INSTITUTIONAL MECHANISMS FOR PROMOTION OF FDI:
There is increasing recognition that understanding 'the forces of economic globalisation requires taking a look at foreign direct investment (FDI) by multinational corporations (MNCs). In India, while inclination towards the policy of export promotion and attracting foreign direct investment was referred in earlier policy documents as a point here and there, it was industrial policy Resolution, of 1991 that came out openly for the first time with the provisions for FDI and foreign technology agreements as under:
While freeing Indian industry from official controls, opportunities for promoting foreign investments in India should also be fully exploited. the relationship between dew-estic and foreign industry needs to be much more dynamic than it has been in the past in terms of both technology and investment. Foreign investment would bring attendant advantages of technology transfer, marketing expertise, introduction of modern managerial techniques and new possibilities for promotion of exports. This is particularly necessary in the changing global scenario of industrial and economic cooperation marked by mobility of capital. The government will therefore welcome foreign investment which is in the interest of the country's industrial development.
In order to invite foreign investment in high priority industries requiring large investments and advanced technology, the policy decided to provide approval for direct foreign investment upto 51 percent foreign equity in such industries. The intention was to make Indian policy on foreign investment transparent and attractive for companies abroad to invest in India. The policy also envisages the promotion of exports of Indian products and therefore recognised the need for a systematic exploration of world markets possible only through intensive and highly professional marketing activities.
In the absence of the expertise of this nature in India at that time, the Government decided to encourage foreign trading companies to assist in our export activities. Attraction of substantial investment, access to high technology and to world markets involved interaction with international manufacturing and marketing firms.
It was decided that the Government will appoint a special board to negotiate with such firms for providing avenues for large investments in the development of such industries and technology which are of the national interest. In order to promote an industrial environment where the acquisition of technological capability received priority, it was decided to ease out the approval process. With a view to injecting the desired level of technological dynamism in Indian industry, the government also decided to provide automatic approval for technology agreement related to high priority industries within specified parameters. Indian companies were also provided with the free hand to negotiate the terms of technology transfer with their foreign counterparts. In order to help the process of efficient absorption of foreign technology, the hiring of foreign technicians and foreign testing of indigenously developed technologies, were exempted from taking prior clearance as needed before.
A manual on policy and procedures on FDI in India was issued by the government of India in 2003. The manual referred to the industrial licensing policy laying down the rules and procedures for FDI. The following ways were referred such as: i) automatic route where 100 percent approval was given, and ii) government approvals where permission was required for some of the activities. Both the policies were available for FDI, foreign technology agreement, EPZsISEZs and hardware and software technology park Schemes. The procedures regarding getting approvals were laid down separately for each of the category. The institutional facilitation was provided by Secretariat for Industrial Assistance (SIA), FIPB, FIIA, Foreign Investment Promotion Council (FIPC), Investment Promotion & Infrastructure Development (IP&ID) Cell and so on were established to facilitate the investors with guidance and help.