Foreign Investment Policy

Foreign Investment Policy:

The Ministry of Industry has expanded the list of industries eligible for automatic approval of foreign investments and, in certain cases, raised the upper level of foreign ownership from 51 percent to 74 percent and further in certain cases to 100 percent. In January 1998, the RBI announced simplified procedures for automatic FDI approvals. The announcement further provided that Indian companies will no longer require prior clearances from the RBI for inward remittances of foreign exchange or for the issuance of shares to foreign investors.

Facilitating foreign investment

In the recent budget, the finance minister announced the government's commitment to a 90-day period for approving all foreign investments. Government officers will be assigned to larger foreign investment proposals and will facilitate Central and State clearances in a time-bound manner. Unlisted companies with a good 3 year track record, have been permitted to raise funds in international markets through the issue of Global Depository Receipts (GDRs) and American Depository Receipts (ADRs).

A number of recent policy changes have reduced the discriminatory bias against foreign firms.

• The government has amended exchange control regulations previously applicable to companies with significant foreign participation.

• The ban against using foreign brand names/trademarks has been lifted.

• The FY 1994/95 budget reduced the corporate tax rate for foreign companies from 65 percent to 55 percent. The tax rate for domestic companies was lowered to 40 percent.

• The long-term capital gains rate for foreign companies was lowered to 20 percent; a 30 percent rate applies to domestic companies.

• The Indian Income Tax Act exempts export earnings from corporate income tax for both Indian and foreign firms.

Other policy changes have been introduced to encourage foreign direct and foreign institutional investment.

For instance, the Securities and Exchange Board...