MONETARY POLICY

MONETARY POLICY

Monetary policy refers to the policy formulated by the RBI to regulate the supply of money & credit in order to achieve the socio-economic objectives of the economy.

Expansionary monetary policy is a policy that increases the money supply and It tends to increase both investment and output

Contractionary monetary policy is a policy that decreases the money supply, and it tends to decrease both investment and output

Objectives of Monetary policy

Price stability Rapid economic progress Exchange rate stability Balance of payments equilibrium Full employment Economic equality

Quantitative measures

a. Bank rateb. Open market operationsc. Cash reserve requirementsd. Statutory liquidity ratio

Quantitative Instruments

Open Market Operations

By purchasing or selling government securities, the central bank can alter the supply of money

Bank rate

The Central bank can also influence reserves by altering the interest rate charged on loans to commercial banks.

Reserve Requirements

Reserve Requirements influence the ability of banks to create new loans

Selective or Qualitative measures.

a. Regulation of margin requirement on loans.b. Regulation of consumer credit.c. Rationing of credit.d. Differential interest ratese. Credit Authorisation Scheme (CAS).f. Moral persuasion.g. Directives

Fiscal Policy

Refers to changes in government expenditures and/or taxes to achieve particular economic goals, such as low unemployment, price stability, and economic growth.

Fiscal Policy Expansionary fiscal

policy refers to increases in government expenditures and/or decreases in taxes to achieve macroeconomic goals.

Contractionary fiscal policy attempts to decrease government expenditures and/or increases in taxes to achieve macroeconomic goals.

Business - Economic System Interface

The economic environment of a country comprises of the structure of the economy, level of income, economic policies etc. Any change in the economic policy can have a positive or negative impact on the working of the business.

Business organization has to consider various policies prevailing in the country like import policy, industrial policy, taxation policy etc. which can have a great impact on the business.

Economic policies like liberalization, privatization, and globalization had a considerable impact on the business.

Changes in the economic policy ultimately affect the business. For example: change in the income structure of the consumers will ultimately affect their purchasing power and sale of the organization.

Industrial Policy | Meaning

Industrial policy means rules, regulations, principles, policies and procedures laid down by government for regulating, developing, and controlling industrial undertakings in the country.

Industrial Policy | Objectives

Industrial policy statements have been announced from 1948 onwards. A number of objectives have been projected by the Government of India while making industrial policy declarations.

Some of the important objectives can be identified as follows:1. Achieving a socialistic pattern of society and

preventing undue concentration of economic power.

2. Achieving industrial development.3. Reducing disparities in regional development.

Industrial Policy | Objectives

6. Providing opportunities for gainful employment.

7. Achieving a self-sustained economy.8. Achieving faster economic growth.9. Alleviating poverty.10. Protecting and developing a healthy small-

scale sector.11. Updating technology and modernization of

industry.12. Liberalization and globalization of economy.

Industrial Policy Resolution 1948 (6 April, 1948)Industrial Policy Resolution (30 April, 1956)Industrial Policy Feb 2, 1973Industrial Policy Dec 23, 1977Industrial Policy Statement of July, 1980Industrial Policy, July 24, 1991

Industrial Policies from 1948 to1991

Industrial Policy Resolution 1948 The Government of India announced its first

industrial policy resolution on 6 April,1948. The policy resolution laid stress on the role of

the state in the development of industry. The industrial activities were divided into four

broad areas:1. Items under central government control –

Manufacture of arms and ammunition, The production and control of atomic energy, Ownership and management of railway transport, etc.

Industrial Policy Resolution 1948

2. Items under the state government control –Coal, Iron and Steel, Aircraft manufacture, Shipbuilding, Manufacture of telephone, telegraph and wireless apparatus, Mineral oils.

3. Items of basic importance (planned & regulated by government) – Automobiles and Tractors, Electric Engineering, Other Heavy Machinery, Machine Tools, Heavy Chemicals, Fertilizers and Pharmaceuticals, Power, Cotton and Woollen Textiles, Cement, Sugar, Paper and Newsprint, etc.

Industrial Policy Resolution 1948

4. Items for Private Sector –The rest of the industrial field will be open to private enterprise.

It also emphasised on securing a continuous increase in production and its equitable distribution.

Importance was given to small scale and cottage industries.

Industrial Policy Resolution (1956) Industrial Policy Resolution (30 April, 1956)

was also regarded as the “Economic Constitution of India”.

