fixed and floating exchange rates

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Welcome to India

India is the second most populous country and the largest democracy in the world. Thefar reaching and sweeping economic reform undertaken since 1991 have unleashed theenormous growth potential of the economy. There has been a rapid, yet calibrated, move

towards deregulation and liberalisation, which has resulted in India becoming a favouritedestination for foreign investment. The mood is upbeat and the signals strong.Undoubtely. India has emerged as one of the most vibrant and dynamic of the developingeconomics.

What India Offers

One of the largest economies of the world, fourth largest economy in terms of purchasingpower parity.

Large and rapidly growing consumer market-up to 300 million people constitute the

market for branded consumer products.

Easy access to markets of the other nations belonging to the South Asian Association forRegional Cooperation (Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka).

Large and diversified infrastructure spread across the country.

Promising future in the Information technology industry.

Large manufacturing capability, spanning almost all areas of manufacturing activities.

Well-developed research and development (R&D) infrastructure and technical andmarketing services.

Well established knowledge industry.

Abundance of natural resources (has a rich mineral base), and agricultural self-sufficiency.

Developed banking system-commercial banking network of over 63,000 branchessupported by a number of National and State level financial institutions.

Vibrant capital market consisting of 22 stock exchanges with over 9,000 listedcompanies.

Skilled manpower and professional management including engineers, managerialpersonnel, accountants, and lawyers, available at competitive costs.

Conducive foreign investment environment that provides freedom of entry, investment,location, choice of technology, import and export.


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The policy environment provides clear guidelines for entry, freedom of location, choiceof technology, production, repatriation of capital, dividends, etc., which is specificallyaimed of enhancing the flow of FDI.

Well-balanced package of fiscal incentives.

Stable democratic environment fostered by over 53 years of Independence.

Established, Independent judiciary.

English the preferred business language.

Investment Policy

Foreign Direct Investment

As part of the economic reforms programme, policy and procedures governing foreigninvestment and technology transfer have been significantly simplified and streamlined.

Automatic Route

Today, foreign investment is freely allowed in all sectors including the services, sectorexcept in cases where there are sectoral ceilings.

All items/activities except the following are under the automatic route for foreign directinvestment (FDI):

i. All proposals that require an industrial Licence. An industrial Licence is mandatoryif:

a. the item involved requires on industrial licence under the Industries(Development & Regulation) Act, 1951 or

b. the foreign equity portion is more than 24% of the equity capital of unitsmanufacturing items reserved for small scale industries; or

c. the item concerned requires on industrial Licence in terms of thelocational policy

ii All proposals in which the foreign collaborator has a previous venture

or tie-up in India. (excluding IT Sector).

iii All proposals relating to the acquisition of shares in an existing Indiancompany in favour of a foreign investor.

a. iv. All proposals outside the notified sectoral polict/caps, or under sectorsin which FDI is not permitted


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Investment in public sector units as also in Export Oriented Units (EOUs),and units in Export Processing Zones (EPZs), Special Economic Zones(SEZs), Software Technology Parks (STPs) and Electronics HardwareTechnology Parks (EHTPs) also quality for the Automatic Route.

FDI in the Sector upto 26%, is allowed under the automatic route subjectto licence from the insurance regulatory & development Authority forundertaking insurance activities.

In addition to Automatic Approval for new companies, such approval canalso be granted for existing companies proposing to induct foreign equity,for existing companies with an expansion programme, the additionalrequirements are that:-

i. the increase in equity level must result from the expansion f the equitybase of the existing company.

ii. the money to be remitted should be in foreign currency, andiii. the proposed expansion programme should be predominantly in thesector(s) under automatic route.

For existing companies without an expansion programme, the additional requirements foreligibility for automatic approval are :

i. they should be engaged predominantly in industries under the automaticroute.

ii. the increase in equity level must be from expansion of the equity base, andiii. the foreign equity must come in foreign currency.

Otherwise, the proposal would need Government approval through the ForeignInvestment Promotion Board (FIPB).

Investors coming through the Automatic Route are required to file relevant documentswith the Reserve Bank of India within 30 days after the issue of shares to foreigninvestors. Proposals which do not fulfill the conditions for automatic approval willrequire the approval of the Government. The investors have to make an application to theForeign Investment Promotion Board, Ministry of Commerce & Industry, UdyogBhawan, New Delhi, for obtaining such approval.

Trade Policy-Year 2000

Special Economic Zones to be set up, Export processing zones at Mumbaii, Kandala,Visakhapatnam and Cochin to be coverted into special economic zones.

Quantitative restrictions on 714 items removed.

Duty free replenishment certificate scheme for over 5,000 products introduced.


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Major sector sperecific intitiatives in gems & jewellery, agro-chemicals, bio-technology,pharmaceuticals, leather, garments, silk, etc.

Boost to e-commerce - electronic filing of applications to be the norm.

Deemed export benefits extended to core infrastructural sectors involving an investmentof Rs. 1 billion or above, like coal and hydrocarbon, and also for renovation of powerplants.

Import of second-hand capital goods less than 10 years and allowed without licences,against surrender of special import licences.

Pre-export Duty Entitlement Passbook Scheme abolished.

Export Promotion Capital Goods scheme extended to all industrial sectors, at 5% importduty.

Pharmaceutical and bio-tech firms allowed to import R & D equipment and goods duty-free up to 1% of free-on-board value of their exports.

Trriff protection and safeguards under antidumping and anti-subsidy mechanism tocontinue for domestic industry.

Business opportunities

The reform process has deregulated the economy and stimulated domestic and foreigninvestments, taking India firmly into the forefront of investment destinations. TheGovernment, keen to promote investment in the country has radically simplified andrationalised polices, procedures and regulatory aspects, Foreign investment is welcome inalmost all sectors, except those of strategic concern ( for instance, defence and atomicenergy).

A series of incentives has been announced to promote investments. These include importof capital goods at concessional customs duty (subject to fulfillment of certain exportobligations), liberalisation of external commercial borrowing norms, tax holiday, andconcessional tax treatment for certain sector. In addition, several State Government offer

incentives, such as subsidy on fixed capital, loans at concessional rates of interest, andattractive power rates, While several incentives are project specific, a number of firmshave been successful in negotiating favourable investment terms with the StateGovernment concerned.

Since the initiation of the economic liberalisation process in 1991, sectors such asautomobiles, chemicals, food processing, oil & natural gas, petrochemicals, power,services, and telecommunications have attracted considerable investments. Today, in the


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changes investment climate, India offers exciting business opportunities in virtually everysector of the economy.

Energy

Power

Investment Policy

The 1991 Power Policy seeks to attract significant private sector investment in the Indianpower sector. The key initiatives include:

Private sector permitted to set up cool, gas or liquid based thermal project,hydel projects and wind or solar projects of any size.

Foreign equity participation brought under automatic approval of

generation, transmission and distribution of power generated in hydro-electric, oil based and coal/lignite based power projects.

Role of the Central Government curtailed and the State Governments andState Electricity Boards (SEBs) empowered to negotiate directly withdevelopers, facilitating speedy clearances for the investor.

Ancillary sector such as cool significantly deregulated.

100% foreign equity permitted.

Opportunities

Demand is expected to grow to 570 billion Kwh by 2001-02 and to 782 billion Kwh by2006-07. Over the 10 year period from 1997-2007, a total capacity addition of 98,000MW is envisaged, entailing an investment of Rs. 5,750 billion in power generation,transmission and distribution.

The specific project opportunities expected in the near future include:

Liquid Fuel Based Projects using low sulphur heavy stock (LSHS), furnace oil (FO),heavy petroleum stock (HPS), Naphtha, Vacuum Residue, Condensate and Orimulsion

are permitted by the Government. Import of liquified natural gas (LNG) is also beingconsidered for setting up large capacity combined cycle power plants, Transmissionprojects for power transfer are available for competitive bidding by the CentralTransmission Utility (Power Grid) and State Transmission Utilities (SEBs)/GridCorporations). The transmission system project are being identified for competitivebidding by the Central and State Transmission Utilities.


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Attractive investment opportunities are likely to develop in distribution of power asseveral State governments have agreed to allow the gradual entry of the private sector indistribution.

Non-Conventional Energy Sources

Investment Policy

Foreign Investors can enter into a joint venture with an Indian partner for financial and/ortechnical collaboration and also for setting up of renewable energy based powergeneration projects. The liberalised foreign investment approval regime is aimed atfacilitating foreign investment and transfer of technology through joint ventures.

