Year 2000-2001

 Foreign direct investment permitted through automatic route in all industries except for a small
negative list.

 Foreign Direct Investment (FDI) upto 100 per cent permitted in e-commerce, subject to specific
conditions.
 The dividend balancing condition for FDI in twenty-two consumer goods industries removed.
 The existing upper limit of Rs. 1500 crore for FDI in projects involving electricity generation,
transmission and distribution (other than atomic reactor plants) dispensed with.
 FDI under the automatic route permitted upto 100 per cent for all manufacturing activities in
Special Economic zones (SEZs), except certain activities.
 Foreign equity participation upto 26 per cent in insurance sector allowed under the automatic
route.

Year 2001-2002
- GUIDELINES PERTAINING TO APPROVAL OF FOREIGN/ TECHNICAL COLLABORATIONS UNDER THE
AUTOMATIC ROUTE WITH PREVIOUS VENTURE/TIE-UP IN INDIA
1. As per Press Note No. 18 of 59, in 1998, it has been decided that automatic route is not open for those
foreign investors who have/had a previous financial/technical/trademark collaboration in an existing
domestic company engaged in the same or allied activity. All such proposals are considered by FIPB on
merits.

2. International Financial Institutions such as Asian Development Bank (ADB), international Finance
Corporation (IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs
Gescelschaft (DEG), etc., normally pick up equity stake from time to time in domestic companies.
Keeping in view the investment made by International Financial Institutions without an element of
technical /trademark collaboration, government has decided that the provisions of the 1998 policy
Press Note No. 18 will not be applicable to the investments made by these international institutions in
Indian companies. Accordingly, International Institutions like ADB, IFC, CDC, DEG, etc., may invest in
domestic companies through the automatic route, subject to SEBI, RBI regulations and sector-specific
caps on FDI.

- LIBERALISATION OF THE EXISTING NORMS FOR FOREIGN INVESTMENT IN THE NBFC SECTOR

In pursuance of the Government’s commitment to liberalise the FDI regime, it has been decided to
further liberalise the FDI guidelines in respect of NBFC sector as under :
(a)   The existing requirements to bring in capital would continue to be applicable. That is, if the
(i)     FDI is less than 51%, US$ 0.5 million to be brought in upfront;
(ii)    FDI is more than 51% and upto 75%, US$ 5 million to be brought in upfront; and
(iii)    FDI is more than 75% and upto 100%, US$ 50 million, out of which US$ 7.5 million to be brought in
upfront and the balance in 24 months.
(b)    Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a
minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50 million as at (a) (iii) above
(without any restriction on number of operating subsidiaries without bringing in additional capital).
(c)   Joint Venture operating NBFCs that have 75% or less than 75% foreign investment will also be
allowed to set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also
complying with the applicable minimum capital inflow, i.e., (a) (i) and (a) (ii) above.
(d)    FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the
Reserve Bank of India. RBI would issue appropriate guidelines in this regard.
 - DELETION OF THE CONDITION OF “EXPORT OBLIGATION
1. A number of items are reserved for exclusive production in the Small Scale Sector. For production of such
items in the non-small scale sector units, an industrial licence is required to be obtained under the provisions
of the Industries (Development & Regulation) Act, 1951.
Industrial licence in such cases is granted subject to export obligation of 50% of annual production in terms
of Notification No. S.O. 881 (E) dated 18.12.97.

2. The list of items reserved for small scale sector is reviewed from time to time. Taking into
account various factors, items are considered for dereservation. After dereservation, the condition of export
obligation becomes redundant and has to be deleted, for which holders of IL/ LOI have to approach
Secretariat for Industrial Assistance (SIA).

3. In order to avoid references by holders of IL/ LOI on a case by case basis for an item(s) which has have been
dereserved by a notification published in the Gazette of India, it has been decided that after issue of this
Press Note, industrial Licences/Letter(s) of Intent issued by Secretariat for Industrial Assistance (SIA) in the
past which carry the condition of export obligation will be deemed to have been exempted from the
operation of this condition for items which stand dereserved by an appropriate notification. No separate
amendment/endorsement deleting the condition of export obligation in Industrial licence(s) Letter of Intent
would be necessary. It will be sufficient to attach a copy of this Press Note and the relevant notification on
dereservation of an item for the purpose of obtaining exemption from the condition of “Export obligation”.

