Industrial Approval Policy
The major highlights of Industrial Approval Policy include the following:
- Industrial Licensing has been virtually abolished in the Electronics and Information Technology sector except for manufacturing electronic aerospace and defence equipment.
- There is no reservation for public sector enterprises in the Electronics and Information Technology industry and private sector investment is welcome in every area.
- Electronics and Information Technology industry can be set up anywhere in the country, subject to clearance from the authorities responsible for control of environmental pollution and local zoning and land use regulations.
- Large Industries (where investment in plant and machinery is more than Rs.10 crores) and exempted from licensing are only required to file information in the prescribed Industrial Entrepreneurs' Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India and obtain an acknowledgement. Immediately after the commencement of commercial production, Part B of the IEM has to be filed. No further approval is required. Forms can be downloaded from the website of the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry (http://dipp.gov.in).
- Small Scale Industries (where investment in plant and machinery is more than Rs.25 lakh but less than Rs.5 crores) and Medium Industries (where investment in plant and machinery is more than Rs.5 crores but less than Rs. 10 crores are required to register with the District Industries Centre (DIC).
Foreign Investment Policy
India welcomes investors in Electronics and IT sector. Government of India is striving to bring greater transparency in policies and procedures to provide an investor friendly platform.
A foreign company can start operations in India by registration of its company under the Indian Companies Act 1956. Foreign equity in such Indian companies can be upto 100%. At the time of registration it is necessary to have project details, local partner (if any), structure of the company, its management structure and shareholding pattern.
A joint venture entails the advantages of established contracts, financial support and distribution-marketing network of the Indian partner. Approval of foreign investments is through either automatic route or Government approval.
Government of India facilitates Foreign Direct Investment (FDI) and investment from Non-Resident Indians (NRIs) including Overseas Corporate Bodies (OCBs), predominantly owned by them to complement and supplement domestic investment. Foreign technology induction is encouraged both through FDI and through foreign technology collaboration agreement. Foreign Direct Investment and Foreign technology collaboration agreements can be approved either through the automatic route under powers delegated to the Reserve Bank of India (RBI) or otherwise by the Government
Foreign Direct Investment upto 100% is allowed under the automatic route from foreign/NRI investor without prior approval in most of the sectors including the services sector. Foreign Direct Investment in sectors/activities under automatic route does not require any prior approval either by the Government or RBI (For details please refer to RBI website at http://www.rbi.org.in). In pursuance of Government’s commitment to further liberalise the Foreign Direct Investment (FDI) regime, all items/activities have been placed under the automatic route for FDI/NRI and OCB investment, except the following:
- All proposals that require an Industrial Licence, which includes:-
- The item requiring an Industrial Licence under the Industries (Development & Regulation) Act, 1951
- Foreign investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries
- All items which require an industrial licence in terms of the locational policy notified by Government under the New Industrial Policy of 1991.
- All proposals in which the foreign collaborator has a previous venture/tie up in India.
- All proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor.
- All proposals falling outside notified sectoral policy/caps or under sector in which FDI is not permitted and/or whenever any investor chooses to make an application to the FIPB and not to avail of the automatic route.
Procedure for Obtaining Government Approval – FIPB
All proposals for foreign investment requiring Government approval are considered by the Foreign Investment Promotion Board (FIPB). The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration. For seeking the approval for FDI other than NRI investments and 100% Export Oriented Units (EOUs), applications in form FC-IL should be submitted to the Department of Economic Affairs (DEA), Ministry of Finance. For details on the Foreign Direct Investment Policy guidelines, please refer to website - http://dipp.gov.in.
The salient features of the Fiscal Policy as applicable to the Electronics Hardware Sector are as follows:
- Peak rate of customs duty is 10%. The customs duty on 217 Information Technology Agreement (ITA-1) items* is zero%. The Agreement covers the following main categories of products and components: Computers and peripherals; Telecommunication equipment; Electronic components including semiconductors; Semiconductor manufacturing equipment; Software and Scientific instruments.
- All goods required in the manufacture of ITA-1 items have been exempted from customs duty subject to Actual user condition.
- Customs duty on specified raw materials / inputs used for manufacture of electronic components and optical fibres and cables is 0%.
- Customs duty on specified capital goods used for manufacture of electronic goods is 0%.
- Customs duty on LCD Panels and Set Top Box is 5%.
- Parts, components and accessories of mobile handsets including cellular phones are exempted from basic customs duty and excise duty/CVD.
- Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories has been reintroduced for one year i.e. upto 6.7.2010.
- The mean rate of excise duty (CENVAT) is 8%.
- Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD Drives/DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty.
- VAT on IT items is @4% and non-IT electronic items are @12.5%. CST is 2%.
Foreign Trade Policy
- In general, all Electronics and IT products are freely importable, with the exception of some defence related items. All Electronics and IT products, in general, are freely exportable, with the exception of a small negative list which includes items such as high power microwave tubes, high end super computer and data processing security equipment.
- Second hand capital goods are freely importable.
- Zero duty Export Promotion Capital Goods scheme (EPCG) which allows import of capital goods at zero% customs duty is available to exporters of electronic products. The export obligation under EPCG Scheme can also be fulfilled by the supply of Information Technology Agreement (ITA-1) items to the DTA provided the realization is in free foreign exchange.
- Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing and trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption.
- Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom/electronic items in the Domestic Tariff Area (DTA) by EOU/EHTP/STP/SEZ units are counted for the purpose of fulfilment of positive Net Foreign Exchange Earnings (NFE).
- The import of second hand computers including personal computers/ laptops and refurbished/reconditioned spares are restricted for import. However, second hand computers, laptops and computer peripherals including printer, plotter, scanner, monitor, keyboard and storage units can be imported freely as donations by the following category of donees, subject to the condition that the goods shall not be used for any commercial purpose and are non-transferable:
- Schools run by Central or State Government or a local body
- Educational Institution running on non-commercial basis by any organization
- Registered Charitable Hospital
- Public Library
- Public funded Research and Development Establishment
- Community Information Centre run by the Central or State Government or local bodies
- Adult Education Centre run by Central or State Government or a local body
- Organization of the Central or State Government or a Union Territory
India’s Foreign Trade Policy and Procedures are available on the website of the Department of Commerce, Ministry of Commerce & Industry (http://commerce.nic.in).