100% foreign investment as equity is permissible.

Government of India encouraging foreign investors to set up renewable energy based

pwer generation project on Build-Own-Operate basis.

Opportunities

In India, investment opportunities are available for the following types of investors andusers:-

Investment by foreign investors in renewable energy:

Wind, Solar Photo-voltaic, Solar Thermal, Small Hydro, Biomass, Co-generation,Geothermal, Tidal and Urban & Industrial Wastes based power projects.

Investment by foreign investors for manufacturing of renewable energy systems anddevices based on:

Wide, Solar Photo-voltaic, Solar Thermal, Small Hydro, Biomass, Co-generation,Geothermal, Tidal and Urban & Industrial Wastes for their utilisation in India and alsofor exports to developing and Third World countries.

OIL & NATURAL GAS

Investment Policy

The Government has announced significant new policy initiatives to attract foreigninvestment:

In exploration and production, oil and gas fields are open to the private sector as well asfor foreign participation under production sharing contracts. Foreign investment it to bepermitted up to;


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100% in small-sized oil fields

60% for unincorpoorated joint ventures and 51% for incorporated joint ventures

100% for exploration and production of blocks identified under the new Exploration

Licensing Policy

In the case of private Indian companies, FDI in refining is permitted up to 49%. The levelof FDI in the oil refining sector under automatic approval has been raised from 49% to100% EOU refineries, 100% FDI is permitted.

For gas fields developed in the private sector, promoters are free to market the gas atmarket related prices.

For the petroleum products and pipeline sector, FDI is permitted up to 51%

FDI is permitted up to 74% in infrastructure related to marketing and marketing ofpetroleum products.

100% wholly owned subsidiary (WOS) is permitted for purpose of market study andformulatopn.

100% wholly owned subsidiary is permitted for investment /financing.

For actual trading and marketing, minimum 26% Indian equity is required over 5 years.

Opportunities

Total sedimentary basins, including deep waters; 3.14 million sq . kms (41% of this stillunexplored)

Large demand for natural gas:

YearDemand

(MMSCMD)

1999 110

2002 151

2007 2312012 313

2025 391

MMSCMD : Million Standard cubic Metres Per Day


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The present domestic gas supply is only 65 MMSCMD. The increasing demand-supplygap is expected to be met by imports.

Development of infrastructure

1998-992024-25

Product PipelineCapcaity (MMTpa)

Port Capacity(MMT)

22.85

111.00

166

361

Coal

Investment Policy

Private Indian companies setting up or operating power projects as well ascool or lignite mines for captive consumption are allowed FDI up to100%.

100% FDI is allowed for setting up coal processing plants subject to thecondition that the company shall not do coal mining and shall not sellwashed coal or sized coal from its coal processing plants in the openmarket and shall supply the washed or sized coal to those parties who aresupplying raw coal to coal processing plants for washing or sizing.

FDI upto 74% is allowed for exploration or mining of coal or lignite forcaptive consumption. In all the above cases, FDI is allowed up to 50%under the Automatic Route subject to the condition that such investmentshall not exceed 49% of the equity of a PSU.

Communication & Information Technology

TELECOMMUNICATION

Investment Policy

In Basic, cellular Mobile, Paging and Value Added Service, and Globalmobile personnel communications by satellite, FDI is limited to 49%subject to grant of licence from the Department of Telecommunicationsand adherence by the companies (who are investing and the companies inwhich investment is being made) to the licence condition for foreignequity cap and lock-in-period for transfer and addition of equity and otherlicence provisions.


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FDI upto 100% is allowed for the following activities in the telecomsector.

a. ISPs not providing gateways (both for satellite and submarine cables):b. Infrastructure Providers providing dark fibre (IP category);

c. Electronic Mail; andd. Voice Mail

Upto 100% FDI in telecom manufacturing activities on automatic approval basis.

Opportunities

There exists an enormous demand-supply gap for basic services, with the average waitingperiod for telephone connections exceeding one year.

Sector Current Size Projections

Basic Service 19 million lines Additional 64 million lines required over thenext 9 years to meet the demand for basicservices; 20.4 million lines expected to beprovided by the private sector

Cellular Services 0.9 millionsubscribers

Cellular subscribers expected to cross 1.6million by March, 2000

Radio Paging 0.8 millionsubscribers

1.5 million subscribers expected by the end offinancial year 2000

Very SmallApertue Terminal(VSAT)

6,000 VSAT demand estimated at 11,000 shared hubsand dedicated hub terminals by 2000

Internet 150,000 2 million Internet subscribers expected by theyear 2000

Internet Services

There in no restriction on the number of Internet Service Providers (ISPs). No licence feeis payable up to October 31, 2003; thereafter a taken licence fee of Rs. 1 per annum ispayable, ISP are free to fix their own tariff; ISPs have been permitted to establish theirown international gateways for carrying internet traffic. They can obtain transmissionlink on lease from DTS, licensed basic service providers, railways, SEBs, Power GridCorporation or any other operator specially authorised to lease such lines, ISPs can alsoestablish their own transmission link within their service area if such links are notavailable from any of the authorised agencies.


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Basic Telephone Services

Basic service providers are permitted to establish last mile linkages and carry their ownlong distance traffic within their service area. They are to be permitted directinterconnectivity and sharing of infrastructure with other basic service providers or any

other type of service providers in their area of operation.

Cellular Mobile Services

Cellular service providers are permitted to carry their own long distance traffic withintheir service area. They are to be permitted direct interconnectivity and sharing ofinfrastructure with other cellular service providers or any other type of service providersin their area in their area of operation.

National Long Distance Services

As per the National Telecom policy `99, National Long Distance Services (NLD) beyondthe service area shall be opened for competition. With a view to providing choice toconsumers and promoting competition, all access provides would be mandatorilyrequired to provide interconnection to all NLD providers.

Global Mobile Personal Communication By Satellite (GMPCS)

There is no restriction on the number of GMPCS licences and licences are issued on first-come-first-served basis. Gateways for GMPCS are to be located in India and operationand maintenance of the same are to be with an organisation designated by theGovernment. A two-tier licence fee is payable- a fixed component plus a variable

component as percentage of revenues.

Other Value Added Services

As the telecommunications and Information Technology(IT) infrastructure in the countryis expanding, there is a surge in demand for a range of value added services. The schemefor value added services has been considerably liberalised. These services include radiopaging, public mobile radio trunking, and domestic data using VASTs, Evolving of newservices- Tele-education, Tele-medicine, Tele-banking, Call Centre-is catching up withthe Indian Industry and has recently witnessed significant investments from domestic andforeign investors.

INFORMATION TECHNOLOGY

Investment Policy

Automatic approval for foreign equity in software and almost all areas of electronics.


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Automatic approval accorded for foreign technology agreements in all areas ofelectronics except aero-space and defence, subject to specified conditions.

100% foreign investment permitted in units set up exclusively for exports. Such units canbe set up under any one of the following schemes; EHTPs, STPs, Free Trade

Zones/EPZs, and 100% EOUs.

Opportunities

According to a recent World Bank study, India is the preferred location for softwarevendors for its quality and cost. India has strong Unix base which provides opportunityfor the development of products for internet based applications. Further, India has globalconnectivity with international dialing facility from over 13220 locations,Leased/switched high-speed data links from major centres through STPs and VSNL forpoint-to-point communication are also available. Internet connectivity is providedthrough several networks. Abundant investment opportunities exist in the following

thrust areas in India:

Communication InfrastureOptic Fibre CableGatewaysSatellite based Communication WirelessSoftware DevelopmentIT-enables ServicesIT Education (100,000 post graduate professionals in IT required annually by 2004)IT-enabled educationData Centres & Server Farms

E-commerce

Investment Policy

Upto 100% FDI is permitted for e-commerce, subject to the condition that the companiesconcerned would divest 26% of their equity in favour of the Indian public in five years, ifthe companies are listed in other parts of the world.

Opportunity

According to a study by ICRA Ltd., the volume of e-business in India is likely to increasefrom the level of Rs. 4.7 billion in 1999-00 to a level above Rs. 250 billion in the nextthree to four years, The figure makes a clear case for large scale investments in the Indiane-commerce sector.

Knowledge Based Industries

Pharmaceuticals


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Investment Policy

Automatic approval for up to 74% foreign equity in the case of bulk drugs, theirintermediates and formulations (except those produced by the use of recombinant DNAtechnology).

