India's Foreign Investment Policy
Foreign Investment Policy:The Ministry of Industry has expanded the list of industries eligible for automatic approval of foreign investments and, in certain cases, raised the upper level of foreign ownership from 51 percent to 74 percent and further in certain cases to 100 percent. In January 1998, the RBI announced simplified procedures for automatic FDI approvals. The announcement further provided that Indian companies will no longer require prior clearances from the RBI for inward remittances of foreign exchange or for the issuance of shares to foreign investors.
Facilitating foreign investment
In the recent budget, the finance minister announced the government's commitment to a 90-day period for approving all foreign investments. Government officers will be assigned to larger foreign investment proposals and will facilitate Central and State clearances in a time-bound manner. Unlisted companies with a good 3 year track record, have been permitted to raise funds in international markets through the issue of Global Depository Receipts (GDRs) and American Depository Receipts (ADRs).
A number of recent policy changes have reduced the discriminatory bias against foreign firms.
* The government has amended exchange control regulations previously applicable to companies with significant foreign participation.
* The ban against using foreign brand names/trademarks has been lifted.
* The FY 1994/95 budget reduced the corporate tax rate for foreign companies from 65 percent to 55 percent. The tax rate for domestic companies was lowered to 40 percent.
* The long-term capital gains rate for foreign companies was lowered to 20 percent; a 30 percent rate applies to domestic companies.
* The Indian Income Tax Act exempts export earnings from corporate income tax for both Indian and foreign firms.
Other policy changes have been introduced to encourage foreign direct and foreign institutional investment.
For instance, the Securities and Exchange Board of India (SEBI) recently formulated guidelines to facilitate the operations of foreign brokers in India on behalf of registered Foreign Institutional Investors (FII's). These brokers can now open foreign currency-denominated or rupee accounts for crediting inward remittances, commissions and brokerage fees.
Relaxation
The condition of dividend balancing (offsetting the outflow of foreign exchange for dividend payments against export earnings) has been eliminated for all but 22 consumer goods industries. A 5-year tax holiday is extended to enterprises engaged in development of infrastructural facilities. Even without a registered office in India, foreign companies are allowed to start multimodal transport services in India.
The Reserve Bank of India (RBI) now permits 100 percent foreign investment in the construction of roads/bridges. The peak custom duty rate was reduced to 50 percent from 65 percent in the March 1995 budget. Import regime changes included enhancement of the scope of Special Import License (SIL) programs, and the expansion of freely importable items on the Open General License (OGL) list to include some consumer goods.
Dispute Settlement
Currently, there are no investment disputes over expropriation or nationalization. Government demands for penalty payments for alleged overcharging by pharmaceutical companies during the 1980's could lead to de-facto expropriation of some foreign drug companies' assets in India.
In pharmaceutical sector
A committee has been named to study these longstanding disputes, but the failure of successive governments to produce a swift and transparent resolution has led to a virtual standstill in foreign investment in India's pharmaceutical sector. Indian courts provide adequate safeguards for the enforcement of property and contractual rights.
Case backlogs
However, case backlogs frequently lead to long procedural delays. India is not a member of the International Center for the Settlement of Investment Disputes, nor of the New York Convention of 1958. Commercial arbitration or other alternative dispute resolution (ADR) methods are not yet popular ways of commercial dispute settlement in India. The recent introduction in Parliament of a new Arbitration Bill signals the importance now accorded to this matter by the GOI.
posted by MrK @ 2:24 PM
4 Comments:
raised the upper level of foreign ownership from 51 percent to 74 percent and further in certain cases to 100 percent.
After the handover of the economy to foreign corporations, Zambia should follow the Indian example in reverse. Instead of automatically allowing foreign companies to own 100% of the business they do in the country and the impact of these businesses on the country, economy and people being minimal, how about a maximum share ownership of 51%.
Also, Shoprite could never set up in India, because foreign investment in retail is illegal there to begin with.
I - Foreign Direct Investment
1. What are the forms in which business can be conducted by a foreign company in India?
A foreign company planning to set up business operations in India has the following options:
* As an incorporated entity by incorporating a company under the Companies Act, 1956 through
* Joint ventures; or
* Wholly owned subsidiaries
* As an office of a foreign entity through
* Liaison Office / Representative Office
* Project Office
* Branch Office
Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or other place of business) Regulations, 2000.
2. How does a foreign company invest in India? What are the regulations pertaining to issue of shares by Indian companies to foreign collaborators/investors?
Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the government:
* 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 items reserved for the Small Scale sector.
* iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the government or the Reserve Bank of India [Get Quote].
* iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.
Government Route
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned regional office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.
3. Which are the sectors where FDI is not allowed in India, under the Automatic Route as well as Government Route?
FDI is prohibited under Government as well as Automatic Route for the following sectors:
* i) Retail Trading (except single brand product retailing)
* ii) Atomic Energy
* iii) Lottery Business
* iv) Gambling and Betting
* v) Business of Chit Fund
* vi) Nidhi Company
* vii) Agricultural or plantation activities (cf Notification No. FEMA 94/2003-RB dated June 18, 2003).
* viii) Housing and real estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005 )
* ix) Trading in Transferable Development Rights (TDRs).
This is too cool. The country everyone is holding up because of it's undeniable economic growth and advancement, doesn't allow Foreign Direct Investment (FDI) in retail (like Shoprite), atomic energy (would uranium mines qualify - they should), agriculture or plantation activities, or housing and real estate.
Zambia needs to get serious about benefiting from foreign investment and it's own resources.
FDI should not have any barriers at all. 100% ownership should be allowed. If the business makes money then it can be taxed. Ireland gave Intel a 10% flat rate and £250 million quids worth of new roads.
They spent $2 billion dollars in their fist year and employ 2500 Irish people on proper wages.
They have since then invested nearly $10 billion dollars in fab plants. The Irish GDP was boosted by $4 billion dollars a year ever since. The fact they were there also attracted numerous other firms.
.3% tax on mining is laughable and obviously a really bad deal.
Money is a dog that will flow to where it gets the best return.
India is missing out on pharma companies who as we speak are building plants elsewhere. Any profits repatriated will attract tax at the going rate. IE tax that was not available to collect before.
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