4. Liberalized Foreign Investment Policy

India’s earlier industrial policies welcomed FDI but emphasized that ownership and control of all enterprises involving foreign equity should be in Indian hands. The Balance of Payments (BoP) difficulties in the mid-1960s forced the country to adopt a more restrictive approach towards FDI through the setting up of a Foreign Investment Board, which classified industries into two groups: banned and favored for foreign technical collaboration and FDI. The number of industries for foreign investment was steadily narrowed down and by 1973 there were only 19 industries where FDI was permitted. The enactment of FERA, 1973 marked the beginning of the most restrictive phase of India’s foreign investment policy. The NIP radically reformed foreign investment policy to attract foreign investment. The important foreign investment policy measures are as follows:

♤ Repeal of FERA, 1973: FERA, 1973 has been repealed and Foreign Exchange Management Act (FEMA) came into force with effect from June 2000. Investment and returns can be freely repatriated except where the approval is subject to specific conditions such as lock-in period on original investment, dividend cap, foreign exchange neutrality, etc. as specified in the sector specific policies. The condition of ‘dividend balancing’ was withdrawn for dividends declared. A foreign investor can freely enter, invest and operate industrial enterprises in India. The Foreign Contribution (Regulation) Act, 2010 has been enacted by the Parliament to consolidate the law to regulate the acceptance and utilization of foreign contribution.

♤ Dilution of restrictions on Foreign Direct Investment (FDI): FDI is allowed in all sectors including the services sector except atomic energy and railway transport.