Major Objectives of Industrial Policy Resolution (1956) are as follows:1. Improving living standards and working

conditions for the mass of the people.2. To reduce disparities in income and wealth.3. To prevent private monopolies and

concentration of economic power.

Industrial Policy Resolution (30 April, 1956)

4. Development of transport facilities.5. The State will progressively assume a

predominant and direct responsibility for setting up new industrial undertakings.

6. Planned and rapid development.7. Expand public sector.8. Disparities in levels of development between

different regions should be progressively reduced.

Salient features of industrial policy 1956 The Industrial Policy Resolution - 1956 classified

industries into three categories. The first category comprised 17 industries (included in Schedule A of the Resolution) exclusively under the domain of the Government. These included ra ilwa ys , a ir tra ns p o rt, a rm s a nd am m unitio n, iro n a nd s te e l and atomic energy, etc.

The second category comprised 12 industries (included in Schedule B of the Resolution ), which were envisaged to be progressively State owned but private sector was expected to supplement the efforts of the State. These included fertilizers, machine tools, rubber, essential drugs, etc.)

The third category contained all the remaining industries and it was expected that private sector would initiate development of these industries but they would remain open for the State as well.

Emphasis on heavy industries. Widened the scope of the public sector. To provide all sorts of assistance to small and

cottage industries for wider dispersal of the industrial base and more equitable distribution of income.

Centered around self sufficiency in industrial production

Accelerate the rate of economic growth and to speed up industrialization

Reduce disparities in income and wealth, to prevent private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals.

 The Government of India stressed the role of cottage and small scale industries in the development of the national economy.

 

In order that industrialization may benefit the economy of the country as a whole, it is important that disparities in levels of development between different regions should be progressively reduced.

Proper managerial and technical cadres in the public services are established.

Proper amenities and incentives should be provided for all those engaged in industry.

The Industrial Policy statement of 1973, inter alia, identified high-priority industries where investment from large industrial houses and foreign companies would be permitted.

The Industrial Policy Statement of 1977 laid emphasis on decentralisation and on the role of small-scale, tiny and cottage industries

Industrial Policy 1977

The Industrial Policy Resolution of 1956 still remained valid, but certain structural distortions had crept in the system. The new policies were hence directed towards removing these distortions.

It provided for a closer interaction between the agricultural and industrial sectors.

Accorded the highest priority to the generation and transmission of power.

Special legislation to protect cottage and household industries was also proposed to be introduced.

The list of industries exclusively reserved for the small scale sector was expanded from 180 items to more than 500 items.

Industrial Policy Dec 23, 1977 highlighted on producing inputs needed by a large number of smaller units and making adequate marketing arrangements.

Within the s m a ll s c a le s e c to r s p e c ia l a tte ntio n will be g ive n to units in the tiny s e c to r na m e ly tho s e with inve s tm e nt in m a chine ry a nd e q uip m e nt up to Rs O ne la kh a nd s itua te d in to wns with a p o p ula tio n o f le s s tha n 5 0 , 0 0 0 a c c o rd ing to 1 9 7 1 c e ns us fig ure s , a nd villa g e s .

Sche m e s will be dra wn up fo r m a king a va ila ble a s s is ta nc e e s p e c ia lly to tiny units in the s m a ll s c a le s e c to r a s we ll a s to c o tta g e a nd ho us e ho ld indus trie s .

A District Industries Centre would be set up toprovide, under a single roof, all the services andsupport required by small and village

entrepreneurs. In order to secure balanced regional

development it was decided that industrial licences would

not be issued to new industrial units for location

within certain limits of large metropolitan cities

having a population of more than 1 million and urban

areas with a population of more than 5 lakhs as per

the 1971 census.

In order to provide effective financial support for promotion of small village and cottage industries, the Industrial Development Bank of India has taken steps to set up a separate wing to deal exclusively with the credit requirements of this sector.

In future, expansion of Large House will be guided by the following principles:-

The expansion of existing undertakings and establishments of new undertakings will continue to be subject to the provisions of the Monopolies and Restrictive Trade Practices Act.

Except in the case of industries eligible for automatic growth of capacity, the expansion of existing undertakings into new lines and establishments of new undertakings by large House will require specific approval of Government  

Equity participation together with an active association of workers in decision making from the shop floor level to the Broad level will provide the necessary environment for a meaningful participation by workers in the management of industry. 

Industrial Policy Statement of July, 1980 Industrial Policy Statement of July, 1980 was

based on Industrial Policy Resolution (30 April, 1956).

