i. All branches of foreign companies (except air lines and shipping companies) seeking approval under FERA have to convert themselves into Indian companies.
ii. A minimum permissible foreign share holding limit of 74 per cent will be allowed to companies engaged in manufacturing any item listed in Appendix-I of 1973 Industrial Policy or predominantly export-oriented or engaged in any industry using sophisticated technology or tea plantation or manufacturing companies engaged in trading provided trading constitutes less than 25 per cent of ex-factory value of production or has a turnover of less than Rs. 5 crores.
iii. A permissible foreign share holding of 40 per cent will be allowed for companies engaged in other manufacturing items which neither use sophisticated technology nor are listed in Appendix I.
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However, these companies will have the option to change the charter of their manufacturing operations or by becoming predominantly export oriented or by manufacturing items listed in Appendix I. In such cases the maximum permissible share holding would be 74 per cent.
iv. If a company is 100 per cent export-oriented, a foreign share holding exceeding 74 per cent may be allowed.
v. Airlines and shipping companies as well as banking companies are exempted.
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vi. Since 1985, due to Government’s liberal economic policies, legislations like FERA and MRTP have become more and more irrelevant.
An amendment to Section 29 to FERA, affected in 1992, frees the FERA companies from any limits imposed on their non-priority sector operations. This amendment also enables the FERA companies to take up any trading, commercial and industrial activities, as also acquire any company in India or acquire shares of any company, without obtaining RBI permission.
As announced in January, 1992, FERA companies have been granted freedom to invest and disinvest their stocks at the market price; earlier, the price at which these companies were allowed to sell their stocks was decided by the Controller of Capital Issues.
FERA companies are no longer obliged to export a part of their turnover as was the case till now. These changes indicate that the Government is keen to attract more and more foreign investment. It appears that the Government believes that it is better to allow equity than to go out to borrow.
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The relaxation in FERA will improve the foreign investment environment in India. It should be remembered that the success of the new economic policy depends largely on the liberal response of the foreign capital.