Opportunities

India pharmaceutical industry has shown tremendous progress in terms of infrastructuredevelopment, technology base and range of production, India derives its technologicalstrengths in pharmaceuticals on the following bases:

Self reliance displayed by the production of 70% of bulk drugs and almost the entirerequirement of formulations within the country.

Low cost of production

Low R&D Costs.

Innovative scientific manpower

Strength National Laboratories

Increasing balance of trade in Pharma sector.

Chemicals and biotechnology

Investment Policy

As referred t in section on Investment Policy

Opportunities

Chemicals

The chemical industry in India is well established and has recorded a steady growth in theoveral Indian industrial scenario. The chemical and allied industries have been amongstthe faster growing segments of the Indian industry. The Indian chemical industry had a

turnover of around Rs. 900 billion in 1996-97. The chemicals industry also accounted forover 10% of total Indian exports during 1997-98. The chemical industry is highlyheterogeneous encompassing many sector like organic and inorganic chemicals,dyestuffs, paints, pesticides, and specialty chemicals, Some of the prominent individualchemical industries are caustic soda, soda ash, carbon black, phenol, acetic acid,mathanol and azo dyes.
http://www.iic.nic.in/iic3_a.htm#Investment%20Policyhttp://www.iic.nic.in/iic3_a.htm#Investment%20Policy


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Currently, there is tremendous scope for growth in chemical sector. The per capitaconsumption of chemicals in India is well below the prevailing world level. For instance,in sulphuric acid, which is considered the barometer of growth in the chemical industry,the per capita consumption is only about 5kg per annum in India as compared to 40kg inindustrially develoed countries.

Biotechnology

The setting up of a separate Department of Biotechnology (DBT) under the Ministry ofScience and Technology in 1986 gave a new impetus to the development of modernbiology and biotechnology in India. In more than a decade of its existence, thedepartment has promoted and accelerated the pace of development of biotechnology inthe country. In India, concerted efforts for over a decade in R&D in the identified areas ofmodern biology and biotechnology have paid rich dividends. The proven technologies atthe laboratory level have been scaled up and demonstrated in field. Patenting ofinnovations, technology transfer to industries and close interaction with them have given

a new direction to biotechnology research.

Necessary guidelines for transgenic plants, recombinant vaccines and drugs have alsobeen evolved. A strong base of indigenous capabilities has been created.

Opportunities

Biotechnology industry serves as a research arm to Agritech, and Pharma industry withincreased Potential for strategic alliances.

Global trends show that all large pharmaceutical players are putting their money in

healthcare for long term benefits. It is expected that nearly half the drugs in the nextdecade would be biotech Products.

Tremendous potential in agri business in an agrarion economy like India.

Potential therefore for transgenic seeds, bio-fertilizers etc.

Number of small firms is high, knowledge based, research intensive industry, withlowcapital Requirements.

Status and Scope

Sector Turnover (1997)

EstimatedTurnoverfor 2000(millionUSD)

EstimatedTurnoverfor 2005(million)


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HealthcareProducts

650 800 1,300

Agriculture 480 650 1,110

IndustrialProducts

556 67 830

Total (includingother)

1,790 2,100 3,240

The field of biotechnology both for new innovations and application would form a mojorresearch and commercial endeavour for socio economic development in this decade.

Infrastructure Sector

Roads

Investment Policy

FDI upto 100% under automatic route is permitted in projects for construction andmaintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, portsand harbours.

Opportunities

Investment worth an estimated US$34 billion needed, till 2005-06, for thedevelopment of National and Stte Highways. Of this figure, therequirement of private sector investment is US$8.3 billion.

Opportunities exists in :

Highway construction

Four-Laning of over 35,000 km of National Highways.

Highway related en route activities like restaurants, motels,

and rest/parking areas as may be decided by theimplementing agency.

Select project opportunities include :

Chennai-Nellor (US$ 350 million)

Bangalore-Chennai (US$ 305 million)


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Surat-Manor (US$ 180 million)

Jaipur-Ajmer (US$ 147 million)

Ports

Investment Policy

The principal legislations governing Indian ports are The Indian Ports Act, 1908, and theMajor Ports Trust Act, 1963, the Indian Government recently announced a series ofmeasures to promote foreign investment in the port sector as listed below:

No approval required for foreign equity up to 51% in projects providingsupporting services to water transport, such as operation and maintenanceof piers, loading and discharging of vehicles.

Automatic approval for foreign equity upto 100% in construction andmaintenance of ports and harbours, However, if the total foreign equityinvestment exceeds Rs. 15 billion, the proposal will be referred to theFIPB.

Open tenders are to be invited for private sector participation on a Build-Operate-Transfer (BOT) basis. Evaluation of bids will be based on themaximum licence period will not exceed 30 years and at the end of theBOT period all assets will revert to the port in accordance with theconditions of the agreement.

The Government has announced guidelines for private/foreign participation that permitformation of joint venture between major ports and foreign ports, between major portsand minor ports, and between major ports and companies.

The measures are aimed at attracting new technology, fostering strategic alliances withminor ports to create on optimal port infrastructure and enhancing private sectorconfidence in the funding of ports.

The guidelines permit the formation of a joint venture between :

a major port and foreign ports for the purposes of constructing new port facilities

within existing ports, improving productivity of existing ports, and developmentof new port ;

a major port trust and a company or a consortium of companies where ;

a company or a consortium of companies, selected through a BOT biddingunder the guidelines of private sector participation alliances with a major


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port trust for improving the viability of the scheme and/or to enhance theconfidence of the private sector.

A company or a consortium of companies is selected under the scheme ofinnovative/unsolicited proposals

Oil PSUs/a joint venture company of oil PSUs are/is selected for oilrelated port facility as a port based industry.

Opportunities

The areas identified for privatisation or investment by the private sector include:

Leasing out of existing port assets

Creating of additional assets :

Construction or operation of container terminals

Construction or operation of break-bulk, multipurpose and specialised cargo berths

Warehousing, container freight stations, Storage facilities and tank farms

Cranage and handling equipment

Setting up captive power plants,

Dry docking and ship repair frailties

Leasing of equipment and floating craft from the private sector

Pilotages

Captive facilities for port based industries.

Civil Aviation

Investment Policy

The momopoly of public sector air carriers ended with the repenling of Air CorporarionAct, 1953 on March1,1994.

Automatic approval for foreign equity participation in Airport infrastructure upto100percentForeign equity upto 40 per eent; investment by Non Resident Indians upto 100 per centpermitted


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In domestic air-transport services.Equity from foreign airlines not allowed in domestic air-transport services either orindirectly.Foreign Financial Institutions allowed to hold equity in the domestic air-transport sectorprovided they do not have foreign airlines as their shareholders

Foreign Investors allowed to have representation (upto 33 per cent of total) on Board ofDirectors of the domestic airline company.Government to consider private sector participation construction and operation newairports on a BOT basis.Minimum fleet size for a scheduled operator raised from the existing 3 aircrafts to 5Management contract with a foreign airline is not permitted

Opportunities

Construction of world class international airports in five cities, permitting upto100%foreign equity investment announced.

Important private sector aided projects; New airport near Kochi (US$ 85.7 million).Projects for development of new airports at Bangalore and Mumbai with private sectorparticipation are under consideration

Other private sector aided airports planned; Ahmedabad airport, Amritsar airportupgration, Chennai cargo complex, new international terminal and a second runway forDelhi airport, runway extension and international block for Jaipur airport

Private Sector-Where?

Restructuring & privatization through long term leaseGreen-field airportsConstruction of terminal/facilitiesGround handling

STATEMENT ON INDUSTRIAL POLICYNew Delhi, July 24, 1991.POLICY OBJECTIVESPandit Jawaharlal Nehru laid the foundations of modern India. His vision and determinationhave left a lasting impression on every facet of national endeavour since Independence. It isdue to his initiative that India now has a strong and diversified industrial base and is a major

industrial nation of the world. The goals and objectives set out for the nation by Pandit Nehruon the eve of Independence, namely, the rapid agricultural and industrial development of ourcountry, rapid expansion of opportunities for gainful employment, progressive reduction ofsocial and economic disparities, removal of poverty and attainment of self-reliance remain asvalid today as at the time Pandit Nehru first set them out before the nation. Any industrialpolicy must contribute to the realisation of these goals and objectives at an accelerated pace.The present statement of industrial policy is inspired by these very concerns, and represents arenewed initiative towards consolidating the gains of national reconstruction at this crucialstage.


