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.