1. The major objectives are as follows:1. Optimum utilisation of installed capacity.2. Maximum production and achieving higher

productivity.3. Higher employment generation.4. Promotion of export-oriented industries.

Industrial Policy Statement of July, 1980

5. Consumer protection against high prices and bad quality.

6. Correction of regional imbalances.7. Promoting competition in the domestic market8. Technological up gradation and modernization.9. Strengthening of the agricultural base through

agro based industries and promotion of optimum inter-sectoral relationship.

Industrial Policy, July 24, 1991

Government can build a modern, democratic, socialist, prosperous and forward-looking India. if India grows as part of the world economy and not in isolation.

While Government will continue to follow the policy of self-reliance, there would be greater emphasis placed on building up our ability to pay for imports through our own foreign exchange earnings.

Industrial Policy, July 24, 1991 Government is also committed to development

and utilisation of indigenous capabilities in technology and manufacturing as well as its up gradation to world standards.

Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system and increasing competitiveness for the benefit of the common man.

Industrial Policy, July 24, 1991 The spread of industrialisation to backward areas

of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments.

Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand the production base.

Labour will be made an equal partner in progress and prosperity.

Workers’ participation in management will be promoted.

Industrial Policy, July 24, 1991 Need to preserve the environment and ensure the

efficient use of available resources. Maintain sustained growth in productivity and

gainful employment and attain international competitiveness.

In pursuit of the above objectives, Government have decided to take a series of initiatives in respect of the policies relating to the following areas:1. Industrial Licensing.2. Foreign Investment.3. Foreign Technology Agreements.4. Public Sector Policy.5. MRTP Act.

NATIONAL MANUFACTURING POLICY

Manufacturing to contribute at least 25% of the National GDP by 2022.

Increase the rate of job creation in manufacturing to create 100 million additional jobs by 2022

Creation of appropriate skill sets among the rural migrant and urban poor to make growth inclusive.

Increase technological depth in manufacturing Enhance global competitiveness of Indian

manufacturing through appropriate policy support. Ensure sustainability of growth, particularly with

regard to the environment including energy efficiency, optimal utilization of natural resources

Highlights

i. Rationalization and simplification of business regulations

ii. Simple and expeditious exit mechanism for closure of sick units while protecting labour interests

iii. Financial and institutional mechanisms for technology development

iv. Industrial training and skill up gradation measures

v. Incentives for SMEs Vi. Special focus sectors

Vi. Manufacturing management will be given a focused attention as it will facilitate improvement of productivity, quality and competitiveness of manufacturing enterprise.

vii. Clustering and aggregation : National Investment and Manufacturing Zones (NIMZs)

viii. Greening of manufacturing operations ix. To ensure access for Indian companies to

foreign technologies as well as development of advanced indigenous technologies

X. Trade Policy

Public sector policy and disinvestment

The Government announced on 24th July 1991 the ‘Statement on Industrial Policy’ which inter-alia included Statement on Public Sector Policy.

to fo c us the p ublic s e c to r o n s tra te g ic , hig h-te ch a nd e s s e ntia l infra s truc ture .

Public e nte rp ris e s which a re chro nic a lly s ic k a nd which a re unlike ly to be turne d a ro und will, fo r the fo rm ula tio n o f re v iva l/re ha bilita tio n s che m e s , be re fe rre d to the Bo a rd fo r Indus tria l a nd Fina nc ia l Re c o ns truc tio n (BIFR)

Bo a rds o f p ublic s e c to r c o m p a nie s wo uld be m a d e m o re p ro fe s s io na l a nd g ive n g re a te r p o we rs .

Disinvestment

“Investment refers to the conversion of money or cash into securities or any other claims on money. As follows, disinvestment involves the conversion of money claims or securities into money or cash.” 

Disinvestment can also be defined as the action of an organization (or government) selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture

The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed.

Problems of public sector enterprises: Under–utilisation of capacity Problems related to planning and construction

of projects Problems of labour and management Lack of autonomy 

The following main objectives of disinvestment were outlined: 

To reduce the financial burden on the Government

To improve public finances To introduce competition and market discipline To fund growth To encourage wider share of ownership

Importance of Disinvestment

Importance of disinvestment lies in utilization of funds for:

Financing the increasing fiscal deficit Financing large-scale infrastructure

development For investing in the economy to encourage

spending For retiring Government debt- Almost 40-45%

of the Centre’s revenue receipts go towards repaying public debt/interest 

For social programs like health and education

Approaches to Disinvestment

Minority disinvestment Majority disinvestment Complete Privatization

The Govt. of India constituted the National Investment Fund (NIF) on 3rd November, 2005, into which the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized. The corpus of the fund was to be of permanent nature and the same was to be professionally managed in order to provide sustainable returns to the Govt.

