General Procedures  for  Foreign Investment Approvals.

1. Government tabled a statement on Industrial Policy in both the Houses of
Parliament  on July 24, 1991. The statement has  substantially  liberalised
the  provisions and simplified the procedures governing foreign  investment
proposals.

2. The   relevant portion of the Statement dealing with foreign  investment
is  contained  in para 39 B. According to the Statement approvals  will  be
given  for investment upto 51% foreign equity in high  priority  industries
[Annex  III of the Policy Statement, enclosed with this section  in  Indian
Trade   Classification  (Harmonised  System)].  These  approvals  will   be
available if the foreign equity covers the foreign exchange requirement for
import  of  capital  goods. The import of  components,  raw  materials  and
intermediate  goods  and  payment of know-how fees and  royalties  will  be
governed by the general policy applicable to other domestic units.  Payment
of  dividends will be monitored through the Reserve Bank of India so as  to
ensure  that,  outflows  on account of dividend payments  are  balanced  by
export earnings over a period of time.

Other  foreign equity proposals involving 51% equity but which do not  meet
any  or  all  of the criteria mentioned above,  will  continue  to  require
clearance.

Majority  foreign  equity  holding upto 51% will  be  allowed  for  trading
companies primarily engaged in export activities.

3. APPROVAL  FOR  FOREIGN  INVESTMENT UPTO 51%  FOREIGN  EQUITY  IN  HIGH
PRIORITY INDUSTRIES (ANNEX III).

 A. Procedures for Approvals

   Applications for approval under the provisions in para 39 B (i) and 39 B
(ii) of the Statement on Industrial Policy will be filed  with the  Reserve
Bank  of India. The application shall state clearly the description of  the
article  to be manufactured in ITC (HS classification). The proposal  shall
be  a composite one including detailed information on the capital goods  to
be  imported  for  the  project. Under the provisions  of  the  policy  the
proposed foreign equity must cover the import of capital goods required for
the project.

The  Reserve  Bank  of India will issue the necessary  permission  for  the
foreign  equity investment under the Foreign Exchange Regulation Act,  1973
(FERA).  This  permission  will include exemption  from  the  operation  of
sections 26 (7), 28, 29, and 31 of FERA. Simultaneously the Reserve Bank of
India  will  confirm  that the import of capital goods is  covered  by  the
foreign equity. Under the procedure outlined above, the plant and machinery 
proposed to  be imported  must  be  new and not second-hand. 

 B. Dividend Balancing

Para  39  B  (ii) of the Policy Statement provides for  the  monitoring  of
outflow of foreign exchange on account of dividend payments which are to be
balanced by export earnings over a period of time. This monitoring will  be
done  by  the  Reserve Bank of India. The balancing will  be  done  on  the
following basis :

 (i)  The condition of dividend balancing is  required  for  all  companies
      receiving approval  for  foreign equity upto 51% under the provisions 
      of para 39 B (i) of the Policy Statement.
 
(ii)  The balancing  of dividends  would be over a period of 7  years  from
      commencement  of production. Balancing  will not be  required  beyond  
      this period.
 
(iii) Remittance  of dividends should be covered by earnings of the company
      from export of items in Annex-III. The amount of dividend payment may  
      be covered  by  export earnings of such items recorded in years prior 
      to the payment of dividend or in the year of payment of dividend. 

 4. FOREIGN INVESTMENT IN TRADING COMPANIES

Under  the provisions of para 39 B(iv) foreign equity holdings of upto  51%
equity  will  be allowed in trading companies primarily engaged  in  export
activities. Applications for foreign investment  under  this clause will be
filed with the Reserve Bank of India in a form to be prescribed by the RBI.
Such  trading houses shall be at par with the domestic trading  and  export
houses and shall operate in accordance with the Import Export Policy.

 5. FOREIGN INVESTMENT IN HOTELS AND TOURISM RELATED INDUSTRY

Foreign   equity  holdings upto 51% will also be permitted  in  hotels  and
tourism related industry. Applications will be filed with the Reserve  Bank
of India in the form to be prescribed by the RBI.

 6. RAISING FOREIGN EQUITY TO 51% IN EXISTING COMPANIES

Existing  companies which already have some foreign equity holdings can now 
raise this  to 51%  from  existing  levels  under the  automatic  approvals 
process.

 7. OTHER FOREIGN INVESTMENT PROPOSALS

All   other foreign investment proposals, will be subject to  the  existing
procedures.  Applications  will be made to the  Secretariat  of  Industrial
Approvals  in  the Department of Industrial Development in  the  prescribed
form. These proposals will be considered according to the usual procedures.
This will include proposals involving 51% foreign equity which do not  meet
any  or  all of the criteria under paras 39 B(i) and (ii)  of  the  Policy.
Proposals of foreign investment, foreign technology agreements not  covered
by  the  automatic facility, an import of capital goods  may,  if  desired,
continue to be made on a composite basis.

 8. FOREIGN TECHNOLOGY AGREEMENTS

Under  the provisions of the new policy, foreign equity proposals need  not
necessarily be accompanied by foreign technology agreements. The  procedure
for  foreign  technology  approvals  has been  outlined  in  the  preceding
section.

 9. NEW CLASSIFICATION SYSTEM

Entrepreneurs    may  note  that  the  description  of  article(s)  to   be
manufactured should be stated according to the Indian Trade  Classification
(Harmonised System). This applies to  both of the applications to be  filed
under the provisions of para 3 and para 6 of this section.

The   description  of industries covered by Annex III of the  Statement  on
Industrial Policy in the Indian Trade Classification (Harmonised System) is
attached.

Copies  of the Indian Trade Classification (based on  Harmonised  Commodity
Description  and  Coding System), published by the  Ministry  of  Commerce,
Directorate General of Commercial Intelligence and Statistics, Calcutta can
be obtained on payment from the Controller of Publications, 1, Civil Lines,
Delhi-110054  or  from any of the agents authorised to sell  Government  of
India publications.

No.11/43/91-LP                                 Dated the 20th August, 1991.
       
N.B.: UPDATED ON JUNE 1, 1992.