It was no surprise that in less than six months, we played host to Prime Minister David Cameron , President Barack Obama, President Nicolas Sarkozy, Premier Wen Jiabao and most recently President Dimitry Medvedev. One common agenda of all these visits was bilateral trade and an expectation that India further ease its FDI rules. Hence, as we approach the new year, it may perhaps be wise to once again objectively evaluate our current FDI rules to see what other changes can be introduced.Currently, all foreign investments into India are regulated by the consolidated FDI policy (policy). The consolidation, first undertaken in March 2010, pulls together in one document all previous acts, regulations, press notes, press releases and clarifications issued either by the department of industrial policy and promotion (DIPP) or the Reserve Bank of India (RBI) where they relate to FDI into India.
The consolidation exercise, a huge endeavour on the part of the DIPP, is a step in the right direction and hence deserves much appreciation. What also merits praise is the initiative of the DIPP to only make changes to the policy on a biannual basis, as opposed to the previous practice of issuing ongoing notifications. Hence, the most recent policy came into effect on October 1, 2010.Under the extant policy, investments into most sectors fall under the automatic route. Such investments require no prior permission of the government or any regulator and the Indian company receiving the foreign investment is only required to intimate the RBI of any such investment.The FDI rules applicable to such sectors are, therefore, fairly clear and unambiguous. But some sectors still require prior government approval and it is here that the rules may be accused of being somewhat complicated. What needs to be appreciated is that most sectors that require government approval fall within the 'sensitive' category and hence it is essential to balance FDI with concerns of national security. Similar restrictions also exist in some developed countries where there is a potential of national security being compromised.
The consolidation exercise, a huge endeavour on the part of the DIPP, is a step in the right direction and hence deserves much appreciation. What also merits praise is the initiative of the DIPP to only make changes to the policy on a biannual basis, as opposed to the previous practice of issuing ongoing notifications. Hence, the most recent policy came into effect on October 1, 2010.Under the extant policy, investments into most sectors fall under the automatic route. Such investments require no prior permission of the government or any regulator and the Indian company receiving the foreign investment is only required to intimate the RBI of any such investment.The FDI rules applicable to such sectors are, therefore, fairly clear and unambiguous. But some sectors still require prior government approval and it is here that the rules may be accused of being somewhat complicated. What needs to be appreciated is that most sectors that require government approval fall within the 'sensitive' category and hence it is essential to balance FDI with concerns of national security. Similar restrictions also exist in some developed countries where there is a potential of national security being compromised.
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