India Foreign Direct Investment

FDI has helped the Indian economy grow, and the

government continues to encourage more investments of this sort - but
with $5.3 billion in FDI in 2004 India gets less than 10% of the FDI of
China.

Foreign direct investment (FDI) in India has played an important role in the
development of the Indian economy. FDI in India has - in a lot of ways -
enabled India to achieve a certain degree of financial stability, growth and
development. This money has allowed India to focus on the areas that may
have needed economic attention, and address the various problems that
continue to challenge the country.

India has continually sought to attract FDI from the world’s major investors. In
1998 and 1999, the Indian national government announced a number of
reforms designed to encourage FDI and present a favorable scenario for
investors.

FDI investments are permitted through financial collaborations, through

private equity or preferential allotments, by way of capital markets through
Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear,
railway, coal & lignite or mining industries.

A number of projects have been announced in areas such as

electricity generation, distribution and transmission, as well as the
development of roads and highways, with opportunities for foreign investors.

The Indian national government also provided permission to FDIs to provide

up to 100% of the financing required for the construction of bridges and
tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately
$352.5m.
Currently, FDI is allowed in financial services, including the growing credit
card business. These services include the non-banking financial services
sector. Foreign investors can buy up to 40% of the equity in private banks,
although there is condition that stipulates that these banks must be
multilateral financial organizations. Up to 45% of the shares of companies in
the global mobile personal communication by satellite services (GMPCSS)
sector can also be purchased.

By 2004, India received $5.3 billion in FDI, big growth compared to previous
years, but less than 10% of the $60.6 billion that flowed into China. Why does
India, with a stable democracy and a smoother approval process, lag so far
behind China in FDI amounts?

Although the Chinese approval process is complex, it includes both national

and regional approval in the same process.

Federal democracy is perversely an impediment for India. Local authorities

are not part of the approvals process and have their own rights, and this often
leads to projects getting bogged down in red tape and bureaucracy. India
actually receives less than half the FDI that the federal government approves.

`Foreign Direct Investment in the Financial

Sector
The arrival of new and existing models, easy availability of
finance at relatively low rate of interest are key catalysts of growth in the
globalised economy, particularly for emerging market economies.

The role of Foreign Direct Investment in the present world is noteworthy. It

acts as the lifeblood in the growth of the developing nations. Flow of the FDI
to the countries of the world truly reflects their respective potentiality in the
global scenario. Flow of FDI truly reflects the country's both economic and
political scenario.The flow of FDI over the Globe is as follows:

FDI in the financial sector among market economies

Opening up of doors by many countries of the world has resulted foreign

participation in the financial sectors of emerging market economies (EMEs)
during the 1990s. It has continued to expand so far in this decade, on balance
- although its pace fell somewhat following problems in Argentina in 2002 and
the global slowdown in mergers and acquisitions. It is seen that banks
accounted for the majority of financial sector foreign direct investment
(FSFDI). In a number of countries in Latin America and central and eastern
Europe (CEE), foreign banks now account for a major share of total banking
assets. In Asia, the share of foreign banks is, overall, much lower, but still
substantial

. The integration of EME financial firms into the global market has
resulted a wider diversity of financial institutions operating in EMEs and given
greater emphasis on risk-adjusted profitability. These include expansion into
local retail banking and securities markets, where elements such as client
relationships and reputation are important components of the franchise value
of operations. Such factors have tended to raise the costs of exiting a country
and hence increased the permanence of FSFDI.

FSFDI was fostered by financial liberalization and market-based reforms in

many EMEs. The liberalization of the capital account and financial
deregulation paved the way for foreign acquisitions and the integration of
EME financial firms into an expanding global market for corporate control.
This is the character of FSFDI as part of a broader trend towards
consolidation and globalization in the financial industry. In some cases
competition in traditional markets increased pressure on major international
banks to find new areas for growth. Financial institutions in advanced
economies increasingly searching for profit opportunities at the customer and
product level, FSFDI offered a means of access to EME markets with
attractive strategic opportunities to expand.

Local financial infrastructure is growing which reduces the risks of conducting

business in EMEs.but events such as the Russian default in 1998 and
Argentine actions in 2002 also made financial institutions more sensitive.
Thus, financial institutions in industrial countries now tend to evaluate country
risk separately.

