Primary Objective - The primary object of India’s foreign investment policy is to build a self-reliant economy through better utilization of its human and material resources with the help of foreign technology.

Since Indian industrial technology capabilities are of a very high order, foreign collaboration is now restricted only to transfer of sophisticated technology in metallurgical, electrical, automobile, ancillaries, machinery, machine tools, organic and inorganic chemicals, man-made-fiber, rubber products, pesticides, synthetic rubber, etc. Foreign technology is also considered for updating existing technology and for enhancing export capabilities.

Approval of foreign collaboration - Normally, foreign collaboration arrangements are approved if the following conditions are satisfied:

(1) Foreign equity investment should be by way of cash without being linked to tied imports of machinery, equipment or payments for know-how, trade marks, etc.

(2) The Indian collaborator should be free to sub-license the technical know-how / product design to another Indian party on mutually agreed terms to which the foreign collaborator would also be imported.

(3) The royalty is calculated on the basis of selling price of the product, net of excise duties minus the cost of components, bought out or imported.

(4) There should be no payment of a minimum guaranteed royalty.

(5) Clauses binding the Indian Party to the procurement of capital goods, raw materials should be avoided.

(6) There should not be restriction on the export of products to any country.

(7) The Indian party should have the right to produce the items even after the expiry of the collaboration, without making additional payment.

Though user of foreign brand names are normally not permitted certain exceptions have recently be made in this area also.

Basically, foreign collaboration must promote technological up-gradation and modernization.

Remittance of Royalty, Technical Know-how Fees, Interest and Dividend

Remittance of royalty, technical Know-how fees, interest, dividend etc. falling due under collaboration agreement will be allowed by the Reserve Bank in accordance with the terms and conditions approved by the Government. Application for permission should be made through an authorized dealer together with a statement certified by the Company’s auditors, showing computation of the net remittable amount, amount deducted on account of tax and other documents and particulars, specified by the Reserve Bank. However, payments towards consideration for use of foreign trade mark should not be included in such applications and should be separately applied for.

Remittance of Interest - Remittance of interest accruing due on securities of Central or State Government in India, bank deposits held in India and dividends on units of Unit Trust of India may be made by authorized dealers to individuals permanently resident outside India without prior approval of the Reserve Bank. The following conditions should, however, be satisfied:-

(1) Beneficiary belongs to an one of the following categories:

            (a) A person who was never resident in India,

            (b) A person of Indian nationality / origin,

            (c) A foreign national who has retired from India after availing retirement facilities,

            (d) Emigrant from India.

(2) Beneficiary is the bona fide owner of the securities / investment on which interest is paid, and he is neither the original investor, who has given an undertaking not to seek remittance outside, nor the legal heir, executor, successor or assign of such person.

(3) No Indian tax dues are outstanding in respect of the interest to be remitted. Authorized dealers will have to specifically confirm that the conditions prescribed above have been complied with.

Remittances towards interest on deposits held with firms and Companies in India

All remittances by way of interest on Government securities, deposits with firms, companies and other organizations abroad are subject to prior approval of the Reserve Bank. Remittances towards interest on deposits with firms and Companies in India, also require prior approval of the Reserve Bank.

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