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2. In 1948, immediately after Independence, Government introduced the Industrial PolicyResolution. This outlined the approach to industrial growth and development. It emphasisedthe importance to the economy of securing a continuous increase in production and ensuringits equitable distribution. After the adoption of the Constitution and the socio-economic goals,the Industrial Policy was comprehensively revised and adopted in 1956. To meet newchallenges, from time to time, it was modified through statements in 1973, 1977 and 1980.3. The Industrial Policy Resolution of 1948 was followed by the Industrial Policy Resolution of

1956 which had as its objective the acceleration of the rate of economic growth and thespeeding up of industrialisation as a means of achieving a socialist pattern of society. In 1956,capital was scarce and the base of entrepreneurship not strong enough. Hence, the 1956Industrial Policy Resolution gave primacy to the role of the State to assume a predominantand direct responsibility for industrial development.4. The Industrial Policy statement of 1973, inter alia, identified high-priority industries whereinvestment from large industrial houses and foreign companies would be permitted.5. The Industrial Policy Statement of 1977 laid emphasis on decentralisation and on the role ofsmall-scale, tiny and cottage industries.

6. The Industrial Policy Statement of 1980 focused attention on the need for promotingcompetition in the domestic market, technological upgradation and modernisation. The policylaid the foundation for an increasingly competitive export based and for encouraging foreigninvestment in high-technology areas. This found expression in the Sixth Five Year Plan whichbore the distinct stamp of Smt. Indira Gandhi. It was Smt. Indira Gandhi who emphasised the

need for productivity to be the central concern in all economic and production activities.7. These policies created a climate for rapid industrial growth in the country. Thus on the eveof the Seventh Five Year Plan, a broad-based infrastructure had been built up. Basic industrieshad been established. A high degree of self-reliance in a large number of items - rawmaterials, intermediates, finished goods - had been achieved. New growth centres of industrialactivity had emerged, as had a new generation of entrepreneurs. A large number of engineers,technicians and skilled workers had also been trained.8. The Seventh Plan recognised the need to consolidate on these strengths and to takeinitiatives to prepare Indian industry to respond effectively to the emerging challenges. Anumber of policy and procedural changes were introduced in 1985 and 1986 under theleadership of Shri Rajiv Gandhi aimed at increasing productivity, reducing costs and improvingquality. The accent was on opening the domestic market to increased competition andreadying our industry to stand on its own in the face of international competition. The publicsector was freed from a number of constraints and given a larger measure of autonomy. The

technological and managerial modernisation of industry was pursued as the key instrument forincreasing productivity and improving our competitiveness in the world. The net result of allthese changes was that Indian industry grew by an impressive average annual growth rate of8.5% in the Seventh Plan period.9. Government is pledged to launching a reinvigorated struggle for social and economicjustice, to end poverty and unemployment and to build a modern, democratic, socialist,prosperous and forward-looking India. Such a society can be built if India grows as part of theworld economy and not in isolation.10. While Government will continue to follow the policy of self-reliance, there would be greateremphasis placed on building up our ability to pay for imports through our own foreignexchange earnings. Government is also committed to development and utilisation ofindigenous capabilities in technology and manufacturing as well as its upgradation to worldstandards.11. Government will continue to pursue a sound policy framework encompassing

encouragement of entrepreneurship, development of indigenous technology throughinvestment in research and development, bringing in new technology, dismantling of theregulatory system, development of the capital markets and increasing competitiveness for the

benefit of the common man. The spread of industrialisation to backward areas of the countrywill be actively promoted through appropriate incentives, institutions and infrastructureinvestments.12. Government will provide enhanced support to the small-scale sector so that it flourishes inan environment of economic efficiency and continuous technological upgradation.13. Foreign investment and technology collaboration will be welcomed to obtain highertechnology, to increase exports and to expand the production base.


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14. Government will endeavour to abolish the monopoly of any sector or any individualenterprise in any field of manufacture, except on strategic or military considerations and openall manufacturing activity to competition.15. The Government will ensure that the public sector plays its rightful role in the evolvingsocio-economic scenario of the country. Government will ensure that the public sector is runon business lines as envisaged in the Industrial Policy Resolution of 1956 and would continueto innovate and lead in strategic areas of national importance. In the 1950s and 1960s, the

principal instrument for controlling the commanding heights of the economy was investment inthe capital of key industries. Today, the State has other instruments of intervention,particularly fiscal and monetary instruments. The State also commands the bulk of thenation's savings. Banks and financial institutions are under State control. Where Stateintervention is necessary, these instruments will prove more effective and decisive.16. Government will fully protect the interests of labour, enhance their welfare and equip themin all respects to deal with the inevitability of technological change. Government believes thatno small section of society can corner the gains of growth, leaving workers to bear its pains.Labour will be made an equal partner in progress and prosperity. Workers' participation in

management will be promoted. Workers cooperatives will be encouraged to participate inpackages designed to turn around sick companies. Intensive training, skill development andupgradation programmes will be launched.17. Government will continue to visualise new horizons. The major objectives of the newindustrial policy package will be to build on the gains already made, correct the distortions or

weaknesses that may have crept in, maintain a sustained growth in productivity and gainfulemployment and attain international competitiveness. The pursuit of these objectives will betempered by the need to preserve the environment and ensure the efficient use of availableresources. All sector of industry whether small, medium or large, belonging to the public,private or cooperative sector will be encouraged to grow and improve on their pastperformance.18. Government's policy will be continuity with change.19. In pursuit of the above objectives, Government have decided to take a series of initiativesin respect of the policies relating to the following areas.A. Industrial Licensing.B. Foreign InvestmentC. Foreign Technology Agreements.D. Public Sector PolicyE. MRTP Act.

A package for the Small and Tiny Sectors of industry is being announced separately.A. INDUSTRIAL LICENSING POLICY20. Industrial Licensing is governed by the Industries (Development & Regulation) Act, 1951.The Industrial Policy Resolution of 1956 identified the following three categories of industries:those that would be reserved for development in public sector, those that would be permittedfor development through private enterprise with or without State participation, and those inwhich investment initiatives would ordinarily emanate from private entrepreneurs. Over theyears, keeping in view the changing industrial scene in the country, the policy has undergonemodifications. Industrial licensing policy and procedures have also been liberalised from timeto time. A full realisation of the industrial potential of the country calls for a continuation ofthis process of change.21. In order to achieve the objectives of the strategy for the industrial sector for the 1990sand beyond it is necessary to make a number of changes in the system of industrial approvals.Major policy initiatives and procedural reforms are called for in order to actively encourage and

assist Indian entrepreneurs to exploit and meet the emerging domestic and globalopportunities and challenges. The bedrock of any such package of measures must be to let theentrepreneurs make investment decisions on the basis of their own commercial judgement.

The attainment of technological dynamism and international competitiveness requires thatenterprises must be enabled to swiftly respond to fast changing external conditions that havebecome characteristic of today's industrial world. Government policy and procedures must begeared to assisting entrepreneurs in their efforts. This can be done only if the role played bythe government were to be changed from that of only exercising control to one of providinghelp and guidance by making essential procedures fully transparent and by eliminating delays.


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22. The winds of change have been with us for some time. The industrial licensing system hasbeen gradually moving away from the concept of capacity licensing. The system ofreservations for public sector undertakings has been evolving towards an ethos of greaterflexibility and private sector enterprise has been gradually allowed to enter into many of theseareas on a case by case basis. Further impetus must be provided to these changes whichalone can push this country towards the attainment of its entrepreneurial and industrialpotential. This calls for bold and imaginative decisions designed to remove restraints on

capacity creation, while at the same, ensuring that over-riding national interests are notjeopardised.23. In the above context, industrial licensing will henceforth be abolished for all industries,except those specified, irrespective of levels of investment. These specified industries (Annex-II), will continue to be subject to compulsory licensing for reasons related to security andstrategic concerns, social reasons, problems related to safety and over-riding environmentalissues, manufacture of products of hazardous nature and articles of elitist consumption. Theexemption from licensing will be particularly helpful to the many dynamic small and mediumentrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the

Indian economy will benefit by becoming more competitive, more efficient and modern andwill take its rightful place in the world of industrial progress.B. FOREIGN INVESTMENT24. While freeing Indian industry from official controls, opportunities for promoting foreigninvestments in India should also be fully exploited. In view of the significant development of