An important benefit of FSFDI is its effect on financial sector efficiency that

arises from local banks' exposure to global competition.
Host countries benefit from the technology transfers and innovations in
products and processes commonly associated with foreign bank entry.
Foreign banks exert competitive pressures and demonstration effects on local
institutions. This results better risk management, more competitive pricing and
in general a more efficient allocation of credit in the financial sector as a
whole. Foreign banks presence help to achieve greater financial stability in
host countries. Host countries benefit immediately from foreign entry. The
better capitalization and wider diversification of foreign banks, along with the
access of local operations to parent funding, may reduce the sensitivity of the
host country banking system to local business cycles and changing financial
market conditions. Their use of risk-based credit evaluation tends to reduce
concentration in lending and in times of financial distress, fosters prompter
recognition of losses and more timely resolution of problems.

The growing involvement of foreign firms in the financial systems of EMEs has
given rise to a situation where majorities of EME banking assets have become
foreign owned.
The growing involvement of foreign firms in the financial systems of EMEs has
given rise to a situation where majorities of EME banking assets have become
foreign owned.

Accordingly, developing pertinent technical skills is considered be an

important area of cooperation between authorities in advanced and EME
countries. In some markets, foreign-owned banks have been prominent in the
rapid expansion of consumer lending and foreign currency lending to both
households and businesses.

Appropriate supervision is needed to assess such credit managed by banks,

and authorities in charge of financial stability. Accordingly, public policy should
be focused on maximizing these benefits by continuing to encourage diversity
and competition in financial systems not only between foreign and domestic
banks but also between banks and other financial institutions.

One essential component among host country policy is commitment for

growth and stability. Another is the protection of property rights and equal
treatment of banks irrespective of ownership. From this point of view a more
extensive implementation of the internationally recognized set of financial
standards and codes can help to reduce country risk. Strengthening of legal
frameworks act as a parameter for reducing country risk. Smooth functioning
of the market for corporate control would be assisted by greater international
compatibility of accounting standards, takeover rules, and insolvency codes.

Regional integration among EME financial systems, often within a framework

for broader economic integration in the region, is another complementary
approach to this objective. There is substantial evidence of major benefits
from regional compacts such as those of the European Union and NAFTA. In
the case of very poor countries where there is some special support for FSFDI
may be merited provided political risk insurance if properly designed, could be
useful.

India-US Economic Relations

India and the US have multi faceted relations in the field of
politics, economics and commerce. India-US economic relations in the form of
bilateral investments and trade constitute important elements in India-US
bilateral relations particularly because India is now the second fastest growing
economy in the world and USA is the world's largest economy.

Economic Reforms introduced since 1991 have radically changed the course
of the Indian economy and has led to its gradual integration with the global
economy. The effect of this reform process on trade and investment relation
with US is profound. USA is the largest investing country in India in terms of
FDI approvals, actual inflows, and portfolio investment. US investments cover
almost every sector in India, which is open for private participants. India's
investments in USA are picking up. USA is also India's largest trading partner.
By 2003, India became the 24th largest export destination for the US. In terms
of exports to the US, India now ranks eighteenth largest country.

US investment in India
With regards to FDI U.S. is one of the largest foreign direct investors in India.
The stock of actual FDI Inflow increased from U.S. $11.3 million in 1991 to US
$4132.8 million as on August 2004 recording an increase at a compound rate
of 57.5 percent per annum. The FDI inflows from the US constitute about 11
percent of the total actual FDI inflows into India.

Top sectors attracting FDI from USA are: Fuels (Power & Oil Ref.) (35.93%),
Telecommunications (radio paging, cellular mobile & basic telephone services
(10.56%) Electrical Equipment (including Computer Software & Electronics)
(9.50%), Food Processing Industries (Food products & marine products)
(9.43%), and Service Sector (Fin. & Non-Fin. Services) (8.28%).

India's investment in US
India's direct investment abroad was initiated in 1992. Streamlining of the
procedures and substantial liberalization has been done since 1995. As of
now, Indian corporate/Registered partnership firms are allowed to invest
abroad upto 100% of their net worth and are permitted to make overseas
investments in business activity.

The overall annual ceiling on overseas investment and also the requirement
of prior approval of RBI for diversification of activity and for transfer by way of
sales of shares have been done away with. The need for opening up the
regime of Indian investments overseas has been the need to provide Indian
industry access to new markets and technologies with a view to increasing
their competitiveness globally

Since 1996 and upto September 2004, the total approved Indian investment
abroad amounts to US $ 11083.11 mln, of which 60.9% has been the actual
outflow. US share ($ 2080.367 mln.) constitutes 18.77% of the total approval.
Since 1996, USA attracted highest Indian direct investments (US$ 2080.367
mn) followed by Russia (US$ 1751.39 mn), Mauritius (US$ 948.864 mn) and
Sudan (US$ 912.03 mn). India's outgoing investments has been largest in the
field of manufacturing (54.8%) followed by non-financial services including
software development (35.4%).

