Page 58 - DMGT401Business Environment

Unit 2: Industrial Policy and Regulatory Structure

(i) Global Depository Receipts (GDRs)/American Deposit Receipts (ADRs)/ Notes
Foreign Currency Convertible Bonds (FCCB): Foreign investment through
GDRs/ADRs and Foreign Currency Convertible Bonds (FCCBs) are treated as
Foreign Direct Investment. Indian companies are allowed to raise equity capital
in the international market through the issue of GDRs/ADRs/FCCBs. These
are not subject to any ceilings on investment. An applicant company seeking
government approval in this regard should have a consistent track record for
good performance (financial or otherwise) for a minimum period of 3 years.
This condition can be relaxed for infrastructure projects such as power
generation, telecommunication, petroleum exploration and refining, ports,
airports and roads.
(ii) Location Policy: Industrial undertakings are free to select the location of a
project. In the case of cities with population of more than a million (as per the
1991 census), however, the proposed location should be at least 25 km away
from the Standard Urban Area limits of that city, unless it is to be located in an
area designated as an 'industrial area' before July 25, 1991. Electronics, computer
software and printing (and any other industry which may be notified in the
future as a 'non polluting industry') are exempt from such locational
restrictions. Relaxation in the aforesaid locational restriction is possible if an
industrial license is obtained as per the notified procedure.
(iii) Environmental Clearances: Entrepreneurs are required to obtain statutory
clearances relating to Pollution Control and Environment for setting up an
industrial project. A Notification [SO 60(E) dated 27.1.94] issued under the
Environment Protection Act, 1986 has listed 29 projects in respect of which
environmental clearance needs to be obtained from the Ministry of
Environment, Government of India.
This list includes industries like petrochemical complexes, petroleum refineries, cement,
thermal power plants, bulk drugs, fertilizers, dyes, paper, etc. However, if investment is
less than 500 million, such clearance is not necessary unless it is for pesticides, bulk drugs
and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining
projects, tourism projects of certain parameters, tarred roads in Himalayan areas,
distilleries, dyes, foundries and electroplating industries.

3. Foreign Technology 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.
(a) Automatic Approval: The Reserve Bank of India, through its regional offices, accords
automatic approval to all industries for foreign technology collaboration agreements
subject to:
(i) lump sum payments not exceeding US $ 2 million;
(ii) royalty payable being limited to 5% for domestic sales and 8% for exports,
subject to a total payment of 8% on sales over a 10 years period; and
(iii) the period for payment of royalty not exceeding 7 years from the date of
commencement of commercial production, or 10 years from the date of
agreement, whichever is earlier (the aforesaid royalty limits are net of taxes
and are calculated according to standard conditions).

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