North East Industrial and Investment Promotion Policy (NEIIPP), 2007

Coverage: The North East Industrial Policy (NEIP) , covers the States of Arunachal Pradesh , Assam , Manipur , Meghalaya , Mizoram , Nagaland Tripura and Sikkim.

Duration: All new units as well as existing units which go in for substantial expansion and commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of ten years from the date of commencement of commercial production.

Excise Duty Exemption: 100% Excise Duty exemption will be continued , on finished products made in the North Eastern Region

Income Tax Exemption: 100% Income Tax exemption

Capital Investment Subsidy from the 1 s t Ap ril, 2 0 0 7 a nd re m a in in fo rc e upto and inclusive of 3 1 . 3 . 2 0 1 7 a nd will be enhanced from 15% of the investment in plant and machinery to 30%

Interest Subsidy: Interest Subsidy will be made available @ 3%

on working capital loan Comprehensive Insurance: New industrial units as well as the existing

units on their substantial expansion will be eligible for reimbursement of 100% insurance premium

Negative List : tobacco and manufactured tobacco

substitutes, pan masala, Plastic carry bags

A transport subsidy will be given to the industrial units located in the areas in respect of raw materials which are brought into and finished goods which are taken out of such areas

Incentives for Service/other Sector Industries: Hotels (not below Two Star category),

adventure and leisure sports including ropeways

(ii) Medical and health services in the nature of nursing homes and old-age homes

(iii) Vocational training institutes such as institutes for hotel management, catering, entrepreneurship development, nursing, fashion, design and industrial training

Incentives for Bio-technology industry The biotechnology industry will be eligible for

benefits under NEIIPP, 2007 as applicable to other industries

Incentives for Power Generating Industries: Power Generating plants will continue to get

incentives Establishment of a monitoring mechanism for

implementation of the NEIIPP, 2007

Nodal agency The North East Industrial Development Finance

Corporation will continue to act as the nodal agency for disbursal of subsidies

EXIM policy / Foreign trade policyObjectives To facilitate sustained growth in exports from

India. To stimulate sustained economic growth by

providing access to essential raw materials, intermediates, components and capital goods required for augmenting production and providing services.

To enhance the technological strength and efficiency of Industry, Agriculture and services, thereby improving their competitive strength while generating new employment opportunities

To encourage the attainment of internationally accepted standards of quality.

Special focus initiatives Market diversification Technological upgradation Agriculture and village industry, Handloom and

handicraft, Gems and jewellery, Leather and footwear, Electronics and IT Hardware Manufacturing Industries

Green products and technologies Incentives for Exports from the North Eastern

Region EXPORT PROMOTION CAPITAL GOODS

(EPCG) SCHEME

Board of Trade Assistance to States for developing Export

infrastructure and other allied activities Market Access Initiative and Market

Development Assistance Towns of export excellence India Brand Equity Foundation Test houses Quality complaints

Investor protection

Investor protection includes the various measures taken by Government and SEBI to protect the investors from malpractices of companies, brokers, etc. Government and SEBI are working as watchdog through rules, regulations and control mechanisms.

Need of Investor Protection

Uncertainty of Returns Importance of investment Protection from insider trading issues

CORPORATE GOVERNANCE Corporate governance can be defined as a set

of systems and processes which ensure that a company is managed to the best interests of all stakeholders.

Corporate governance is a system by which the companies are run, and the means by which they are responsive to their shareholders, employees and society.

Principles of Corporate Governance

Fairness Transparency and Disclosure Accountability

GOOD CORPORATE GOVERNANCE

Obligation towards shareholders Reasonable dividend Soundness Information Protection of assetsObligation towards Employees Fair wages Good working conditions Adequate benefits Co-operation Opportunity for growth

Obligation towards customers Need satisfaction Quality products and services Right information Fair trade practicesObligation towards Government Abide by the laws Pay taxes Avoid corrupting Govt. employees

Obligation towards society Socio-economic objectives Employment opportunities Efficient use of resources Welfare activities Business ethics.

