BBA Business Environment June 2014 Solved Question Paper With Answers

(e) Free Entry to Foreign Investment and Technology: The Government is committed to promote increased flow of Foreign Direct Investment (FDI) for better technology, modernisation, exports and for providing products and services of international standards;

Therefore, the policy of the government has been aimed at encouraging foreign investment particularly in core infrastructure sectors so asto supplement national efforts. The salient features of the FDI policy are:

(1) There are two modalities for FDI approval: (a) automatic approval by the Reserve Bank, and (b) approval by Foreign Investment Promotion Board (FIPB)/Government.

(ii) 34 categories/groups of high priority industries identified on the basis of National Industrial Classification qualify for automatic approval depending on the nature of activity.

(iii) Projects for electricity generation, transmission and distribution, construction, and maintenance of roads, highways, vehicular tunnels, vehicular bridges, ports and harbours have permitted foreign equity participation up to 100 per cent under the automatic route.

(iv) FIPB is required to dispose of applications for FDI within a time frame of six weeks.

(v) FDI is not permissible in agriculture, real estate and insurance activities.

(vi) Full repatriation of original investment and returns except for dividend balancing and foreign exchange neutrality conditions in certain sectors.

(vii) Liberal access to foreign technology. Automatic approval to lump sum payment of up to US $2 million and royalty at the rate of 5 per cent for domestic sales and 8 per cent for exports subject to a total payment of 8 per cent on sales for a period not exceeding 7years from the date of commercial production.

(viii) Easy access to domestic debt. Foreign companies that invest in India can leverage in India by way of domestic debt from domestic financial institutions.

(ix) Liberal external commercial borrowings and debt servicing norms.

(x) No ceiling on raising Global Depository Receipts (GDRs), American Depository Receipts (ADRs), and Foreign Currency Convertible Bonds (FCCBs).

(f) Industrial Location Policy Liberalised : The new industrial policy provides that in locations other than cities of more that 1 million population, there will be no requirement of obtaining industrial approvals from the centre, except for industries subject to compulsory licensing.

In cities with a populationof more than 1 million, industries other than those of non-polluting nature will be located outside 25 kms of the periphery. Since there are 33 cities in India with a population of more than 1 million each, the new industrial policy has dispensed with government clearance for the location of projects except in the case of these 33 cities.

(g) Removal of Mandatory Convertibility Clause: Most of industrial establishments in India are financed by loans from banks and financial institutions. These institutions have followed a bdig çonyeribiljty clause in their lending operations for new projects This has provided them an option of converting part of their loans into equity if felt necessary by their management. The new industrial policy has provided that henceforth financial institutions will not impose this mandatory convertibility clause.

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