» INDIAN SCENARIO - CRITERIA FOR FOREIGN COLLABORATION

PROCEDURE FOR SETTING UP A FOREIGN COLLABORATION

All proposals for foreign investment and technical collaborations require Government approval. However, with the Industrial Policy, 1991 and the subsequent amendments to laws regulating foreign collaborations and industry, this procedure has been simplified. Automatic approval is given for direct foreign investment up to 51% foreign equity in 36 high priority industries and industrial license is no longer required for most industries.

Foreign companies can directly submit applications for foreign collaboration approvals in their own name without tying with an Indian party or forming a company. In such cases, a letter will be issued to foreign companies conveying approval "in principle". The approval will later be transferred to a company incorporated in India by the foreign company.

The various options for any foreign companies to open offices are briefly given as follows :

1. DIRECT FOREIGN INVESTMENT ( 51 % EQUITY ) : Approval will be given for direct foreign investment upto 51% foreign equity in 36 high priority industries. There shall be no bottlenecks of any kind in this process. Such clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods.

2. DIRECT FOREIGN INVESTMENT (OTHER UNITS ) : Other Foreign equity proposals, including proposals involving 51% foreign equity which do not meet the criteria in para (i) above, will continue to need prior clearance. Foreign equity proposals now need not necessarily be accompanied by foreign technology agreements.

3. TRADING CO : To provide access to international markets, majority foreign equity holding upto 51% equity will be allowed in trading companies which are primarily engaged in export activities and such trading houses shall be at par with domestic trading and export houses in accordance with the Import-Export Policy.

4. FIPB : A special empowered investment promotion board has been constituted to negotiate with a number of large international firms and approve direct foreign investment in select areas. This special programme is aimed to attract substantial investment that would provide access to high technology & world markets.

5. F I I : Foreign Institutional Investors (FIIs) can now invest in securities trade in the primary and secondary markets, including the equity & other securities listed or to be listed on the stock exchanges in India as also Over The Counter Exchange of India (OTCEI). FIIs include institutions such as pension funds, mutual funds, investment trusts, asset management companies, nominee companies & incorporated portfolio managers. The securities include shares, debentures, warrants and the schemes floated by domestic mutual funds.

6. BRANCH OFFICES : Foreign companies are now permitted to open branch offices in India. These can be for the purpose of representing the parent company or another foreign company in India, conducting research, undertaking export and import trading activities as well as for promoting possible technical and financial collaborations between India and foreign companies. Government control over disinvestment of equity by foreign investors has been relaxed and such disinvestment is now permitted at market price for listed shares. Reserve Bank of India approval is required for the disinvestment price of unlisted shares.

GENERAL CRITERIA

Approvals for foreign participation is now available upto 51 per cent on an automatic basis. The exceptional case exists where special expertise, skill of facilities have been developed which are not readily available indigenously. Where significant contribution is made to exports, foreign holdings can be higher, even upto 100 per cent.
The equity participation is to be justified having regard to factors like priority of the industry, the nature of the technology involved, whether it will enable or promote exports which may not otherwise take place and the alternative terms available for securing the same or similar technology transfer. As stated above Foreign equity participation is now allowed upto 51 per cent, with the possibility of a higher per centage according to the proposal.
In projects where imported capital goods are required, automatic clearance will be given;
i. in cases where foreign exchange availability is ensured through foreign equity, or

ii. if the CIF value of imported capital goods required is less than 25 per cent of total value (net of taxes) of plant and equipment, upto a maximum value of Rs. 2 crore.

In other cases, imports of capital goods will require clearance from the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.

FOREIGN INVESTMENT PROMOTION BOARD ( FIPB )

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 :

(a) Expeditious clearance of proposals;

(b) 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;

(c) 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.