Openness to Foreign Investment
Post-independence scenario
India's post-independence economic policy combined a vigorous
private sector with state planning and control, treating foreign
investment as a necessary evil. Prior to 1991, foreign firms were
allowed to enter the Indian market only if they possessed technology
unavailable in India. Almost every aspect of production and
marketing was tightly controlled, and many of the foreign companies
that came to India eventually abandoned their projects.
New policies
The industrial policy announced in July 1991 was vastly simpler,
more liberal and more transparent than its predecessors, and it
actively promoted foreign investment as indispensable to India's
international competitiveness. The new policy permits automatic
approval for foreign equity investments of up to 51 percent, so long
as these investments are made in one of 35 "high priority"
industries that account for the lion's share of industrial activity.
Hassles earlier
Prior to 1991, foreign equity participation was limited to 40
percent, and foreign investors were saddled by numerous operating
constraints. Foreign equity investments in excess of 51 percent, or
those which fall outside the specified "high priority"
areas, must be approved by the Foreign Investment Promotion Board
(FIPB) and approved by a Cabinet Committee.
Constraints: too many
The government on occasion has denied requests for a foreign equity
stake exceeding 51 percent. Non-resident Indians (NRI's) and
Overseas Corporate Bodies (firms with NRI majority ownership) may
hold 100 percent ownership in all industries except those reserved
for the public sector.
These reserved industries are:
- arms,
- ammunition and defense
equipment;
- atomic energy;
- mineral oils;
- minerals used in atomic energy;
and
- railway transport.
Improved
conditions
To allow more NRI investments, the GOI recently allowed
repatriation of investment in all activities, except agriculture and
plantations, subject to certain conditions. As of June 1995, NRIs
and OCBs may invest on a repatriable basis in new issues of
shares/debentures only of industrial or manufacturing companies.
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