meaning as in Press Note 2 (2009 series).


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4.0 Guidelines for downstream investment by Investing Indian Companies owned or

controlled by non resident entities as per Press Note 2 of 2009: Recognizing the need to

bring in clarity into the Policy for downstream investment by investing Indian companies, the

Government of India now proposes to clarify the policy in this regard.

4.1 The Policy on downstream investment comprises policy for (a) only operating companies (b)

operating-cum-investing companies (c) only investing companies.

4.2 The Policy in this regard will be as below:

4.2.1 Only operating companies: Foreign investment in such companies would have to comply with

the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in

which such companies are operating.

4.2.2 Operating-cum-investing companies: Foreign investment into such companies would have to

comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to

the sectors in which such companies are operating. Further, the subject Indian companies into which

downstream investments are made by such companies would have to comply with the relevant sectoral

conditions on entry route, conditionalities and caps in regard of the sector in which the subject Indian

companies are operating.

4.2.3 Investing companies: Foreign Investment in Investing Companies will require the priorGovernment/FIPB approval, regardless of the amount or extent of foreign investment. The Indian

companies into which downstream investments are made by such investing companies would have

to comply with the relevant sectoral conditions on entry route, conditionalities and caps in regard of

the sector in which the subject Indian companies are operating.

5.0 For companies which do not have any operations and also do not have any downstream

investments, for infusion of foreign investment into such companies, Government/FIPB approval

would be required, regardless of the amount or extent of foreign investment. Further, as and when

such company commences business(s) or makes downstream investment it will have to comply with

the relevant sectoral conditions on entry route, conditionalities and caps.

6.0 For Operating-cum- investing companies and investing companies (Para 4.2.2, 4.2.3) and for

companies as per para 5.0 above, downstream investments can be made subject to the following

conditions:

(a) Such company is to notify SIA, DIPP and FIPB of its downstream investment within 30 days of

such investment even if equity shares/CCPS/CCD have not been allotted along with the modality of

investment in new/existing ventures (with/without expansion programme);


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CHAPTER - I

(b) downstream investment by way of induction of foreign equity in an existing Indian Company to be

duly supported by a resolution of the Board of Directors supporting the said induction as also a

shareholders Agreement if any;

(c) issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;

(d) Investing companies would have to bring in requisite funds from abroad and not leverage funds

from domestic market for such investments. This would, however, not preclude downstream operating

companies to raise debt in the domestic market.

7.0 Para 11 of Press Note 3 of 1997 and Press Note 9 of 1999 stand deleted. These guidelines will

be effective from the date of issue of this Press Note. FDI Policy announced vide Annex to Press Note

7 (2008) dated June 16, 2008 stands amplified to the above extent.

GOPAL KRISHNA


D/o. IPP File No. 12(22)/2007-FC Dated 25th

February, 2009


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Chapter 1 Industry Policy_2008-09

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