4. It is also open to entrepreneurs to file an Industrial Entrepreneurs’ Memorandum (IEM) in lieu of Industrial
License/LOI held by them, if they so desire, and if the Industrial Licence/LOI has not been granted in
relaxation of locational policy; or when any variation from the conditions and parameters stipulated in the
Industrial Licence/LOI is contemplated.

- REVISION OF EXISTING SECTORAL GUIDELINES AND EQUITY CAP ON FOREIGN DIRECT INVESTMENT (FDI),
INCLUDING INVESTMENT BY NON RESIDENT INDIANS (NRIS) AND OVERSEAS CORPORATE BODIES (OCBS)

With a view to further liberalising the FDI regime, Government have effected the following changes in the FDI
policy:
i. FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical, provided the
activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell /
tissue targeted formulations. FDI proposals for the manufacture
of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology, and specific
cell/tissue targeted formulations will require prior Government approval.
ii. FDI up to 100% is permitted in airports, with FDI above 74% requiring prior approval of the
Government.
iii. The defence industry sector is opened up to 100% for Indian private sector participation
with FDI permissible up to 26%, both subject to licensing.
iv. FDI up to 100% is permitted for development of integrated townships, including housing, commercial
premises, hotels, resorts, city and regional level urban infrastructure facilities such
as roads and bridges, mass rapid transit systems; and manufacture of building materials.
Development of land and providing allied infrastructure will form an integral part of township’s
development, for which necessary guidelines/ norms relating to minimum capitalization, minimum land area,
etc., will be notified separately by the Government. FDI in this sector would be permissible with prior
Government approval.
v. FDI up to 100% is permitted on the automatic route in hotel and tourism sector.
vi. FDl up to 100% is permitted in courier services subject to existing laws and exclusion of activity
relating to distribution of letters. FDI in this sector would be permissible with prior Government
approval.
vii. FDI up to 100% is permitted on the automatic route for Mass Rapid Transport Systems in all
metropolitan cities, including associated commercial development of real estate.
viii. NRI investment in foreign exchange is made fully repatriable whereas investments made in
Indian rupees through rupee accounts shall remain non-repatriable.
ix. FDI up to 74% is permitted for the following telecom services subject to licensing and security
 requirements:
a. Internet service providers with gateways;
b. Radio paging; and
c. End-to-end bandwidth Proposals with FDI beyond 49% shall require prior Government approval.
x. FDI up to 49% from all sources is permitted in the banking sector on the automatic route subject to conformity
with guidelines issued by RBI from time to time.

- GUIDELINES FOR FDI IN DEVELOPMENT OF INTEGRATED TOWNSHIP INCLUDING HOUSING AND BUILDING
MATERIAL

Government vide Press Note No. 4 (2001 series) permitted FDI up to 100% for development of integrated
townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure
facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials.   Development
of land and providing allied infrastructure will form an integrated part of township’s development.
 
2.  FDI in the development of integrated townships will be subject to the following guidelines:
 
i)      The foreign company intending to invest, shall be registered as an Indian Company under Companies Act 1956
and will henceforth be allowed to take up land assembly and its development as a part of Integrated Township
Development.  All such cases would be processed by FIPB on the recommendation of Ministry of Urban
Development & Poverty Alleviation and other concerned Ministries / Departments.  Ministry of Urban
Development & Poverty Alleviation will develop an exclusive cell to deal with such cases.
 
ii)      The core business of the company seeking to make investment, should be integrated township development
with a record of successful execution of such projects elsewhere. 
 
iii)     The minimum area to be developed by such a company should be 100 acres for which norms and standards are
to be followed as per local bylaws / rules. In the absence of such bylaws / rules, a minimum of two thousand
dwelling units for about ten thousand population will need to be developed by the investor.
 