India's industrial economy in the last 40 years, the general resilience, size and level ofsophistication achieved, and the significant changes that have also taken place in the worldindustrial economy, the relationship between domestic and foreign industry needs to be muchmore dynamic than it has been in the past in terms of both technology and investment.Foreign investment would bring attendant advantages of technology transfer, marketingexpertise, introduction of modern managerial techniques and new possibilities for promotion ofexports. This is particularly necessary in the changing global scenario of industrial andeconomic cooperation marked by mobility of capital. The government will therefore welcomeforeign investment which is in the interest of the country's industrial development.25. In order to invite foreign investment in high priority industries, requiring large investmentsand advanced technology, it has been decided to provide approval for direct foreigninvestment upto 51% foreign equity in such industries. There shall be no bottlenecks of anykind in this process. This group of industries has generally been known as the "Appendix IIndustries" and are areas in which FERA companies have already been allowed to invest on a

discretionary basis. This change will go a long way in making Indian policy on foreigninvestment transparent. Such a framework will make it attractive for companies abroad toinvest in India.26. Promotion of exports of Indian products calls for a systematic exploration of world marketspossible only through intensive and highly professional marketing activities. To the extent thatexpertise of this nature is not well developed so far in India, Government will encourageforeign trading companies to assist us in our export activities. Attraction of substantialinvestment and access to high technology, often closely held, and to world markets, involvesinteraction with some of the world's largest international manufacturing and marketing firms.The Government will appoint a special board to negotiate with such firms so that we canengage in purposive negotiation with such large firms, and provide the avenues for largeinvestments in the development of industries and technology in the national interest.C. FOREIGN TECHNOLOGY AGREEMENT27. There is a great need for promoting an industrial environment where the acquisition of

technological capability receives priority. In the fast changing world of technology therelationship between the suppliers and users of technology must be a continuous one. Such arelationship becomes difficult to achieve when the approval process includes unnecessary

governmental interference on a case to case basis involving endemic delays and fosteringuncertainty. The Indian entrepreneur has now come of age so that he no longer needs suchbureaucratic clearances of his commercial technology relationships with foreign technologysuppliers. Indian industry can scarcely be competitive with the rest of the world if it is tooperate within such a regulatory environment.28. With a view to injecting the desired level of technological dynamism in Indian industry,Government will provide automatic approval for technology agreement related to high priority


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industries within specified parameters. Similar facilities will be available for other industries aswell if such agreements do not require the expenditure of free exchange. Indian companieswill be free to negotiate the terms of technology transfer with their foreign counterpartsaccording to their own commercial judgement. The predictability and independence of actionthat this measure is providing to Indian industry will induce them to develop indigenouscompetence for the efficient absorption of foreign technology. Greater competitive pressurewill also induce our industry to invest much more in research and development and they have

been doing in the past. In order to help this process, the hiring of foreign technicians andforeign testing of indigenously developed technologies, will also not require prior clearance asprescribed so far, individually or as a part of industrial or investment approvals.D. PUBLIC SECTOR POLICY29. The public sector has been central to our philosophy of development. In the pursuit of ourdevelopment objectives, public ownership and control in critical sector of the economy hasplayed an important role in preventing the concentration of economic power, reducing regionaldisparities and ensuring that planned development serves the common good.30. The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the

economy. Massive investments have been made over the past four decades to build a publicsector which has a commanding role in the economy. Today key sectors of the economy aredominated by mature public enterprises that have successfully expanded production, openedup new areas of technology and built up a reserve of technical competence in a number ofareas.

31. After the initial exuberance of the public sector entering new areas of industrial andtechnical competence, a number of problems have begun to manifest themselves in many ofthe public enterprises. Serious problems are observed in the insufficient growth inproductivity, poor project management, over-manning, lack of continuous technologicalupgradation, and inadequate attention to R&D and human resource development. In addition,public enterprises have shown a very low rate of return on the capital invested. This hasinhibited their ability to re-generate themselves in terms of new investments as well as intechnology development. The result is that many of the public enterprises have become aburden rather than being an asset to the Government. The original concept of the publicsector has also undergone considerable dilution. The most striking example is the take over ofsick units from the private sector. This category of public sector units accounts for almost onethird of the total losses of central public enterprises. Another category of public enterprises,which does not fit into the original idea of the public sector being at the commanding heightsof the economy, is the plethora of public enterprises which are in the consumer goods and

services sectors.32. It is time therefore that the Government adopt a new approach to public enterprises.There must be a greater commitment to the support of public enterprises which are essentialfor the operation of the industrial economy. Measures must be taken to make theseenterprises more growth oriented and technically dynamic. Units which may be faltering atpresent but are potentially viable must be restructured and given a new lease of life. Thepriority areas for growth of public enterprises in the future will be the following. Essential infrastructure goods and services. Exploration and exploitation of oil and mineral resources. Technology development and building of manufacturing capabilities in areas which are crucialin the long term development of the economy and where private sector investment isinadequate. Manufacture of products where strategic considerations predominate such as defenceequipment.

At the same time the public sector will not be barred from entering areas not specificallyreserved for it.33. In view of these considerations, Government will review the existing portfolio of public

investments with greater realism. This review will be in respect of industries based on lowtechnology, small scale and non-strategic areas, inefficient and unproductive areas, areas withlow or nil social considerations or public purpose, and areas where the private sector hasdeveloped sufficient expertise and resources.34. Government will strengthen those public enterprises which fall in the reserved areas ofoperation or are in high priority areas or are generating good or reasonable profits. Suchenterprises will be provided a much greater degree of management autonomy through the


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system of memoranda of understanding. Competition will also be induced in these areas byinviting private sector participation. In the case of selected enterprises, part of Governmentholdings in the equity share capital of these enterprises will be disinvested in order to providefurther market discipline to the performance of public enterprises. There are a large number ofchronically sick public enterprises incurring heavy losses, operating in a competitive marketand serve little or no public purpose. These need to be attended to. The country must beproud of the public sector that it owns and it must operate in the public interest.

E. MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP ACT)35. The principal objectives sought to be achieved through the MRTP Act are as follows:i. Prevention of concentration of economic power to the common detriment, control ofmonopolies, andii. Prohibition of monopolistic and restrictive and unfair trade practices.36. The MRTP Act became effective in June 1970. With the emphasis placed on productivity inthe Sixth Plan, major amendments to the MRTP Act were carried out in 1982 and 1984 inorder to remove impediments to industrial growth and expansion. This process of change wasgiven a new momentum in 1985 by an increase of threshold limit of assets.

37. With the growing complexity of industrial structure and the need for achieving economiesof scale for ensuring high productivity and competitive advantage in the international market,the interference of the Government through the MRTP Act in investment decisions of largecompanies has become deleterious in its effects on Indian industrial growth. The pre-entryscrutiny of investment decisions by so called MRTP companies will no longer be required.

Instead, emphasis will be on controlling and regulating monopolistic, restrictive and unfairtrade practices rather than making it necessary for the monopoly house to obtain priorapproval of Central Government for expansion, establishment of new undertakings, merger,amalgamation and takeover and appointment of certain directors. The thrust of policy will bemore on controlling unfair or restrictive business practices. The MRTP Act will be restructuredby eliminating the legal requirement for prior governmental approval for expansion of presentundertakings and establishment of new undertakings. The provisions relating to merger,amalgamation, and takeover will also be repealed. Similarly, the provisions regardingrestrictions on acquisition of and transfer of shares will be appropriately incorporated in theCompanies Act.38. Simultaneously, provisions of the MRTP Act will be strengthened in order to enable theMRTP Commission to take appropriate action in respect of the monopolistic, restrictive andunfair trade practices. The newly empowered MRTP Commission will be encouraged to requireinvestigation suo moto or on complaints received from individual consumers or classes of

consumers.F. DECISIONS OF GOVERNMENT39. In view of the considerations outlined above Government have decided to take a series ofmeasures to unshackle the Indian industrial economy from the cobwebs of unnecessarybureaucratic control. These measures complement the other series of measures being takenby Government in the areas of trade policy, exchange rate management, fiscal policy, financialsector reform and overall macro economic management.A. Industrial Licensing Policyi. Industrial licensing will be abolished for all projects except for a short list of industriesrelated to security and strategic concerns, social reasons, hazardous chemicals and overridingenvironmental reasons, and items of elitist consumption (list attached as Annex II). Industriesreserved for the small scale sector will continue to be so reserved.ii. Areas where security and strategic concerns predominate, will continue to be reserved forthe public sector (list attached as Annex I).

iii. In projects where imported capital goods are required, automatic clearance will be givena. in cases where foreign exchange availability is ensured through foreign equityor

b. if the CIF value of imported capital goods required is less than 25% of total value (net oftaxes) of plant and equipment, upto a maximum value of Rs. 2 crore. In view of the currentdifficult foreign exchange situation, this scheme (i.e. (iii) b) will come into force from April,1992.In other cases, imports of capital goods will require clearance from the Secretariat forIndustrial Approvals (SIA) in the Department of Industrial Development according toavailability of foreign exchange resources.


