Policy Overview

The policy changes initiated in July 1991, are designed to attract significant capital inflows into India on a sustained basis and to encourage technology collaboration agreements between Indian and foreign firms. It marked a watershed change in the policy environment, which had formerly restricted foreign investment to projects connected with foreign technology transfer. Today, India welcomes direct foreign investment in virtually every sector of the economy except those of strategic concern such as defence, railway transport and atomic energy. Salient features of the new policies towards foreign investment are:

• Foreign equity upto 100% is allowed, subject to certain conditions.
• Automatic approval for foreign equity participation upto 51% is granted in several key areas. These automatic approvals are normally granted within two weeks by the Reserve Bank of India (RBI).
• The Foreign Investment Promotion Board (FIPB), a specially empowered Board has been set up in the office of the Prime Minister to speed up the approval process. Clearance of proposals by the FIPB takes around six weeks on an average.
• Foreign investors need not have a local partner.
• Free repatriation of profits and capital investment is permitted, except for a short specified list of consumer goods industries where it is subject to dividend balancing against export earnings.
• Use of foreign brand names/trade marks for sale of goods in India is permitted.
• Indian capital markets are now open to foreign institutional investors.
• Indian companies have been permitted to raise funds from international capital markets.
• India has become a member of MIGA and is also willing to sign Bilateral Investment Protection Agreements with investing countries.
• Corporate taxes have been reduced by 5-10%. Further progressive reductions are planned.
• Special investment and tax incentives are given for exports and certain sectors such as Power, Electronics and Food Processing.

Centre for Monitoring Indian Economy, Bombay
Contact Addresses for More Information
Last updated: May 1995.