CORPORATE GOVERNANCE AND BoD

It is the responsibility of the Board to ensure that management works in the best interests of the company and the shareholders to enhance corporate economic value

SEBI

SEBI was established by The Government of India on 12 April 1988 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. 

The Primary function of Securities and Exchange Board of India under the SEBI Act, 1992 is the protection of the investors’ interest and the healthy development of Indian financial markets.

SEBI had issued guidelines for the protection of the investors through the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.

INVESTOR PROTECTION MEASURES BY SEBI

regulating the business in Stock Exchanges registering and regulating the working of

intermediaries like stock brokers prohibiting fraudulent and unfair trade

practices relating to securities markets prohibiting insider trading in securities regulating substantial acquisition of shares

and takeover of companies promoting investors’ education and training of

intermediaries of securities markets

Carry out inspection/ audits of the SEs call for information from any bank / any

authority / corporation / agencies in respect of any transaction in securities which is under investigation or inquiry by SEBI

Established code of ethics for directors

SEBI and Investor protection

SEBI has a comprehensive grievance processing mechanism

SEBI issues guidelines to the companies and stock exchanges

SEBI publishes the names of the top twenty defaulting companies

SEBI has the power to recommend the suitable legal action against the defaulters to the Department of company Affairs and for suspension of trading of their shares to various stock exchanges

WTO (The World Trade Organization) and Trade liberalization

“Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.”

Created in 1995 by 120 nations to supersede and extend the GATT.

Now: 160 member nations

GATT/WTO: Main Objective

To provide a legal framework for incorporating the results of negotiations directed toward

“reciprocal and mutually advantageous exchange of market access commitments on

a non-discriminatory basis.”

Typically, such an outcome is obtained through reductions of tariffs and other barriers to trade.

Principles of GATT/WTO

Trade liberalization Non-discrimination Reciprocity Safeguards

GATT-Sponsored Trade Liberalization– Negotiating Rounds: The First Seven –

Round Period Participants Geneva 1947 23 Annecy 1949 13 Torquay 1951 38 Geneva 1956 26 Dillon 1960-61 26 Kennedy 1964-67 62 Tokyo 1973-79 102

123 participating countries. Most difficult—and most ambitious—among

all rounds of negotiation.

Created the WTO in 1995. Ultimately, very successful.

Uruguay Round—the 8th Round

Manufactured goods’ further liberalization: Cap on developed countries’ average tariff: not higher

than 4%. Overall, tariffs reduced by more than 30%.

Extended GATT scope to many new areas: Agriculture. Textiles. Services (banking, insurance, telecommunications,

transportation etc.): GATS. Intellectual property (copyrights, patents, trademarks):

TRIPS. Strengthened GATT dispute settlement

procedures.

Uruguay Round—Outcomes

TRIPS Agreement to provide enhanced protection

to intellectual property.GATS

Extension of GATT rules to services.

Doha round

The Doha Development Round or Doha Development Agenda (DDA) is the current trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001 under then director-general Mike Moore. Its objective is to lower trade barriers around the world, and thus facilitate increased global trade. Major issues dealt are, such as agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies.

Industrial Development under different Plan Periods

First five year plan (1951-56): The main thrust of the First Five-Year Plan

was on agricultural development. Therefore, the emphasis was on increasing capacity of the then existing industries rather than the establishment of new industries. Cotton, woollen and jute textiles, cement, paper, newsprint, power-looms, medicine, paints, sugar, vanaspaa (vegetable oil), chemical and engineering goods, and transport equipments showed some progress.

2. Industrial Development in Second Five Year Plan (1956-61):

Great emphasis was laid on the establishment of heavy industries during the Second Five-Year Plan. The second industrial policy was announced in 1956. The main thrust of industrial development was on iron and steel, heavy engineering and fertiliser industries. Moreover, there was emphasis on the expansion of existing steel plants, like Jamshedpur and Bhadravati. Three new iron and steel plants were located at Bhilai, Durgapur, and Raurkela.

Third five year plan (1961-66)

The target growth rate was 5.6%, but the actual growth rate was 2.4%.

Due to miserable failure of the Third Plan the government was forced to declare "plan holidays" (from 1966–67, 1967–68, and 1968–69). Three annual plans were drawn during this intervening period. The main reasons for plan holidays were the war, lack of resources, and increase in inflation.

Fourth five year plan (1969-74)

The growth rate of industrial production declined from 6.8 per cent in 1969-70 to 3.7 per cent in 1970-71 but increased to 4.5 per cent in 1971-72 and at about 5 per cent during 1972-73.

