Since 1991 after initiation of liberalization, India has become the most preferred and attractive destination for foreign investors. On the basis of the details furnished in the industry report as many as 1,665 proposals were approved in 1997 involving an outlay of Rs. 54,891.35 crores (US$ 8.6 billion) against 1,559 approvals in 1996 with an investment of Rs.36,146.81 crores. The total approvals since August 1991 were 12,881 involving an outlay of Rs. 158,649.10 crores( US$ 37.8 billion ).

Out of the total FDI of Rs. 158,649.10 crores( US$ 37.8 billion ) in respect of 12,881 proposals, the telecommunication sector accounted for the largest proportion of 19.36 per cent of the total outlay there being 427 proposals involving an outlay of Rs.30,725.35 crores( US$ 7.3 billion ). The power sector accounted for 18.81 per cent with 150 proposals and an investment of Rs.29,849.39 crores( US$ 7.1 billion ). The oil refining sector came next in importance with its share of 10.41 per cent in total outlay there being 301 proposals requiring an investment of Rs.16,515 crores( US$ 3.9 billion ). The share of automobile projects in total outlay will be 6.28 per cent, chemicals 6.67 per cent, services sector (financial) 6.66 per cent, metallurgical industries 5.73 per cent, electrical equipment 5.27 per cent and food processing 5 per cent.

The RBI has allowed Indian corporates to accept FDI under the "automatic approval" route without its prior clearance. Companies will only have to report their issue of shares to foreign investors by filing the documents concerned with RBI within a month. The RBI has further dispensed with the need for prior approval under such proposals. Indian companies have been given general permission to accept investments under this scheme as per policy guidelines laid down by the government of India.

RBI's decision to grant general permission under FERA obviates the need for Indian companies to approach it in principle for approval before getting inward remittance and issuing of shares to foreign investors.

The general permission applies to the consolidated list of industries and items for automatic approval for foreign equity up to 50 per cent, 51 per cent and 74 per cent, based on national industries classification, released by the Government.

Power generation and transmission, construction of roads, waterways, power plants, power industrial plants, and oil and gas field services are included for automatic approval for up to 74 per cent foreign equity, while mining of iron ore, metal ores (excluding uranium group) and non-metallic minerals are allowed up to 50 per cent equity. In a major drive to simplify procedure for FDI under the automatic route, RBI has dispensed with the need for prior approval under such proposals. Indian companies have been given general permission to accept investments under this scheme as per policy guidelines laid down by the Government of India.

In terms of the policy of the government of India, Indian companies engaged in manufacturing items falling under priority industries and certain other approved activities are permitted to invite investment from foreign collaborators for starting new ventures or for expanding existing ones.

Foreign investment flows have increased substantially and were estimated to be $3.1 billion in 1997-98. About 60 per cent of investment approvals are in the energy and infrastructure sectors. In an attempt to step up foreign direct investment (FDI) flows, the Government has formulated policies to attract more FDI in a bid to bridge the gap between approvals and actual inflows. This includes identifying new thrust areas for FDI, making the Foreign Investment Promotion Board (FIPB) operate as a more pro-active institution and formulating industry specific investment incentives.

The proposals for increasing FDI flows envisage selecting thrust areas where approvals would be quicker and easier. These are likely to include the entire agriculture and agro-processing sector, high tech areas such as biotechnology, housing and tourism-related real estate, financial services, software industry and the manufacturing sector.

The Foreign Investment Promotion Board (FIPB) has been constituted by the Government with a view to promote and attract foreign investment in India. The FIPB is a high powered committee comprising the Principal Secretary to the Prime Minister (Chairman), Finance Secretary and Commerce Secretary, and is located at the Ministry of Industry.

The FIPB is empowered to consider proposals for investment in India which do not fall within the parameters of the existing policy.

The functions of the Board include :

1. Expeditious clearance of proposals;

2. Establishment of contacts with and inviting select international companies for investment in the country in appropriate ventures and to periodically review the implementation of the projects cleared;

3. The Board`s programmes of investment include a variety of activities such as marketing, designing and export promotion, energy conservation, technology upgradation and modernisation, infrastructure development, better utilisation of raw materials and natural resources and substantial increase in employment. The Indian Government has allowed foreign investment in the areas of transport, communications, electronics, energy, oil and gas exploration, chemicals, fertilizers, biotechnology, telecommunication, civil aviation, industrial, agricultural and electrical machinery.

Application For Approval

Prescribed application (FORM FC (SIA)) for approval of such foreign investment proposals setting out relevant details, is to be submitted in a form without payment of any fee to the Foreign Investment Promotion Board, Secretariat for Industrial Assistance, Ministry of Industry, Udyog Bhavan, New Delhi. Applications are also received by all Indian missions abroad and forwarded to the SIA for further processing. Approvals are normally available within 4 to 6 weeks of filing the application.

The Government is keen to gradually reduce the quantum of projects being referred to the FIPB and instead ensure that the bulk of foreign investment proposals are approved automatically by the RBI. The aim is to bring only selected large or sensitive projects for clearance to the FIPB. The role of FIPB is being altered from merely issuing clearances to carrying out policy reviews and promotion.

A foreign company may establish a presence in India in a number of ways viz. by opening a branch office or a project office or a liaison office or setting up an Indian Company. For formation of an Indian Company the following options are available :-

• Foreign Company setting up a 100% wholly owned Indian subsidiary.

• Foreign Company setting up a 51% owned subsidiary within 49% held by an Indian partner and the public.

• Foreign Company setting up a 51% owned Indian subsidiary with 49% widely held by the public.

• Foreign Company investing in an Indian Joint Venture Company. Government Approvals

• A foreign company seeking equity participation in India or establishing a company has to obtain Government approvals for :-

  1. foreign investment.

  2. approval for formation and setting up of a new Indian corporation or a business venture.

The Reserve Bank of India accords automatic approval to all proposals including those in real estate where the foreign investment in the equity capital of the Indian Company is upto 51%; and which is included in the high priority industries list.

All other proposals for foreign investment, including that of 100% equity participation and which do not fulfill any or all of the parameters prescribed for automatic approval, are considered for approval, on merits, by the Government.