iv)     The investing Foreign company should achieve clear milestones once their proposal has been approved. 
 
    a)     The minimum capitalisation norm shall be US$ 10 million for a wholly owned subsidiary and US$ 5 million for
joint ventures with Indian partner/s.  The funds would have to be brought in upfront.
 
    b)     A minimum lock-in period of three years from completion of minimum capitalisation shall apply before
repatriation of original investment is permitted.
 
    c)     A minimum of 50% of the integrated project development must be completed within a period of five years
from the date of possession of the first piece of land.  However, if the investor intends to exit earlier due to
reasons beyond his control, it shall be decided by FIPB on a case-to-case basis.  
 
 
v)     Conditions regarding the use of land for commercial purposes, development charges, external development
charges and other charges as laid down in Master Plan / Bylaws, preparation of layout and building plan,
development of internal and peripheral development, development of other infrastructure facilities including
the trunk services etc., will be the responsibility of the investor as per planning norms and standards on similar
lines as those applicable to local investors.  In the absence of such standards and norms, every State
Government may decide their own conditions for which the Urban Development Plan Formulation and
Implementation guidelines circulated by the Ministry of Urban Development & Poverty Alleviation may serve as
a guiding principle.
 
vi)    Land with assembled area for peripheral services such as police stations, milk booths will be handed over free of
cost to the Government / local authority / agency as the case may be.
 
vii)   The Developer will retain the lands for community services such as (i) schools (ii) shopping complex (iii)
community centres (iv) ration shop (v) hospital / dispensary.  These services will be developed by developer
himself and shall be made operational before the houses are occupied.
 
viii)  The developer, after properly developing playgrounds, park, will make it available to the local authorities free of
cost.
 
ix)    The developer will ensure the norms and standards as applicable under local laws / rules.
 
x)     For companies investing in Special Economic Zones, Foreign Investment Promotion Board may accord
exemption to any of the above mentioned conditions on a case-to-case basis.   This will, however, be an interim
measure till guidelines are evolved in due course in a need based manner.

Year 2003-2004
- LIBERALIZATION OF FOREIGN TECHNOLOGY AGREEMENT POLICY AND PROCEDURES

1. In pursuance of its commitment to progressively liberalise the FDI regime, the Government has reviewed its policy
governing the payment of royalties under Foreign Technology Collaboration.
2. Presently, wholly owned subsidiaries are permitted to make payment of royalty up to 8% on exports and 5% on
domestic sales to their offshore parent companies on the automatic route without any restriction on the duration
of the royalty payments. However, royalty payments by other companies are allowed for a period not exceeding
seven years from the date of commencement of commercial production or ten years from the date of agreement,
whichever is earlier.
3. With a view to further liberalising the foreign technology collaboration agreement policy and extending a uniform
policy dispensation, it has now been decided that all companies, irrespective of the extent of foreign equity in the
shareholding, who have entered into foreign technology collaboration agreements may henceforth be permitted
on the automatic approval route, to make royalty payments at 8% on exports and 5% on domestic sales without
any restriction on the duration of the royalty payments. The ceiling on payment of lumpsum fee / royalty on the
automatic route would continue to apply in all cases.

4. As the entrepreneurs are aware, after consideration of an application for Industrial Licence for setting up industrial
undertaking or expansion of the existing industrial undertaking or for the manufacture of new article, a Letter of
Intent (LOI) is issued in the first instance. The conditions contained in the Letter of Intent are required to be fulfilled
within a period of 3 years or within extended period of validity as may be specifically allowed by the Government.
These conditions usually relate to setting up of pollution control equipment, site clearance from the State
Government and certain special conditions for specific sectors. On fulfillment of the prescribed conditions, the
holder of 'Letter of Intent' is required to approach Secretariat for Industrial Assistance and the Administrative
Ministry concerned for getting the Letter of Intent converted into Industrial Licence.