In the current financial year 2004-05(April- August, 2004) actual outflows from
India on account of overseas investment was US$ 575.14 million as
compared to US$ 384.49 million in the corresponding period of last year. In
the current year, USA attracted highest Indian direct investments (US$ 125.4
mn) followed by Australia (US$ 116.33 mn), Kazakhstan (US$ 39.05 mn) and
Hong Kong (US$ 28.49 mn). India's outgoing investments was largest in the
field of manufacturing at US$ 279.07 million followed by non-financial services
(including software development) at US$ 75.27 million, Others at US$ 61.27
million and Trading Sector at US$ 30.3 million. The returns on account of
repatriation of dividend, royalty, consultancy fee etc. from overseas JV/WOS
during April-August, 2004 amounted to US$ 40.87 million.

The US investor community is increasingly sharing confidence in the future of

the Indian economy presently. The growing synergy between the two
countries in the technology sectors and mutually shared respect for
democracy, rule of law and well established business practices have
considered the two countries natural business partners from time to time.

FDI Inflows Year-Wise

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:

Year (April-March) Amount of FDI inflows (In US$ million)

1991-1992 (Aug-March) 167
1992-1993 393
1993-1994 654
1994-1995 1,374
1995-1996 2,141
1996-1997 2,770
1997-1998 3,682
1998-1999 3,083
1999-2000 2,439
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)

Sectors Attracting FDI

Though the services sector in India constitutes the largest share in the Gross
Domestic Product, still it has failed to some extent in attracting more funds in
the forms of investments.

Important sectors of the Indian Economy attracting more investments into the
country are as follows:

• Electrical Equipments (Including Computer Software & Electronic)

• Telecommunications (radio paging, cellular mobile, basic telephone

service)

• Transportation Industry

• Services Sector (financial & non-financial)

• Fuels (Power + Oil Refinery)

• Chemical (other than fertilizers)

• Food Processing Industries

• Drugs & Pharmaceuticals

• Cement and Gypsum Products

• Metallurgical Industries

Sector Specific Foreign Direct

Investment in India
FDI in India for Foreign Investors Latest Updates

FDI in Small Scale Sector in

India Further Liberalized

India Further Opens Up Key

Hotel & Tourism: FDI in Hotel & Sectors to Foreign
Tourism sector in India Investment

100% FDI is permissible in the sector on the

automatic route.

The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry
include travel agencies, tour operating agencies and tourist transport operating agencies,
units providing facilities for cultural, adventure and wild life experience to tourists, surface,
air and water transport facilities to tourists, leisure, entertainment, amusement, sports,
and health units for tourists and Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical and
consultancy services including fees for architects, design, supervision, etc.
ii. up to 3% of net turnover is payable for franchising and marketing/publicity
support fee, and up to 10% of gross operating profit is payable for management
fee, including incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from
RBI from time to time.

a. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as

per levels indicated below:

i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. Financial Consultancy
vi. Stock Broking
vii. Asset Management
viii. Venture Capital
ix. Custodial Services
x. Factoring
xi. Credit Reference Agencies
xii. Credit rating Agencies
xiii. Leasing & Finance
xiv. Housing Finance
xv. Foreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. Micro Credit
xix. Rural Credit

b. Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5
million to be brought upfront and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted

non-fund based NBFCs with foreign investment.

d. 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 b) (iii) above (without any restriction on number of operating subsidiaries
without bringing in additional capital)

e. Joint Venture operating NBFC's 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. (b)(i) and
(b)(ii) above.

f. 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.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to
obtaining licence from Insurance Regulatory & Development Authority (IRDA)

Telecommunication: FDI in Telecommunication sector

i. In basic, cellular, value added services and global mobile personal communications
by satellite, FDI is limited to 49% subject to licensing and security requirements
and adherence by the companies (who are investing and the companies in which
investment is being made) to the license conditions for foreign equity cap and
lock- in period for transfer and addition of equity and other license provisions.
ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up
to 74% with FDI, beyond 49% requiring Government approval. These services
would be subject to licensing and security requirements.
iii. No equity cap is applicable to manufacturing activities.
 iv. FDI up to 100% is allowed for the following activities in the telecom sector :
a. ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fiber (IP Category 1);
c. Electronic Mail; and
d. Voice Mail

The above would be subject to the following conditions:

e. FDI up to 100% is allowed subject to the condition that such companies

would divest 26% of their equity in favor of Indian public in 5 years, if
these companies are listed in other parts of the world.
f. The above services would be subject to licensing and security
requirements, wherever required.

Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis.

Trading: FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is primarily
export activities, and the undertaking is an export house/trading house/super trading
house/star trading house. However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the following activities:

• exports;
• bulk imports with ex-port/ex-bonded warehouse sales;
• cash and carry wholesale trading;
• other import of goods or services provided at least 75% is for procurement and
sale of goods and services among the companies of the same group and not for
third party use or onward transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy:

a. Companies for providing after sales services (that is not trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for such
trading companies who wish to market manufactured products on behalf of their
joint ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialized after sales service
d. Trading of items for social sector
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on
technology provided and laid down quality specifications, a company can market
that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture
provided such test marketing facility will be for a period of two years, and
investment in setting up manufacturing facilities commences simultaneously with
test marketing.

FDI up to 100% permitted for e-commerce activities subject to the

condition that such companies would divest 26% of their equity in
favor of the Indian public in five years, if these companies are listed
in other parts of the world. Such companies would engage only in
business to business (B2B) e-commerce and not in retail trading.

Power: FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation,
transmission and distribution, other than atomic reactor power plants. There is no limit on
the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

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.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and
maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and
harbors.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for
integration of pollution control systems is permitted on the automatic route.

Call Centers in India / Call Centres in India

FDI up to 100% is allowed subject to certain conditions.
Business Process Outsourcing BPO in India
FDI up to 100% is allowed subject to certain conditions.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the
following sectors:

i. 34 High Priority Industry Groups

ii. Export Trading Companies
iii. Hotels and Tourism-related Projects
iv. Hospitals, Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate Development
x. Highways, Bridges and Ports
xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
xiii. Industries Reserved for Small Scale Sector

3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising
Capital through Public Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership
engaged in Industrial, Commercial or Trading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the
equity Capital or Convertible Debentures of the Company by each NRI. Investment
in Government Securities, Units of UTI, National Plan/Saving Certificates.
6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a
General Body Resolution, up to 24% of the Paid Up Value of the Company.
7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from
Shares or Debentures of an Indian Company.

Certain terms and conditions do apply.

See also Opening Branch in India | Formation of Subsidiary in India | Starting a

Business in India | Opening Branch in India | Incorporating company in India |
Procedure for Formation of Company in India
Joint Ventures in India | Joint Venture Agreements | Outsourcing Agreements |
Outsourcing to India | Formation of Subsidiary in India | Starting a Business in India |
Opening Branch in India | Incorporating company in India | Procedure for Formation of
Company in India

See also Government Approvals for Investing in India | Entry Strategies in India for
Foreign Investors
Foreign Direct Investment in Small Scale Industries (SSI's)
in India
Recently, India has allowed Foreign Direct Investment up to 100% in many
manufacturing industries which were designated as Small Scale Industries.

India further ended in February 2008 the monopoly of small-scale units on 79

items, leaving just 35 on the reserved list that once had as many as 873
items.

While industrial policy reforms began with the new industrial policy statement
of 1991, India remained wary of intruding on the politically sensitive issue of
reservation for small-scale industry till the end of the 1990s.

Thus, while at the turn of the millennium the number of items reserved for
SSI units had come down from its peak of 873 in 1984, well over 800 items
remained on the list.

Since 2002, the scenario has changed dramatically. In these last seven
years, around 790 items - including things like farm equipment, toothpaste,
ice cream, footwear, detergents and even garments - have been knocked off
the list.

Thus, for the first time in over 40 years, there are today as few as 35 items
reserved for SSI units. When the policy of reservation was first introduced in
1967, there were just 47 items reserved for small-scale manufacturers.

However, what was till then an administrative decision was given legal
backing by an amendment enacted in 1984 to the Industries (Development
and Regulation) Act, 1951. That year also saw the number of items reserved
reaching a peak of 873.

Reservation means that units producing the reserved items cannot go beyond
a stipulated cap on investment in plant and machinery. Moreover, FDI was
allowed on a limited basis in SSI's.

In the old days, therefore, it was standard practice for mass consumption
items covered by the reserved list to be farmed out by large marketing
companies to dozens of small units, thereby negating economies of scale.

What it also meant was that some companies resorted to manufacturing

completely new class of products. So, if ice cream was reserved for small
scale units, a large player could always produce, say, 'frozen desserts'.

Apart from the steady trickle of de-reservation over the last decade, one of
the measures taken to get over this problem without confronting the political
problems involved was to allow foreign investment even in reserved items
with the caveat that such units would have to fulfill an export obligation.

