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Foreign Investment Approvals Overview

FDI and Investment-friendly policies

The various investment-friendly policies announced by the Government of India welcomes Foreign Direct Investment (FDI) in many of the core industries. These policies fundamentally aim at improving the core business activities of the country and at the same time offer employment to millions of educated population of the country.

Government has facilitated the business activities by allotting special land to major industries and service sectors. These include the Technology Park (both hardware and software), Special Economic Zones (SEZs), Export Promotion Zones (EPZs), etc. Apart from these are the Growth Center Schemes that provide various incentives to the investors.

For most of the industries and the service sectors FDI is allowed freely through automatic approval from the Reserve Bank of India (RBI). However, there are certain sectors/ activities where the FDI is not allowed beyond a certain limit. These businesses or activities need to get the approval from the government, which in turn is decided on the basis of the recommendations from the Foreign Investment Promotion Board (FIPB).

  • Infrastructure: it includes various segments such as power generation and transmission; projects on various energy sources; roads, highways, ports, and other mass transport systems.
  • Airport development
  • Construction activities
  • Manufacturing activities, except those items categorized under compulsory licensing or those allotted exclusively for the small-scale industries category.
  • Software development
  • Electronic items
  • Tourism and related activities
  • Hospitals and pharmaceuticals
  • Film production
  • Food processing
  • Finance companies, other than non-banking.
  • Courier services, except those with distribution of letters
  • Business- to –Business e-commerce
  • Trading activities that follow the prescribed norms
  • ISPs that do not offer gateways and mail facilities
  • Alcohol distilling and brewing

The Export Processing Zones (EPZs) are completely separated from the Domestic Tariff Area (DTA) by economic barriers. They are intended to boost world-class export at minimum cost. The duty-free exports at EPZs focus the competitive international market.

The 100% Export Oriented Units (EOUs) were set up in 1980 in order to trigger large-scale export activities. The EOUs allow the investor to procure the necessary raw materials and the machinery from anywhere, without paying any excise or custom duty. However, the EXIM policy demands that these units export the entire manufactured product and procure the minimum Net Foreign Exchange as a Percentage of exports (NFEP) in the prescribed period. Some of these units are allowed to sell their products in the Domestic Tariff Area (DTA) provided they satisfy the DTA sale entitlement, i.e., 50% of the FOB value. They have to follow the criteria of the minimum NFEP and also pay the duties whichever applicable. The Development Commissioner of the EPZ is given the authority to allow the DTA sale as per the provisions of the Export Import Policy.

The EOU scheme allows a lot of freedom to the entrepreneur in choosing the location of his business activity. He can choose the premises for the manufacturing activity provided it abides by the location policy prescribed by the government.

The EOUs are not required to obtain special license for manufacturing the items specified under the SSI. Also those units that intend to export the entire products or services such as repair, reconditioning, etc., are allowed in the EOUs.

The Development Commissioners of the EOUs and SEZs are given the authority to approve the fresh applications and also to amend the applications after approval as per the clauses mentioned in the EXIM policy. This power of the DCs facilitates the effective functioning of the units.