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iv. In locations other than cities of more than 1 million population, there will be norequirement of obtaining industrial approvals from the Central Government except forindustries subject to compulsory licensing. In respect of cities with population greater than 1million, industries other than those of a non polluting nature such as electronics, computersoftware and printing will be located outside 25 kms. of the periphery, except in priordesignated industrial areas. A flexible location policy would be adopted in respect of such cities(with population greater than 1 million) which require industrial re-generation. Zoning and

Land Use Regulation and Environmental Legislation will continue to regulate industriallocations. Appropriate incentives and the design of investments in infrastructure developmentwill be used to promote the dispersal of industry particularly to rural and backward areas andto reduce congestion in cities.v. The system of phased manufacturing programmes run on an administrative case by casebasis will be applicable to new projects. Existing projects with such programmes will continueto be governed by them.vi. Existing units will be provided a new broad banding facility to enable them to produce anyarticle without additional investment.

vii. The exemption from licensing will apply to all substantial expansions of existing units.viii. The mandatory convertibility clause will no longer be applicable for term loans from thefinancial institutions for new projects.Procedural consequencesix. All existing registration schemes (Delicensed Registration, Exempted Industries

Registration, DGTD registration) will be abolished.x. Entrepreneurs will henceforth only be required to file an information memorandum on newprojects and substantial expansions.xi. The lists at Annex II and Annex III will be notified in the Indian Trade Classification(Harmonised System).B. Foreign Investmenti. Approval will be given for direct foreign investment upto 51 percent foreign equity in highpriority industries (Annex III). There shall be no bottlenecks of any kind in this process. Suchclearance will be available if foreign equity covers the foreign exchange requirement forimported capital goods. Consequential amendments to the Foreign Exchange Regulation Act(1973) shall be carried out.ii. While the import of components, raw materials and intermediate goods, and payment ofknowhow fees and royalties will be governed by the general policy applicable to otherdomestic units, the payment of dividends would be monitored through the Reserve Bank of

India so as to ensure that outflows on account of dividend payments are balanced by exportearnings over a period of time.iii. Other foreign equity proposals, including proposals involving 51% foreign equity which donot meet the criteria under (I) above, will continue to need prior clearance. Foreign equityproposals need not necessarily be accompanied by foreign technology agreements.iv. To provide access to international markets, majority foreign equity holding upto 51%equity will be allowed for trading companies primarily engaged in export activities. While thethrust would be on export activities, such trading houses shall be at par with domestic tradingand export houses in accordance with the Import Export Policy.v. A special Empowered Board would be constituted to negotiate with a number of largeinternational firms and approve direct foreign investment in select areas. This would be aspecial programme to attract substantial investment that would provide access to hightechnology and world markets. The investment programmes of such firms would be consideredin totality, free from pre-determined parameters or procedures.

C. Foreign Technology Agreementsi. Automatic permission will be given for foreign technology agreements in high priorityindustries (Annex III) upto a lumpsum payment of Rs. 1 crore, 5% royalty for domestic sales

and 8% for exports, subject to total payment of 8% of sales over a 10 year period from dateof agreement or 7 years from commencement of production. The prescribed royalty rates arenet of taxes and will be calculated according to standard procedures.ii. In respect of industries other than those in Annex III, automatic permission will be givensubject to the same guidelines as above if no free foreign exchange is required for anypayments.iii. All other proposals will need specific approval under the general procedures in force.


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iv. No permission will be necessary for hiring of foreign technicians, foreign testing ofindigenously developed technologies. Payment may be made from blanket permits or freeforeign exchange according to RBI guidelines.D. Public Sectori. Portfolio of public sector investments will be reviewed with a view to focus the public sectoron strategic, high-tech and essential infrastructure. Whereas some reservation for the publicsector is being retained there would be no bar for areas of exclusivity to be opened up to the

private sector selectively. Similarly the public sector will also be allowed entry in areas notreserved for it.ii. Public enterprises which are chronically sick and which are unlikely to be turned around will,for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrialand Financial Reconstruction (BIFR), or other similar high level institutions created for thepurpose. A social security mechanism will be created to protect the interests of workers likelyto be affected by such rehabilitation packages.iii. In order to raise resources and encourage wider public participation, a part of thegovernment's shareholding in the public sector would be offered to mutual funds, financial

institutions, general public and workers.iv. Boards of public sector companies would be made more professional and given greaterpowers.v. There will be a greater thrust on performance improvement through the Memoranda ofunderstanding (MOU) systems through which managements would be granted greater

autonomy and will be held accountable. Technical expertise on the part of the Governmentwould be upgraded to make the MOU negotiations and implementation more effective.vi. To facilitate a fuller discussion on performance, the MOU signed between Government andthe public enterprise would be placed in Parliament. While focussing on major managementissues, this would also help place matters on day to day operations of public enterprises intheir correct perspective.E. MRTPActi. The MRTP Act will be amended to remove the threshold limits of assets in respect of MRTPcompanies and dominant undertakings. This eliminates the requirement of prior approval ofCentral Government for establishment of new undertakings, expansion of undertakings,merger, amalgamation and takeover and appointment of Directors under certaincircumstances.ii. Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfairtrade practices. Simultaneously, the newly empowered MRTP Commission will be authorised to

initiative investigations suo moto or on complaints received from individual consumers orclasses of consumers in regard to monopolistic, restrictive and unfair trade practices.iii. Necessary comprehensive amendments will be made in the MRTP Act in this regard and forenabling the MRTP Commission to exercise punitive and compensatory powers.ANNEX IPROPOSED LIST OF INDUSTRIES TO BE RESERVED FOR THEPUBLIC SECTOR1. Arms and ammunition and allied items of defence equipment, Defence aircraft andwarships.2. Atomic Energy.3. Coal and lignite.4. Mineral oils.5. Mining if iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.

7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use)Order, 1953.8. Railway transport.

ANNEX IILIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL LICENSING WILL BECOMPULSORY1. Coal and Lignite.2. Petroleum (other than crude) and its distillation products.3. Distillation and brewing of alcoholic drinks.4. Sugar.


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5. Animal fats and oils.6. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.7. Asbestos and asbestos-based products.8. Plywood, decorative veneers, and other wood based products such as particle board,medium density fibre board, block board.9. Raw hides and skins, leather, chamois leather and patent leather.10. Tanned or dressed furskins.

11. Motor cars.12. Paper and Newsprint except bagasse-based units.13. Electronic aerospace and defence equipment; All types.14. Industrial explosives, including detonating fuse, safety fuse, gun powder, nitrocelluloseand matches.15. Hazardous chemicals.16. Drugs and Pharmaceuticals (according to Drug Policy).17. Entertainment electronics (VCRs, colour TVs, C.D. Players, Tape Recorders).18. White Goods (Domestic Refrigerators, Domestic Dishwashing machines, Programmable

Domestic Washing Machines, Microwave ovens, Airconditioners).Note: The compulsory licensing provisions would not apply in respect of the small-scale unitstaking up the manufacture of any of the above items reserved for exclusive manufacture insmall scale sector.ANNEX III

LIST OF INDUSTRIES FOR AUTOMATIC APPROVAL OFFOREIGN TECHNOLOGY AGREEMENTS AND FOR51% FOREIGN EQUITY APPROVALS1. Metallurgical Industriesi. Ferro alloys.ii. Castings and forgings.iii. Non-ferrous metals and their alloys.iv. Sponge iron and pelletisation.v. Large diameter steel welded pipes of over 300 mm diameter and stainless steel pipes.vi. Pig iron.2. Boilers and Steam Generating Plants3. Prime Movers (other than electrical generators)i. Industrial turbines.ii. Internal combustion engines.

iii. Alternate energy systems like solar wind etc. and equipment therefor.iv. Gas/hydro/steam turbines upto 60 MW.4. Electrical Equipmenti. Equipment for transmission and distribution of electricity including power and distributiontransformers, power relays, HT-switch gear synchronous condensers.ii. Electrical motors.iii. Electrical furnaces, industrial furnaces and induction heating equipment.iv. X-ray equipment.v. Electronic equipment, components including subscribers' end telecommunicationequipments.vi. Component wires for manufacture of lead-in wires.vii. Hydro/steam/gas generators/generating sets upto 60 MW.viii. Generating sets and pumping sets based on internal combustion engines.ix. Jelly-filled telecommunication cables.

x. Optic fibre.xi. Energy efficient lamps andxii. Midget carbon electrodes.

