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Policy for downstream investment
by Investing Indian Companies
The guidelines clarify the need for obtaining government/FIPB
approval (or otherwise) for foreign investment into
Indian companies, which can be either:
- Operating companies; or
- Investing companies; or
- Operating-cum-investing companies; or
- Neither of the above
- It has been clarified that operating companies,
as well as operating-cum-investing companies, need
to comply with relevant sectoral conditions on entry
route, conditionalities and sectoral caps.
- Investing companies, as well as companies which
are neither investing nor operating companies, require
prior Government/FIPB approval for infusion of foreign
investment, regardless of the amount or extent of
foreign investment.
- Downstream investments by investing companies, as
well as operating-cum-investing companies, would need
to comply with relevant sectoral conditions on entry
route, conditionalities and sectoral caps.
Foreign Direct Investment
(FDI) into a Small Scale Industrial Undertaking
(SSI)/ Micro & Small Enterprises (MSE) and
in Industrial Undertaking manufacturing items
reserved for SSI/ MSEclarification
It has been clarified that:
- The present policy on Foreign Direct Investment
(FDI) in micro and small enterprises (MSE) permits
FDI subject only to the sectoral equity caps, entry
routes ,and other relevant sectoral regulations.
- Any industrial undertaking, with or without Foreign
Direct Investment (FDI) which is not a micro and small
enterprises (MSE), manufacturing items reserved for
manufacture in the MSE sector (presently 21 items)
as per the Industrial Policy, would require an Industrial
Licence under the Industries (Development & Regulation)
Act 1951, for such manufacture. Such an industrial
undertaking would also require prior approval of the
Government (FIPB) where foreign investment is more
than 24 percent in the equity capital.
Liberalization of Foreign
Technology Agreement Policy
The Government of India has reviewed the payment of
royalties under Foreign Technology Collaboration, which
provides for automatic approval for foreign technology
transfers involving payment of lumpsum fee of US$ 2
million and payment of royalty of 5 percent on domestic
sales and 8 percent on exports. Now, Government of India
has decided to permit payment for royalty, lumpsum fee
for transfer of technology and payments for use of trademark/brand
name on the automatic route i.e. without any approval
of the Government of India. All such payments will be
subject to Foreign Exchange Management (Current Account
Transactions) Rules, 2000, as amended from time to time.
Review of cases under Government
Route i.e which require prior approval of the
Government of India for making foreign investment
Proposals for foreign investment under Government route
i.e. requiring prior approval from the Government of India
as laid down in the FDI policy from time to time, are
considered by the Foreign Investment Promotion Board
(FIPB) in Department of Economic Affairs (DEA), Ministry
of Finance.
The Government of India has reviewed the extant policy
and it has been decided,that the following approval
levels shall operate for proposals involving Foreign
Direct Investment under the Government route i.e. requiring
prior Government approval:
(a) 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 US$ 254.9 million (Rs.1200
crore).
(b) The recommendations of FIPB on proposals with total
foreign equity inflow of more than US$ 254.9 million
(Rs. 1200 crore) would be placed for consideration of
Cabinet Committee on Economic Affairs (CCEA).The FIPB
Secretariat in DEA will process the recommendations
of FIPB to obtain the approval of Minister of Finance
and CCEA.
(c) The CCEA would also consider the proposals which
may be referred to it by the FIPB/ the Minister of Finance
(in-charge of FIPB).
It has also been decided that 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:
(a) Cases of entities whose activities had earlier
required prior approval of Foreign Investment Promotion
Board (FIPB)/Cabinet Committee on Foreign Investment
(CCFI)/Cabinet Committee on Economic Affairs (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;
(b) Cases of entities whose activities had sectoral
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 alongwith the
initial/original investment does not exceed the sectoral
caps; and
(c) 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.
Useful Weblinks
Department of Industrial Policy & Promotion
Reserve Bank of India
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