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India is a big attraction to foreign partners

India is a big attraction to foreign partners



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Published by salim1321

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Published by: salim1321 on May 22, 2010
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Name: MUHAMMAD SALIMEnroll No. : 07217003909Class: MBA (2
semester)Sub. : Management of Technology, Innovation and ChangeQ.
“India is a big attraction to foreign partners.” – Elaborate the statement.
The first and second-generation reforms have created a conducive environment for foreign investments in India. Market oriented policies are boosting economic activity, allround development and GDP growth rate. Government procedures are constantly beingsimplified and paper work minimized. As the Indian economy gears for competition inthe international market, overseas investors clearly see the potential for attractivereturns from investments in India, which is also evident from the many FDI successstories already achieved.
Policy FrameworkIndustrial Policy
 The Indian Government's market liberalization and economic policy reforms programmeaims at rapid and substantial economic growth and integration of the country's economywith the global economy. The industrial policy reforms have eliminated the industriallicensing requirements except for certain select sectors,removed restrictions on investment and expansion and facilitated easy access to foreigntechnology and direct investment.The Industrial Policy Resolution of 1956 and the Statement on Industrial Policy of 1991provide the basic framework for the Government's overall industrial policy. Theprocedures for obtaining government approvals have been progressively simplified andquickened. Normal FDI proposals are cleared within a month. Areas earlier reserved for public sector have mostly been opened for private sector participation also
Industrial Licensing
 All industrial undertakings are exempt from obtaining an industrial license tomanufacture, except for the following:• Industries reserved for the Public Sector;•Industries retained under compulsory licensing;• Items of manufacture reserved for the small scale sector; and• Any proposal attracting locational restriction.Industrial undertakings exempt from obtaining an industrial license are required to filean Industrial Entrepreneur Memoranda (IEM) with the Secretariat of IndustrialAssistance (SIA), Department of Industrial Policy and Promotion.
Foreign Investment Policy
 Foreign investment is permitted in virtually every sector, except those of strategicconcern such as defence (opened up recently to a limited extent) and rail transport.Foreign companies are permitted to set up 100 per cent subsidiaries in India. No prior approval from the exchange control authorities (RBI) is required, except for certainspecified activities. The investment should be in accordance with the prescribedguidelines and the details of the investment should be filed with the authorities withinthe prescribed time limit. This procedure is applicable only for fresh investments directlyin Indian companies and not for purchase of shares from the existing shareholders. Thisinvestment procedure is commonly known as the
"automatic approval route"
Foreign Investment Promotion Board (FIPB)
of the Government of India isconstituted mainly to promote inflows of FDI into the country, as also to provideappropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreigninvestment.
Regulation and procedures
 Procedures for obtaining government approvals have been considerably simplified.Approval procedures have been laid out for undertakings that are• exempt from industrial licensing requirements (including existing units undertakingsubstantial expansion);• subject to compulsory industrial licensing; and
New ventures
All items/activities for FDI up to 100% by Non-Resident Indians (NRI)/OverseasCorporate Bodies (OCB) fall under the Automatic Route except those that expresslyrequire a prior Government approval.An investor may, if so prefered, choose to make an application to the FIPB and not availof the automatic route.Investment in Public Sector Units as also for units located in Export Oriented Units(EOU)/Export Processing Zones (EPZ)/Special Economic Zones (SEZ)/ElectronicHardware Technology Parks (EHTP)/ Software Technology Parks (STP) would alsoqualify for the Automatic Route. Investment under the AutomaticRoute is governed by the notified sectoral policy and equity caps and RBI ensurescompliance of the same.Any change in sectoral policy/sectoral equity cap is notified by the SIA in theDepartment of Industrial Policy & Promotion.
Foreign Investment in the Small Scale Sector 
 Small Scale Undertakings (SSUs) are defined as units having investments in fixedassets in plant and machinery of not more than INR 10 million. Under the small scaleindustrial policy, equity holding by other units including foreign equity in a small scaleundertaking is permissible up to 24 per cent. However there is no bar on higher equityholding for foreign investment if the unit is willing to give up its small scale status. Incase of foreign investment beyond 24 per cent in a small scale unit which manufacturessmall scale reserved item(s), an industrial license carrying a mandatory exportobligation of 50 per cent must be obtained.A SSU manufacturing small scale reserved item(s), on exceeding the small-scaleinvestment ceiling in plant and machinery by virtue of natural growth, needs to apply for and obtain a Carry-on-Business (COB) License. No export obligation is fixed on thecapacity for which the COB license is granted. However, if the unit expands its capacityfor the small scale reserved item(s) further, it needs to apply for and obtain a separateindustrial license.

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