Page 224 - DMGT401Business Environment

Unit 10: Foreign Trade

does not permit FDI beyond a ceiling. FDI for virtually all items/activities can be brought in Notes
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).

10.1.2 Routes of Foreign Investment

Automatic Route

New Ventures: All items/activities for FDI/NRI/OCB investment up to 100% fall under the
automatic route except the following:
1. All proposals that require an Industrial License which includes (1) the item requiring an
Industrial License under the Industries (Development & Regulation) Act, 1951; (2) foreign
investment being more than 24% in the equity capital of units manufacturing items reserved
for small scale industries; and (3) all items which require an Industrial Licence in terms of
the locational policy notified by government under the New Industrial Policy of 1991.
2. All proposals in which the foreign collaborator has a previous venture/tie up in India.
The modalities prescribed in Press Note No. 18 dated 14.12.1998 of 1998 Series, shall apply
to such cases. However, this shall not apply to investment made by multilateral financial
institutions such as ADB, IFC, CDC, DEG, etc., as also investment made in the IT sector.

3. All proposals relating to acquisition of shares in an existing Indian company in favour of
a foreign/NRI/OCB investor.
4. All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is
not permitted.
5. Whenever any investor chooses to make an application to the FIPB and does not want to
avail of the automatic route, he or she may do so.
6. PSUs and EPZs: Investment in public sector units as also for EOU/EPZ/EHTP/STP units
would also qualify for the automatic route. Investment under the automatic route shall
continue to be governed by the notified sectoral policy and equity caps and RBI will
ensure compliance of the same. The National Industrial Classification (NIC) 1987 shall
remain applicable for description of activities and classification for all matters relating to
FDI/NRI/OCB investment.
Existing Companies: Besides new companies, automatic route for FDI/NRI/OCB investment is
also available to the existing companies proposing to induct foreign equity. For existing
companies with an expansion programme, the additional requirements are that:
1. increase in equity level must result from the expansion of the equity base of the existing
company without the acquisition of existing shares by NRI/OCB/foreign investors;

2. the money to be remitted should be in foreign currency;
3. proposed expansion programme should be in the sector(s) under automatic route.
Otherwise, the proposal would need government approval through the FIPB. For this, the
proposal must be supported by a Board Resolution of the existing Indian company.
For existing companies without an expansion programme, the additional requirements for
eligibility for automatic approval are that:
1. they are engaged in the industries under automatic route;

LOVELY PROFESSIONAL UNIVERSITY 217