Channel: Policy

Monday, June 21, 2010
Government raises foreign investments threshold
India is riding high on the successful recovery of the economy after the downturn in the late 2008.
 
 

India is riding high on the successful recovery of the economy after the downturn in the late 2008. Not only India but the global sentiment is that of hope and high expectations. India is among the world’s top three preferred investment destinations, but FDI caps and strict rules limit the foreign investments to an extent. In such a scenario, the Indian government is trying to cash in on the increased appetite of the foreign investors who are now scouting for a safe and profitable investment destination. The stable Indian political scenario and sound economic conditions provide just that to them. India is currently ranked 13th in terms of foreign investment flows and the investments have increased 15 times since 2000. But this is just the beginning of the growth as far as the Indian economy and the Indian government is concerned.

 

To facilitate and increase the amount of Foreign Direct Investment (FDI) in the country, the Indian government has approved a proposal to review the policy of approvals for foreign investment. The following approval levels shall operate for proposals involving FDI under the Government route i.e. requiring prior Government approval:

 

  1. The Minister of Finance who is in-charge of (Foreign Investment Promotion Board) FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs.12 billion (US$ 258.3 million).
  2. The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 1200 billion would be placed for consideration of Cabinet Committee on Economic Affair (CCEA). The FIPB Secretariat in DEA will process the recommendations of FIPB to obtain the approval of Minister of Finance and CCEA.
  3. The CCEA would also consider the proposals which may be referred to it by the FIPB/ the Minister of Finance (in-charge of FIPB).
  4.  

    These new guidelines would increase investments in India by ensuring that the investors find it easy to invest in India and those who have already invested; they find it easy to extend their investment to suit their appetite in a faster way. As per the earlier rule, proposals with total project cost of up to Rs. 6 billion (US$ 129.2 million) were approved by the Finance Minister and proposals above that were looked into by the CCEA. These proposals also had to be first recommended by the FIPB, under the ministry of finance.

     

    There is also a provision for people companies which need not require fresh approval. Companies may not require fresh prior approval of the Government i.e. Minister in-charge of FIPB/CCEA for bringing in additional foreign investment into the same entity, in the following cases:

     

    1. Cases of entities whose activities had earlier required prior approval of FIPB/CCFI/CCEA and who had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such activities/sectors have been placed under automatic route;
    2. Cases of entities whose activities had sectorial caps earlier and who had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such caps were removed/increased and the activities placed under the automatic route; provided that such additional investment along with the initial/original investment does not exceed the sectorial caps.
    3. The cases of additional foreign investment into the same entity where prior approval of FIPB/CCFI/CCEA had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI policy is not required for any other reason/purpose.

     

    All the new policy changes are going to make it easier to invest money into India. Companies that have already invested in India would find it much easier to infuse more money into the ventures (till Rs. 12 billion) without seeking fresh approvals. Hence it would help the Indian government in battling the rising fiscal deficit that the government is facing. This new change will see a new wave of investments in India and would be seen as a positive signal to investors all across the globe looking for a safer investment destination. In other words, increased investment would strengthen the strong feeling about the Indian economy and more investments would follow.

     

    Press Note 18/ 1998 contains the guidelines pertaining to approval of foreign financial or technical collaborations under the automatic route with previous ventures or tie-ups in India. According to these guidelines, foreign financial or technical collaborators who have or had any previous joint ventures or technology transfer or trademark agreement in India require prior government approval to set up a new venture or enter into new technology transfer agreement (including trademark) in the same or allied field.

     

    Press Note 18/ 1998 contains the new proposals for foreign investment where the foreign investor has or had any previous joint venture or technology transfer/ trademark agreement in the same or allied field in India. It was issued after the review of Press Note 18/ 1998.

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