Indian Para-legal & Economic Analysis – by Hemant K

Batra
India, the world’s largest democracy, is the 7th largest country in the world and the 4th largest
economy in terms of purchasing power parity. India’s richness and diversity of culture,
geographic and climatic conditions, natural and mineral resources are matched only by few
other countries in the world. India’s enduring institutions, rooted in the principles of democracy
and justice, ensure a transparent predictable and secure environment for domestic and foreign
private investment.

The existence of an independent judiciary, strong legal and accounting system, a free and
vibrant press, reservoir of highly skilled manpower, and the use of English as the principal
language of business and administration are some of the attractive features of the Indian
business environment. A highly regulated business environment, a pervasive license system
and high tariff barriers characterized the Indian economy, until 1991.

Sweeping reforms, introduced in 1991 and continued by successive governments, have

radically changed the course of the Indian economy. Today, a new spirit of economic freedom is
stirring India, bringing sweeping changes in its wake and unleashing the vast potential of the
Indian economy. The Government’s policies are now relatively simple, transparent and geared
towards promoting domestic and foreign private investment. There exists a strong political
consensus on the economic liberalization policies at the central and state government levels.
This augurs well for the continuation and progressive strengthening of investor friendly policies
that have created a sea of opportunities for domestic and foreign investors particularly in the
infrastructure sector.

General – Foreign Direct Investment (FDI) Policy – Foreign direct investment is freely allowed in
all sectors including the services sector, except where the existing and notified sectoral policy
does not permit FDI beyond a ceiling. FDI for virtually all items/activities can be brought in
through the automatic route under powers delegated to the Reserve Bank of India (RBI), and for
the remaining items/activities through Government Approval. Government approvals are
accorded on the recommendation of the Foreign Investment Promotion Board (FIPB).

With a view to injecting the desired level of technological dynamism in Indian industry and for
promoting an industrial environment where the acquisition of technological capability receives
priority, foreign technology induction is encouraged both through FDI and through foreign
technology collaboration agreements. Foreign technology collaborations are permitted either
through the automatic route under delegated powers exercised by the RBI, or by the
Government. However, cases involving industrial licenses/small scale reserved items do not
qualify for automatic approval and would require consideration and approval by the
Government. Automatic route for technology collaboration would also not be available to those
who have, or had any previous technology transfer/trade-mark agreement in the same or allied
field in India.

Today, only two industries are reserved for the public sector i.e., Atomic Energy and Railway
transport. Even Arms and ammunition industry and allied items of defence equipment, defence
aircraft and warships have been opened up for private investment. Today, there are very few
industries for which industrial licensing is compulsory and these include Distillation and brewing
of alcoholic drinks, Cigars and cigarettes of tobacco and manufactured tobacco substitutes,
Electronic Aerospace and defence equipment: all types, Industrial explosives including
detonating fuses, safety fuses, gun powder, nitrocellulose and matches, Hazardous chemicals,
Drugs and Pharmaceuticals. Today, use of foreign brand names/trade marks for sale of goods
in India is allowed. Today, Indian capital markets are open to foreign institutional investors.
Today, Indian companies are permitted to raise funds from international capital markets. Today,
India has entered into agreements for avoidance of double taxation with over 45 countries.
Today, India has signed several bilateral investment protection agreements. Today, special
investment and tax incentives are extended for exports and certain sectors such as power,
telecommunications, electronics, software and food processing.

India since 1991 is undergoing revolutionary fiscal and economic reforms and is undoubtedly
moving away from the doctrine of State control, towards a free market economy. Permits,
sanctions and controls are giving way to de-regulation, de- centralization, de-nationalization and
dis-investment. The notorious restrictions of the past are being cleaned up by a popular will
driven with logical and legal mechanism. The reform packages having been introduced in the
past and as being introduced now appear to be moving away from restrictions on the movement
of foreign exchange in and out of the country. The changing investment climate in the region
has swept aside the centrally planned and regulated economies. The agenda of privatization in
India or for that matter in almost all the South Asian countries now covers a wide spectrum like
industries, banks, development financial institutions, telecommunications, airlines, shipping and
road construction and power generation. And, in each of these sectors, law is playing an
important role, because it is entering to the privatization of each of these units.

By Hemant Batra, Lead Partner, Kaden Boriss Legal LLP, India; Vice President, SAARCLAW;
Chairperson, IICLAM, Singapore; Advisory Board Member, OIC, USA