5. As a measure of further simplification of procedures, the Government has decided that Industrial Licence will now
be granted directly against applications to ensure speedy implementation of projects. This procedure will, however,
not apply to the applications relating to manufacture of items reserved for exclusive production in the small scale
sector. Such application will continue to be processed as per existing procedure i.e. issue of LOI in the first instance
and conversion of LOI into Industrial Licence after execution of legal undertaking (LUT) with DGFT for fulfillment of
condition relating to export obligation. It is, however, clarified that it will be the responsibility of the entrepreneur to
ensure that all requisite approvals/clearances under other statutes/regulations/notifications etc. issued by the
Central or the State Government(s) from time to time are obtained for the manufacturing activity specified in the
Industrial Licence.

6. It is expected that the above mentioned decision will facilitate the entrepreneurs and ensure speedy
implementation of projects in the licensed sector.

Year 2004-2005
Year 2005- 2006

- GUIDELINES PERTAINING TO APPROVAL OF FOREIGN/TECHNICAL COLLABORATIONS UNDER THE AUTOMATIC

ROUTE WITH PREVIOUS VENTURES/TIE-UP IN INDIA.

1. The Government has reviewed the guidelines notified vide Press Note 18 (1998 series) which stipulated
approval of the Government for new proposals for foreign investment/ technical collaboration where the
foreign investor has or had any previous joint venture or technology transfer/ trademark agreement in the
same or allied field in India.
 

2. New proposals for foreign investment/technical collaboration would henceforth be allowed under the
automatic route, subject to sectoral policies, as per the following guidelines:

i. Prior approval of the Government would be required only in cases where the foreign investor has an
existing joint venture or technology transfer/trademark agreement in the 'same' field. The onus to
provide requisite justification as also proof to the satisfaction of the Government that the new
proposal would or would not in any way jeopardize the interests of the existing joint venture or
technology/ trademark partner or other stakeholders would lie equally on the foreign investor/
technology supplier and the Indian partner.
 

ii. Even in cases where the foreign investor has a joint venture or technology transfer/ trademark
agreement in the 'same' field prior approval of the Government will not be required in the following
cases:

a. Investments to be made by Venture Capital Funds registered with the Security and Exchange
Board of India (SEBI); or

b. where in the existing joint-venture investment by either of the parties is less than 3%; or

c. where the existing venture/ collaboration is defunct or sick.

 
 In so far as joint ventures to be entered into after the date of this Press Note are concerned, the joint venture
agreement may embody a 'conflict of interest' clause to safeguard the interests of joint venture partners in the event
of one of the partners desiring to set up another joint venture or a wholly owned subsidiary in the 'same' field of
economic activity.

Impact of FDI policies by the end of year 2005

Opening up of door policies adopted by the Government of India through its new economic policies has
attracted more investments in to the country. Indian Industries have gone global and in the same
direction the inflow of FDI in to the country has increased at a faster rate.
The Inflow of FDI into the country over various years is as follows:

Amount of FDI inflows (In US$

Year (April-March) million)

2000-2001 2,908

2001-2002 4,222

2002-2003 3,134

2003-2004 2,634

2004-2005 3,755*

2005-2006 (Upto March

5,549
2006)

The Indian economy is now well recognized as an attractive destination for investment and a large and growing
market for business. India is emerging as a global player in information technology and is in the forefront of the
unfolding new area of knowledge economy, with its large
pool of scientific and creative human resources and R&D facilities. These strong fundamentals are corroborated
by recent findings of internationally reputed organizations / institutions such as
AT Kearney, PricewaterhouseCoopers’, among others, which have attested to the inherent strengths of the
economy.

While FDI inflows to India has increased in recent years as compared to other select Asian countries, the stock of
FDI inflows for India at US$ 38.7 bn in 2004, are lower than that for other Asian countries such as Malaysia
(US$ 46.3 bn) and Thailand (US$ 48.6 bn). Further, FDI in India is yet to play its desired and significant role in
overall economic activity in India is evidenced by the fact that the share of inward FDI stock to the country’s
GDP has been much lower as compared to those in other Asian countries.

