Foreign Investment Policy India 1948-1990.


The (IPR) Industrial Policy Resolution 1948 was the first organised attempt by the Government to give proper direction to the industrialization process of the economy.

Foreign collaboration with with equity participation was encouraged, during this period. This is to facilitate technology transfers. The increasing foreign exchange constraint was another factor which prompted.

The Government to encourage minority foreign capital participation. To forge a close link between Indian and foreign investors the Indian Investment Center was established in 1961. Which gives a sharp-rise in the number of collaborations.

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Because of this, the outflow on account of remittances of dividends, profits, royalties and technical fees grew sharply and formed a significant portion of the foreign exchange account of the country.

The terms of reference of the committee appointed by the Government are technical know-how, general conditions and general guidelines for allowing foreign collaboration.

The Government set-up a Foreign Investment Board 1968 in order to minimize the delay in processing the applications for foreign collaboration.

The Board has power to deal with all matters relating to private foreign investment and collaboration where foreign investment does not exceed Rs. 2 crore of equity capital and 40 percent of issued capital.

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The clearance of the Cabinet Committee was required in cases exceeding these limits. The Industrial Policy statement of 1973 sought to further restrict the activities of foreign companies to a select group of core industries. These industries were considered to be of basic, critical and strategic importance.

The Foreign Exchange Regulation Act (FERA) 1973.

All the non-banking branches and companies which are incorporated under the Indian Companies Act, 1956 with more than 40% foreign equity participation are covered under FERA.

FERA conserves the foreign exchange resources of the country and properly utilize them. It amends and consolidates the law regarding certain payments which are dealing in foreign exchange and securities.

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All the companies with more than 40 percent foreign equity participate were required to take the permission of Reserve Bank of India to continue business.

The permission was subject to as per government guidelines which required foreign companies to transfer all their business to Indian companies having upto 40 percent foreign equity


Foreign investment: In 1948, a greater proportion of foreign investment was concentrated in export-oriented raw materials, extractive and service sectors.

By 1990, the stock of foreign investment has increased by more than ten times, during this period; there is a considerable change in magnitude and sectoral composition and the sources of foreign investment.

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The most significant trend in the increasing size of foreign investment was the growing importance of the manufacturing sector. In the 80’s there was a marginal improvement in the share of plantations and services.

New investments were directed at technology intensive sectors such as electrical goods, transport equipment, machinery and machine tools, and chemicals and allied products, within the manufacturing sector.

The share of traditional industries such as food and beverages, textile-products, metal and metal products in foreign investment policies to some extent reversed the declining trend of relative share of foreign investment in consumer goods industries.

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Foreign Collaboration Approvals.

About 724 collaborations per year were approved during 1980-90, on an average. Out of these, three fourth were technical participate.

The direction, composition and magnitude of foreign investment in India are influenced by the government policies. During 1965- 79, there was a decline of about 15 percent in financial-collaborations.

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