The target growth rate was 5.6%, but the actual growth rate was 3.3%.

Fifth five year plan (1974-79)

Impressive and considerable advancement has been made in the field of industry, though its growth rate has not been uniform.

There were many reasons for fluctuations as early period was largely based on import substitution and the development of the capital market.

Sixth five year plan (1980-85)

The Sixth Five-Year Plan was relatively successful to the Indian economy. The target growth rate was 5.2% and the actual growth rate was 5.4%.[

Seventh five year plan (1985-90) The plan laid stress on improving the

productivity level of industries by upgrading of technology.

The significant growth in industrial sector was recorded i.e. 5.6 percent. Among the major industry groups, were the annual growth rates of textile products, basic metals, alloys and metal products, electrical machinery and appliances.

Eighth Five Year Plan (1992-1997) Modernization of industries was a major

highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficitand foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995. This plan can be termed as, the Rao and Manmohan model of economic development.

During eighth plan, the percentage investment in public sector was more on industries as compared to agriculture.

Private sector has been allocated more important role rather than public sector.

Ninth five year plan (1997-2002) The industrial growth in the country was 4.5%

which was higher than that of the target of 3% The service industry had a growth rate of

7.8%. An average annual growth rate of 6.7% was

reached. The main emphasis during this plan was on

cement, coal, crude oil, consumer goods, electricity, infrastructures, refinery, and quality steel products

Tenth five year plan(2002-2007)

Target growth: 8.1% - growth achieved: 7.7% (i) the modernisation, technology upgrading,

reducing transaction costs, and increased export; (ii) to enhance export and to increase global competitiveness; and (iii) to achieve balanced regional development.

Eleventh plan (2007-2012)

Rapid and inclusive growth.(Poverty reduction) Emphasis on social sector and delivery of

service therein. Empowerment through education and skill

development. Reduction of gender inequality. Environmental sustainability.

Twelfth plan (2012-2017)

Target growth rate is 8% Poverty reduction Reduction in inflation

Foreign investment policy in India

Economic reforms embarked upon by the Government of India since mid-1991FDI policy liberalized progressively, through:

permitting FDI in more industries under the automatic routemore sectors opened up for foreign investment

For India to maintain its momentum of GDP growth, it is vital to ensure that the robustness of its FDI inflows is also maintained.

India rated as one of the most attractive investment destinations across the globe

Investing in India – Entry Routes

Automatic RoutePrior Permission

(FIPB)

Investing in India

General ruleNo prior permission requiredOnly information to the Reserve Bank of India within 30 days of inflow/Issue of shares

By exceptionPrior Government Approval needed

Decision generally Within 4-6 weeks

Investing in India – Entry Routes

Manufacturing• 100% FDI permitted in all activities under automatic route

except:– Cigar and cigarettes of tobacco - FIPB

– Products reserved for Small Scale Sector• FDI less than 26% under automatic route• FDI beyond 26% - FIPB subject to export obligation

– Defence products • FDI up to 26% - FIPB

FDI Policy for Industry SectorFDI Policy for Industry Sector

FDI Policy for Industry SectoFDI Policy for Industry Sector….

Mining• Coal – FDI up to 100%• Diamond, Gold, Silver , Minerals – up to 100% under

automatic route

Electricity • FDI up to 100% under automatic route in Generation,

Transmission, Distribution and Power Trading

• Shipping and Ports -100% FDI under automatic route

• Industrial Parks- 100% FDI under automatic route

• Hospitals- 100% FDI under automatic route

• Hotels & Tourism (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)- 100% FDI under automatic route

Private sector banks - Automatic

• Publishing scientific magazines - FIPB• Courier services - FIPB

Upto 74%

Upto 100%

• Retail allowed up to 51% withFIPB approval

Foreign collaborations

“Foreign collaboration is an alliance incorporated to carry on the agreed task collectively with the participation (role) of resident and non-resident entities.”

Alliance is a union or association formed for mutual benefit of parties.

Types of collaboration

Technical collaboration Financial collboration Marketing collaboration Consultancy collaboration

Biocon - Pfizer Adidas – Sennheiser Microsoft - Toyota Coco-cola with Eco plastics Mercedes Benz and facebook Harvard and MIT

Foreign collaboration is very useful in meeting out the deficiencies of the resources and in getting advanced technology with competitive price. Foreign collaboration in Indian market is increasing at a great speed due to the effects of liberalization; privatisation and globalisation.