Foreign Investment framework

The foreign direct investment (FDI) regime has been progressively liberalized during the course of the 1990s, and continues as such in the 2000s, with removal of most restrictions on foreign investments and simplification of necessary procedures. With limited exception, foreigners can invest directly in India, either on their own or through joint ventures.

Today, foreign investment is prohibited in very few industries in India. Moreover, investment ceilings are gradually being removed. With the intent and objective to promote foreign direct investment through a policy framework that is transparent, predictable, simple and reduces regulatory burden, Government of India has formulated a consolidated FDI Policy on a yearly basis.

Features of the GoI’s consolidated FDI Policy and incentives offered by it

„  Indian companies are permitted to issue equity shares fully, compulsorily and mandatorily convertible debentures (FCD’s) and compulsorily and mandatorily convertible preference shares (CCPS) to non-residents subject to pricing guidelines and valuation norms prescribed under FEMA

„  Issue of warrants, partly paid shares, etc. require prior approval of FIPB. Issue of non-convertible, optionally convertible or partially convertible preference shares and debentures needs to comply with the external commercial borrowing (ECB) guidelines of RBI

„  Foreign investment is calculated on the basis of ownership and control of the Indian company

„  No government approval is required for FDI in virtually all the sectors/activities, except for a small negative list formulated by Government of India

„  FIPB considers proposals for foreign participation that do not qualify for automatic approval

„  Decisions on all foreign investment proposals are usually taken within four to six weeks of submitting an application

„  Free repatriation of capital investment is permitted, provided the original investment (on a repatriable basis) was made in convertible foreign exchange. Further, free repatriation of profits on capital investment is permitted, subject to payment of taxes and other specified conditions

„  Use of foreign brand names and trademarks is permitted for the sale of goods in India

 All royalty payments, lump-sum fee for transfer of technology and for use of trademark or brand name are permitted under the automatic route without any monetary or duration limits

„  “Single window” clearance facilities and “investor escort services” are available in various states to simplify the approval process for new ventures

Foreign Direct Investment Policy in Textiles

With the most liberal and transparent policies in FDI amongst emerging countries, India is a promising destination for FDI in the textile sector. 100% FDI is allowed in the textile sector under the automatic route. FDI in sectors to the extent permitted under automatic route does not require any prior approval either by the Government of India or Reserve Bank of India (RBI). Investors are required only to notify the RBI Regional Office within 30 days of receipt of inward remittance.

Ministry of Textiles has set up FDI Cell to attract FDI in the textile sector in the country. The FDI cell operates with the following objectives:

  • „  To provide assistance and advisory support (including liaison with other organizations and State Governments);
  • „  Assist foreign companies in finding out joint venture partners;
  • „  To sort out operational problems;
  • „  Maintenance and monitoring of data pertaining to domestic textile production and foreign investment.

Foreign Investment Promotion Board (FIPB)

The FIPB is specially empowered and chaired by the Secretary, Department of Economic Affairs of the Ministry of Finance (MoF). It has been specifically set up to expedite the approval process for foreign investment proposals.

Proposals for FDI are mandatorily required to be submitted online followed by the hard copy of the proposal. The FIPB has the flexibility to examine all the proposals in their totality, free from predetermined parameters or procedures.

The recommendations of the FIPB with respect to proposals under the ambit of the non-automatic route involving an investment of US$ 218.18million or less is considered and approved by the Finance Minister. Projects with an investment greater than this value are submitted by the FIPB to the Cabinet Committee on Economic Affairs for further approval.

Regional and international trade agreements

Over the years, India has entered numerous bilateral and regional trade agreements with key trading partners. Apart from offering preferential tariff rates on the trading of goods among member countries, these agreements also enable increased economic cooperation in the field of trade in services as well as investments and intellectual property, resulting in enhanced trade liberalization.

Existing trade agreements and regulatory scenario

Some of the existing key trade agreements entered into by India include:

  • „  Comprehensive Economic Partnership Agreement (CEPA) with Japan
  • „  Comprehensive Economic Co-operation Agreement (CECA) with Malaysia
  • „  Comprehensive Economic Partnership Agreement (CEPA) with Korea
  • „  India-ASEAN Trade in Goods Agreement
  • „  Comprehensive Economic Co-operation Agreement (CECA) with Singapore
  • „  Free Trade Agreement with Sri Lanka (Trade in Goods)
  • „  Agreement on South Asia Free Trade Area executed by India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka
  • „  Framework Agreement with Thailand
  • „  Preferential Trade Agreement with MERCOSUR countries [MERCOSUR is a trading bloc in Latin America comprising Brazil, Argentina, Uruguay and Paraguay]
  • „  Preferential Trade Agreement with Chile
  • „  Asia Pacific Trade Agreement with Bangladesh, Republic of Korea, China and Sri Lanka
  • „  Preferential Trade Agreement with Afghanistan
  • „  Global System of Trade Preference with 46 countries
  • „  India Bhutan Trade Agreement
  • „  India Nepal Trade Treaty
  • „  Economic co-operation agreement with Finland