Page 225 - DMGT401Business Environment

Business Environment

Notes 2. the increase in equity level must be from expansion of the equity base;
3. the foreign equity must be in foreign currency.
The automatic route for FDI and/or technology collaboration would not be available to those
who have or had any previous joint venture or technology transfer/trademark agreement in the
same or allied field in India.
Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in
domestic companies is permitted through automatic route subject to SEBI/RBI regulations and
sector-specific cap on FDI.

Government Approval

For the following categories, government approval for FDI/NRI/OCB through the FIPB is
necessary:
1. All proposals that require an Industrial Licence which includes (1) the item requiring an
Industrial Licence 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 the government under the New Industrial Policy of 1991.
2. All proposals relating to acquisition of shares in an existing Indian company in favour of
a foreign/NRI/OCB investor.
3. All proposals falling outside the notified sectoral policy/caps or under sectors in which
FDI is not permitted.
For greater transparency in the approval process, the government has announced guidelines for
consideration of FDI proposals by the FIPB.

Notes List of Industries for which Industrial Licensing is Compulsory Under Industries
(Development & Regulation) Act, 1951
1. Distillation and brewing of alcoholic drinks.
2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

3. Electronics, Aerospace and defence equipment: all types.
4. Industrial explosives including detonating fuses, safety fuses, gun powder,
nitrocellulose and matches.
5. Hazardous chemicals.

(a) Hydrocyanic acid and its derivatives
(b) Phosgene and its derivatives
(c) Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified

Example: Methyl Isocyanate
6. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September,
1994 and subsequently amended in February, 1999)

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