5. Transportationi. Mechanised sailing vessels upto 10,000 DWT including fishing trawlers.ii. Ship ancillaries.iii. (a) Commercial vehicles, public transport vehicles including automotive commercial threewheeler jeep type vehicles, industrial locomotives.(b) Automotive two wheelers and three wheelers.(c) Automotive components/spares and ancillaries.


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iv. Shock absorbers for railway equipment andv. Brake system for railway stock and locomotives.6. Industrial Machineryi. Industrial machinery and equipment.7. i. Machine tools and industrial robots and their controls and accessories.ii. Jigs, fixtures, tools and dies of specilised types and cross land tooling, andiii. Engineering production aids such as cutting and forming tools, patterns and dies and tools.

8. Agricultural Machineryi. Tractors.ii. Self-propelled Harvestor Combines.iii. Rice transplanters.9. Earth Moving Machineryi. Earth moving machinery and construction machinery and components thereof.10. Industrial Instrumentsi. Indicating, recording and regulating devices for pressures, temperatures, rate of flowweights levels and the like.

11. Scientific and Electromedical Instruments and Laboratory Equipment.12. Nitrogenous & Phosphatic Fertilizers falling underi. Inorganic fertilizers under '18-Fertilizers' in the First Schedule to IDR Act, 1951.13. Chemicals (other than fertilizers).i. Heavy organic chemicals including petrochemicals.

ii. Heavy inorganic chemicals.iii. Organic fine chemicals.iv. Synthetic resins and plastics.v. Man made fibres.vi. Synthetic rubber.vii. Industrial explosives.viii. Technical grade insecticides, fungicides, weedicides, and the like.ix. Synthetic detergentsx. Miscellaneous chemicals (for industrial use only)a. Catalysts and catalyst supports.b. Photographic chemicals.c. Rubber chemicals.d. Polyols.e. Isocyanates, urethanes, etc.

f. Speciality chemicals for enhanced oil recovery.g. Heating fluids.h. Coal tar distillation and product therefrom.i. Tonnage plants for the manufacture of industrial gases.j. High altitude breathing oxygen/medical oxygen.k. Nitrous oxide.l. Refrigerant gases like liquid nitrogen, carbondioxide etc.in large volumes.m.Argon and other rare gases.n. Alkali/acid resisting cement compoundo. Leather chemicals and auxiliaries.14. Drugs and PharmaceuticalsAccording to Drug Policy.15. i. Paper and pulp including paper products.ii. Industrial laminates.

16. i. Automobile tyres and tubes.ii. Rubberised heavy duty industrial beltings of all types.iii. Rubberised conveyor beltings.

iv. Rubber reinforced and lined fire fighting hose pipes.v. High pressure braided hoses.vi. Engineering and industrial plastic products.17. Plate Glassi. Glass shells for television tubes.ii. Float glass and plate glass.iii. H.T. insulators.


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iv. Glass fibres of all types.18. Ceramicsi. Ceramics for industrial uses.19. Cement Productsi. Portland cement.ii. Gypsum boards, wall boards and the like.20. High Technology Reproduction and Multiplication Equipment.

21. Carbon and Carbon Productsi. Graphite electrodes and anodes.ii. Impervious graphite blocks and sheets.22. Pretensioned High Pressure RCC Pipes.23. Rubber Machinery24. Printing Machinery.i. Web-fed high speed off-set rotary printing machine having output of 30,000 or moreimpressions per hour.ii. Photo composing/type setting machines.

iii. Multi-colour sheet-fed off-set printing machines of sizes 18"x25" and above.iv. High speed rotograture printing machines having output of 30,000 or more impressions perhour.25. Welding Electrodes other than those for Welding Mild Steel26. Industrial Synthetic Diamonds.

27. i. Photosynthesis improvers.ii. Genetically modified free living symbiotics nitrogen fixer.iii. Pheromones.iv. Bio-insecticides.28. Extraction and Upgrading of Minor Oils29. Pre-fabricated Building Material.30. Soya Productsi. Soya texture proteins.ii. Soya protein isolates.iii. Soya protein concentrates.iv. Other specialised products of soyabean.v. Winterised and deodourised refined soyabean oil.31. (a) Certified high yielding hybrid seeds and synthetic seeds and(b) Certified high yielding plantlets developed through plant tissue culture.

32. All food processing industries other than milk food, malted foods, and flour, butexcluding the items reserved for small-scale sector.33. All items of packaging for food processing industries excluding the itemsreserved for small scale sector.34. Hotels and tourism-related industry.

The features of India's Small Sector Industrial Policy 1991The new policy measures for promoting and strengthen small, tiny and village enterpriseswere announced on 6th August, 1991. The main thrust of the new policy is to impart morevitality and growth to employment and exports. The salient features of the new policy are:

De-regulation, debureaucratisation and simplification on status, regulations andprocedures.

Increase in the investment limit in plant and machinery of ting enterprise forms 21

lake to Rs 50 lakh, irrespective of the location of the unit. Inclusion of industry related services and business enterprises, irrespective of their

location, as small scale industries.

Ensuring both adequate flow of credit on a normative basis and quality of its delivery

for viable operation on the SSI sector.

Setting up a special monitoring agency to oversee the genuine credit needs ofthe small scale sector.

Introduction of suitable legislation to ensure prompt payment of small industries bills.


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Introduction of a scheme of Integrated Infrastructural development (including

technological back up services) for small scale industries.

Setting up a Technology Developed Cell in the Small Industries developmentOrganization.

Market promotion of SSI products through co-operative/public sector institution's

other specialized professional/marketing agencies and the consortia approach.

Setting up of an Export Development Center in the Small Industries developmentOrganization.

Readmore:http://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUV

Foreign Direct Investment (FDI) is normally defined as a form of investment made in order to gain

unwavering and long-lasting interest in enterprises that are operated outside of the economy of the

shareholder/ depositor. In FDI, there is a parent enterprise and a foreign associate, which unites to form a

Multinational Corporation (MNC). In order to be deemed as a FDI, the investment must give the parent
http://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUVhttp://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUVhttp://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUVhttp://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUVhttp://wiki.answers.com/Q/Industrial_policy_of_1991_in_India#ixzz18CTDtEUV


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enterprise power and control over its foreign affiliate.

Foreign Direct Investment in India

In India, Foreign Direct Investment Policy allows for investment only in case of the following form of

investments:

Through financial alliance

Through joint schemes and technical alliance

Through capital markets, via Euro issues

Through private placements or preferential allotments

Foreign Direct Investment in India is not allowed under the following industrial sectors:

Arms and ammunition

Atomic Energy

Coal and lignite

Rail Transport Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc

FDI In India Across Different Sectors

Hotel & Tourism

Hotels include restaurants, beach resorts and business ventures providing accommodation and food

facilities to tourist. Tourism would include travel agencies, tour operators, transport facilities, leisure,

entertainment, amusement, sports and health units.

100 per cent FDI is permitted for this sector through the automatic route.

Trading

For trading companies 100 per cent FDI is allowed for

Exports

Bulk Imports

Cash and Carry wholesale trading.

Power

For business activities in power sector like electricity generation, transmission and distribution other than

atomic plants the FDI allowed is up to 100 per cent.

Drugs & Pharmaceuticals

For the production of drugs and pharmaceutical a FDI of 100 per cent is allowed, subject to the fact that theventure does not attract compulsory licensing, does not involve use of recombinant DNA technology.

Private Banking

FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the investment

adheres to guidelines issued by RBI.

Insurance Sector

For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition of getting

license from Insurance Regulatory and Development Authority (IRDA).


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Telecommunication

For basic, cellular, value added services and mobile personal communications by satellite, FDI is

49 per cent.

For ISPs with gateways, radio-paging and end to end bandwidth, FDI is allowed up to 74 per cent.

But any FDI above 49 per cent would require government approval.

Business Processing Outsourcing

FDI of 100 per cent is permitted provided such investments satisfy certain prerequisites.