FDI INFLOWS:
A. CUMULATIVE FDI INFLOWS (equity capital components only):

1. Cumulative amount of FDI inflows Rs. 1,36,798 US$ 33,356

(from August 1991 to March 2005) crore million
2. Amount of FDI inflows Rs. 24,613 US$ 5,549
(from April 2005 to March 2006) Crore million
3. Cumulative amount of FDI inflows Rs. 1,61,411 US$ 38,905
(up to March 2006) crore million
 B. SHARE OF TOP INVESTING COUNTRIES FDI INFLOWS (Financial year-wise):

Amount Rupees Country August 2002-03 2003-04 2004-05 2005-06 Cumulative %age with
1991 (April- (April- (April- (April- Inflows inflow
in crore (US$ in
million) Ranks to March) March) March) March) (from Aug.
March2002 1991 to
March 2006)
1. Mauritius 27,446 3,766 2,609 5,141 11,411 50,403 37.18
(6,731) (788) (567) (1,129) (2,570) (11,785)
2. U.S.A. 12,248 1,504 1,658 3,055 2,210 20,675 15.25
(3,188) (319) (360) (669) (502) (5,038)
3. Japan 5,099 1,971 360 575 925 8,931 6.59
(1,299) (412) (78) (126) (208) (2,124)
4. Netherlands 3,856 836 2,247 1,217 340 8,497 6.27
(986) (176) (489) (267) (76) (1,994)
5. U.K. 4,263 1,617 769 458 1,164 8,271 6.10
(1,106) (340) (167) (101) (266) (1,979)
6. Germany 3,455 684 373 663 1,345 6,570 4.81
(908) (144) (81) (145) (303) (1,582)
7. Singapore 1,997 180 172 822 1,218 4,388 3.24
(515) (38) (37) (184) (275) (1,050)
8. France 1,947 534 176 537 82 3,276 2.42
(492) (112) (38) (117) (18) (778)
9. South Korea 2,189 188 110 157 269 2,912 2.15
(594) (39) (24) (35) (60) (752)
10. Switzerland 1,200 437 207 353 426 22,622 1.93
(325) (93) (45) (77) (96) (636)
TOTAL FDI INFLOWS * 92,611 14,932 12,117 17,138 24,613 1,61,411 -
(23,829) (3,134) (2,634) (3,754) (4,549) (38,905)
 C. SECTORS ATTRACTING HIGHEST FDI INFLOWS:

Amount Sector Amount of FDI Inflows % age with

Rupees in FDI
crore (US$ in Inflows
million) Ranks
2002-03 2003-04 2004-05 2005-06 Cumulative
(April-March) (April-March) (April- (April- Inflows
March) March) (from August
1991 to March
2006)
1. Electrical 3,075 2,449 3,281 6,499 23,709 17.49
Equipments (644) (532) (721) (1,451) (5, 496)
(including computer
software & electronics)
2. Telecommunications 1,058 532 588 3,023 14,337 10.58
(radio paging, cellular (223) (116) (129) (680) (3,372)
mobile, basic
telephone services)
3. Transportation 2,173 1,417 815 983 13,315 9.82
Industry (455) (308) (179) (222) (3,178)
4. Services Sector 1,551 1,235 2,106 2,565 12,804 9.45
(financial & non- (326) (269) (469) (581) (3,091)
financial)
5. Fuels (Power + Oil 551 521 759 416 10,976 8.10
Refinery) (118) (113) (166) (94) (2,581)
6. Chemicals 611 94 909 1,979 8,580 6.33
(other than fertilizers) (129) (20) (198) (447) (2,143)
7. Food Processing 177 511 174 183 4,702 3.47
Industries (37) (111) (38) (42) (1,179)
8. Drugs & 192 502 1,343 760 4,311 3.18
Pharmaceuticals (40) (109) (292) (172) (1,007)
9. Cement and Gypsum 101 44 1 1,970 3,231 2.38
Products (21) (10) (0) (452) (747)
10. Metallurgical 222 146 881 681 2,816 2.08
Industries (47) (32) (192) (153) (655)