For players who were already manufacturing items that were suddenly
reserved in 1967, the government came up with what was carry-on-business
license which capped their capacity, and fixed the location of the plant and
the goods produced.

The latest de-reservation means that pastries, hard boiled sugar candy and
Foreign Direct Investment in Small Scale Industries (SSI's) in
India
Recently, India has allowed Foreign Direct Investment up to 100% in many
manufacturing industries which were designated as Small Scale Industries.

India further ended in February 2008 the monopoly of small-scale units on 79

items, leaving just 35 on the reserved list that once had as many as 873 items.

While industrial policy reforms began with the new industrial policy statement of
1991, India remained wary of intruding on the politically sensitive issue of
reservation for small-scale industry till the end of the 1990s.

Thus, while at the turn of the millennium the number of items reserved for SSI
units had come down from its peak of 873 in 1984, well over 800 items remained
on the list.

Since 2002, the scenario has changed dramatically. In these last seven years,
around 790 items - including things like farm equipment, toothpaste, ice cream,
footwear, detergents and even garments - have been knocked off the list.

Thus, for the first time in over 40 years, there are today as few as 35 items
reserved for SSI units. When the policy of reservation was first introduced in
1967, there were just 47 items reserved for small-scale manufacturers.

However, what was till then an administrative decision was given legal backing by
an amendment enacted in 1984 to the Industries (Development and Regulation)
Act, 1951. That year also saw the number of items reserved reaching a peak of
873.

Reservation means that units producing the reserved items cannot go beyond a
stipulated cap on investment in plant and machinery. Moreover, FDI was allowed
on a limited basis in SSI's.

In the old days, therefore, it was standard practice for mass consumption items
covered by the reserved list to be farmed out by large marketing companies to
dozens of small units, thereby negating economies of scale.

What it also meant was that some companies resorted to manufacturing

completely new class of products. So, if ice cream was reserved for small scale
units, a large player could always produce, say, 'frozen desserts'.

Apart from the steady trickle of de-reservation over the last decade, one of the
measures taken to get over this problem without confronting the political
problems involved was to allow foreign investment even in reserved items with
the caveat that such units would have to fulfill an export obligation.

For players who were already manufacturing items that were suddenly reserved
in 1967, the government came up with what was carry-on-business license which
capped their capacity, and fixed the location of the plant and the goods produced.

The latest de-reservation means that pastries, hard boiled sugar candy and tooth
powder can be manufactured by large units too. Similarly, buckets, paper bags,
paper cups, envelopes, letter pads, paper napkins might not be manufactured
only in small units but also in specialized factories.

The same for sesame and rapeseed oil, which are not solvent extracted, a host of
chemicals and dyes paints be it distempers.

Electrical goods, which include geysers, hot air blowers and toasters, too are out
of the reserved list, as are ballpoint and fountain pens.

The remaining 35 items that would be produced by the SSI sector are food and
allied items, wood, wood products, paper, paper products, plastic products,
organic chemicals, drugs, drug intermediates, other chemicals, chemical
products, glass, ceramics, mechanical engineering and electrical machines,
appliances and apparatus.

In a nutshell, only 35 items remain reserved for the small scale industries sector.
For foreign investors, it means that in those 35 reserved sectors foreign
investment is allowed on a limited basis, except where certain conditions are met.

Contact us for further information

India Further Opens Up Key Sectors for Foreign Investment

India has liberalized foreign investment regulations in key sectors, opening up
commodity exchanges, credit information services and aircraft maintenance
operations. The foreign investment limit in Public Sector Units (PSU) refineries
has been raised from 26% to 49%. An additional sweetener is that the mandatory
disinvestment clause within five years has been done away with.

FDI in Civil aviation up to 74% will now be allowed through the automatic route
for non-scheduled and cargo airlines, as also for ground handling activities.

100% FDI in aircraft maintenance and repair operations has also been allowed.
But the big one, allowing foreign airlines to pick up a stake in domestic carriers
has been given a miss again.

India has decided to allow 26% FDI and 23% FII investments in commodity
exchanges, subject to the proviso that no single entity will hold more than 5% of
the stake.

Sectors like credit information companies, industrial parks and construction and
development projects have also been opened up to more foreign investment.

Also keeping India's civilian nuclear ambitions in mind, India has also allowed
100% FDI in mining of titanium, a mineral which is abundant in India.

Sources say the government wants to send out a signal that it is not done with
reforms yet. At the same time, critics say contentious issues like FDI and multi-
brand retail are out of the policy radar because of political compulsions. (Jan
2008)