NRI's And OCB's

They can have direct investment in industry, trade and infrastructure

Up to 100 per cent equity is allowed in the following sectors

34 High Priority Industry Groups

Export Trading Companies

Hotels and Tourism-related Projects

Hospitals, Diagnostic Centers

Shipping

Deep Sea Fishing

Oil Exploration

Power

Housing and Real Estate Development

Highways, Bridges and Ports

Sick Industrial Units

Industries Requiring Compulsory Licensing

Industries Reserved for Small Scale Sector

f i x e d a n d f l o a t i n g e x c h a n g e r a t e s


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In a fixed exchange rate system, the government (or the central bank acting on thegovernment's behalf) intervenes in the currency market so that the exchange rate stays closeto an exchange rate target. When Britain joined the European Exchange Rate Mechanism inOctober 1990, we fixed sterling against other European currencies. The pound, for example,was permitted to vary against the German Mark by only 6% either side of a central target ofDM2.95. Britain left the ERM in September 1992 when the pound came under sustained selling

pressure, and the authorities could no longer justify very high interest rates to maintain thepound's value when the domestic economy was already suffering from a deep recession.

Since autumn 1992, Britain has adopted a floating exchange rate system. The Bank of Englanddoes not actively intervene in the currency markets to achieve a desired exchange rate level.

In contrast, the twelve members of the Single Currency agreed to fully fix their currenciesagainst each other in January 1999. In January 2002, twelve exchange rates become one whenthe Euro enters common circulation throughout the Euro Zone.

EXCHANGE RATE SYSTEMS FOR THE UK SINCE 1944

1944-72: Fixed Exchange Rates

Occasional devaluations against dollar (1948 and 1967)1972-87: Managed Floating1987-88: Shadowing the DM (Under Chancellor Nigel Lawson)1988-90: Managed Floating (prelude to ERM entry)1990-92: Semi-Fixed Exchange Rates1992-01: Floating Exchange RateBank of England has not intervened in the currency marketsSterling has been market determined for the last nine years

EXCHANGE RATES UNDER FIXED AND FLOATING REGIMES

With floating exchange rates, changes in market demand and market supply of a currencycause a change in value. In the diagram below we see the effects of a rise in the demand forsterling (perhaps caused by a rise in exports or an increase in the speculative demand forsterling). This causes an appreciation in the value of the pound.


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Changes in currency supply also have an effect. In the diagram below there is an increase incurrency supply (S1-S2) which puts downward pressure on the market value of the exchangerate.

A currency can operate under one of four main types of exchange rate system

FREE FLOATING

Value of the currency is determined solely by market demand for and supply of thecurrency in the foreign exchange market.

Trade flows and capital flows are the main factors affecting the exchange rate In the long run it is the macro economic performance of the economy (including trends

in competitiveness) that drives the value of the currency No pre-determined official target for the exchange rate is set by the Government. The

government and/or monetary authorities can set interest rates for domestic economicpurposes rather than to achieve a given exchange rate target

It is rare for pure free floating exchange rates to exist - most governments at one timeor another seek to "manage" the value of their currency through changes in interestrates and other controls

UK sterling has floated on the foreign exchange markets since the UK suspendedmembership of the ERM in September 1992

MANAGED FLOATING EXCHANGE RATES

Value of the pound determined by market demand for and supply of the currency with

no pre-determined target for the exchange rate is set by the Government Governments normally engage in managed floating if not part of a fixed exchange rate

system. Policy pursued from 1973-90 and since the ERM suspension from 1993-1998

SEMI-FIXED EXCHANGE RATES

Exchange rate is given a specific target Currency can move between permitted bands of fluctuation


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Exchange rate is dominant target of economic policy-making (interest rates are set tomeet the target)

Bank of England may have to intervene to maintain the value of the currency withinthe set targets

Re-valuations possible but seen as last resort October 1990 - September 1992 during period of ERM membership

FULLY-FIXED EXCHANGE RATES

Commitment to a single fixed exchange rate No permitted fluctuations from the central rate Achieves exchange rate stability but perhaps at the expense of domestic economic

stability Bretton-Woods System 1944-1972 where currencies were tied to the US dollar Gold Standard in the inter-war years - currencies linked with gold Countries joining EMU in 1999 have fixed their exchange rates until the year 2002

Advantages of floating exchange rates

Fluctuations in the exchange rate can provide an automatic adjustment for countries with alarge balance of payments deficit. If an economy has a large deficit, there is a net outflow ofcurrency from the country. This puts downward pressure on the exchange rate and if adepreciation occurs, the relative price of exports in overseas markets falls (making exportsmore competitive) whilst the relative price of imports in the home markets goes up (makingimports appear more expensive).

This should help reduce the overall deficit in the balance of trade provided that the priceelasticity of demand for exports and the price elasticity of demand for imports is sufficientlyhigh.

A second key advantage of floating exchange rates is that it gives the government / monetary

authorities flexibility in determining interest rates. This is because interest rates do not haveto be set to keep the value of the exchange rate within pre-determined bands.

For example when the UK came out of the Exchange Rate Mechanism in September 1992, thisallowed a sharp cut in interest rates which helped to drag the economy out of aprolonged recession.

Advantages of Fixed Exchange Rates (disadvantages of floating rates)Fixed rates provide greater certainty for exporters and importers and under normallycircumstances there is less speculative activity - although this depends on whether the dealersin the foreign exchange markets regard a given fixed exchange rate as appropriate andcredible. Sterling came under intensive speculative attack in the autumn of 1992 because themarkets perceived it to be overvalued and ripe for a devaluation.Fixed exchange rates can exert a strong discipline on domestic firms and employees to keeptheir costs under control in order to remain competitive in international markets. This helpsthe government maintain low inflation - which in the long run should bring interest rates downand stimulate increased trade and investment.

Countries with different exchange rate regimes


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Countries with fixed exchange rates often impose tight controls on capital flows to and fromtheir economy. This helps the government or the central bank to limit inflows and outflows ofcurrency that might destabilise the fixed exchange rate target,

The Chinese Renminbi is essentially fixed at 8.28 renminbi to the US dollar. Currencytransactions involving trade in goods and services are allowed full currency convertibility. But

capital account transactions are tightly controlled by the State Administration of ForeignExchange.

The Hungarians have a semi-fixed exchange rate against the Euro with the forint allowed tomove 2.5% above and below a central rate against the Euro. The Hungarian central bank mustgive permission for overseas portfolio investments on a case by case basis.

The Russian rouble is in a managed floating system but there is a 1% tax on purchases of hardcurrency. In contrast, the Argentinian peso is pegged to the US dollar at parity ($1 = 1 peso)but international trade transactions (involving current and capital flows) are not subject tostringent government or central bank control.

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Discuss the arguments for and against floating

exchange rates and explain how the monetary

authorities act to maintain exchange rates within

certain limits.

The exchange rate in a free market is the result of the interaction of

demand and supply. Demand for a particular currency is, from tangible view

point, the export of the country, because people want to buy English exports

need pounds to do so. On the other hand the supply for pounds is determined

by the amount that England imports as the England importers need to

change their pounds to other currencies to do so. Where the two intersect the

equilibrium is formed:


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In the current example the equilibrium occurs at a rate of 1.60 where q

units (e.g. pounds) are demanded and q units are supplied.

The same type of analysis applies to every currency. The demand for

sterling is also the supply of dollars if the pounds are exchanged to dollars

etc.

This is a very simplified view of real life, because only demand for tangible

reasons is included (trade, tourism etc.) In actual life the changing of

currencies because of these reasons only account for 5% of the total volume

of the trade. The currencies against which the rate is measured can change

too. That is why a system of trade weighted indices was set up to take

account of all the changes.

The other 95% comes partly from the different interest rates in different

countries and from the speculation with currencies. If interest rates are high,

people want to hold their money in the banks in this country. That increases

demand for that particular currency. Look at diagram over the page:


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As seen in the diagram, the new equilibrium is reached at E1 and the

exchange rate has risen. Sometimes the changes are more complex, because

the supply of pounds can contract at the same time, because people want to

hold their money in the home country (high interest rates). That will increase

the exchange rate even further.

Rising or lowering the exchange rates is widely used by governments

world-wide to maintain the exchange rate within a desired range. A

government can do that by buying or selling its fixed interest rate securities.

If it sells them, the price will fall and so the relative interest rate will rise and

vice-versa.

The government can also just set its rate (usually the rate by which it is

prepared to lend to LDMA as a last resort) as the commercial banks in the UK

will set the same interest rate as the Bank.

Other rate determining reasons are the inflation differences, differences in

invisible trade, capital movements be

fixed and floating exchange rates

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