The process of reforms as part of liberalization has resulted in greater investment in Indian economy. Government policies have become investment friendly and paper work reduced. The capital markets have also been able to receive huge inflow of funds. The Indian economy today is ready to face the competition from overseas market and International investors see India has a potential market for excellent return on investment.

Policy Changes:

Industrial Policy

The Indian government has ushered in a policy of reforms to bring about accelerated economic growth. The government has removed the requisition of industrial license except for certain sectors, simplified the procedure for investment and opened the market for foreign technology.

Industrial licensing

The following industries require Industrial license.

• Public Sector enterprises.
• Industries retained under compulsory licensing.
• Manufacturing of products reserved for small scale sector.

Foreign Investment Policy

Foreign investment policy is allowed in almost all sectors, except certain sectors like defense and rail transport. International investors are given permission to set up 100 per cent subsidiaries in India. No prior permission from RBI is required. The investment should be within the set guidelines and within a given timeframe. This policy is applicable only for new investments and not for purchase of equity from existing owners of equity. This procedure is also known as “automatic approval route”.

Foreign Investment Promotion Board (FIPB)

The government set up the FIPB to encourage inflows of FDI into the country, to simplify the process for investment and to recommend initiatives to be taken for foreign investment.

Secretariat For Industrial Assistance (SIA)

The SIA reports to the Department Of Industrial Policy and Promotion in the Ministry Of Commerce & Industry to establish a single window clearance for new business initiative, investor facilitation, receiving and processing applications, make policy decisions with respect to investment and technology and accumulate and publish data for a few industries.

Automatic Approval Route and FIPB Route

Any foreign investment into India is guided by the Foreign Direct Investment (FDI) policy of the Government of India and the Foreign Exchange Management Act 1999(FEMA).Post reforms the Government has done away with the prerequisites for approval from government for fresh investments, though the policy still continues for investments in certain specified sectors.

To encourage investment and to coordinate with the industry for infrastructure development, a new cell called the “Investment Promotion and Infrastructure Development Cell “has been setup.

New Ventures

All FDI investment by NRI’s up to 100 per cent comes within the purview of Automatic Route, except in those sectors where prior government permission is required. An investor can then make an application to the FIPB and not make use of the automatic route.

Investments in public sector units, units located in Export Oriented Units (EOU).Export Processing Zones (EPZ), Special Economic Zones (SEZ), Electronic Hardware Technology Parks (EHTP) and Software Technology Parks (STP) would be eligible for the automatic route.

FIPB Route

For the following government approval for FDI/NRI/OCB through the FIPB would be necessary:

• All application requiring an Industrial License.
• All application wherein the foreign collaborator has an already existing joint venture in India, in the same or associated field.
• All proposals for purchase of shares in the existing Indian company.
• Other Modes Of Foreign Direct Investments
• Global Depository Receipts (GDR), American Deposit Receipts (ADR)/Foreign Currency Convertible Bonds (FCCB).
• Indian companies are authorized to generate equity capital in the International market by issuing GDRs/ADRs/FCCBs. There are no caps on investment. An applicant company should have a consistent performance for a minimum period of 3 years.
• There is no limit on the number of GDRs/ADRs/FCCBs a company can issue in a given financial year.

State Level Project Implementation

The State level organizations present for assisting investment are:

• Investment Promotion Agencies (IPA).
• State Industrial Development Corporation (SIDC).
• Small Scale Industries Development Corporation (SSIDC).
• State Financial Corporation (SFC).
• District Industries Centre (DIC).
• Single Window Service And Escort Service.