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The Union Government has introduced various financial incentives for investments in core and infrastructure sectors as also high priority industries such as information technology and through specific schemes such as Growth Centre Schemes, Electronic Hardware Technology Park (EHTP), the Transport Subsidy Schemes, the New Industrial Policy for the North Eastern States, Software Technology Park (STP), Export Promotion Zones (EPZs), Special Economic Zones (SEZs), etc.

Foreign direct investment is freely allowed in all sectors including the services sector, except where the existing and the notified sectoral policy does not permit FDI beyond a ceiling. Virtually FDI for all items / activities can be brought in through the automatic route under powers delegated to the Reserve Bank of India (RBI), and for remaining items / activities through Government approval. Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB).

Foreign Direct Investment in India is allowed on automatic route in almost all sectors except following:

  • Proposals that require an industrial license and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries.

  • Proposals in which the foreign collaborator has a previous venture/tie-up in India.

  • Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor; and

  • Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to avail of the automatic route.

Some of the important sectors where 100 percent foreign ownership is permitted are given in the following paragraphs:

FDI is not allowed under the following sectors:

  • Arms and ammunition

  • Atomic Energy

  • Coal and lignite

  • Rail Transport

  • Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc

Up to 100 per cent equity is allowed in the following sectors

  • 34 High Priority Industry Groups

  • Export Trading Companies

  • Hotels and Tourism-related Projects

  • Hospitals, Diagnostic Centers

  • Shipping

  • Deep Sea Fishing

  • Oil Exploration

  • Power

  • Housing and Real Estate Development

  • Highways, Bridges and Ports

  • Sick Industrial Units

  • Industries Requiring Compulsory Licensing

  • Industries Reserved for Small Scale Sector


The scheme for 100 % Export Oriented Units (EOUs) was introduced in 1980 for generating production capacity for exports. Under this scheme, the units are eligible to procure the machinery, raw materials, components, consumables, etc; from indigenous / imported sources, free of excise / custom duty. The units are required to export their entire product and achieve a minimum prescribed NFEP (Net foreign exchange as a percentage of exports) as per EXIM policy for specified sectors. EOUs can make sale in the DTA (Domestic Tariff Areas), except for some specified categories. The DTA sale entitlement is 50 per cent of the FOB value of exports and this is on payment of applicable duties and subject to the fulfillment of prescribed minimum NFEP.

The development Commissioner of concerned Export Processing Zone (EPZ) is the authorized agency to allow DTA sale of production as per provision of Export Import policy in force. Under 100 % Export Oriented Unit (EOU) Scheme, the entrepreneur can choose the location in accordance with the location policy of the Government and the premises, where the manufacturing activity is to be carried out, are custom bonded.

It has been decided that EOUs need not obtain separate industrial license for the manufacture of items reserved for SSI sector, irrespective of the investment, in plant and machinery. Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Schemes. Such units may be engaged in manufacture, services, repair, remaking, reconditioning, reengineering, etc.


The Export Processing Zones (EPZ) set up as enclaves separated from the Domestic Tarrif Area (DTA) by fiscal barriers, are intended to provide an internationally competitive duty free environment for export production at low cost. This enables the products to be competitive both quality and price-wise in the international market. India has seven Export Processing Zones (EPZs), functioning at Kandla (Gujarat), Mumbai (Maharashtra), Noida(UP),Madras (Tamil Nadu), Cochin (Kerala ), Falta (West Bengal) and Visakhapatnam (Andra Pradesh).

Some of the significant features of the Export Processing Zones in India have been enumerated as under:

  • The activities that are carried out in the EPZ in India are not liable to be licensed apart from the IT enabled sectors

  • The units set up in the export processing zones in India can select their desired locations by following certain parameters as prescribed by the state governments

  • The export processing zones in India religiously follows the active export-import policy

  • The units in EPZ in India are totally custom bonded

  • The proposals for the units in Export processing zones in India are entitled to follow the automatic route for approval as enforced by the state governments

  • The proposals which do not fall under the procedure of automatic route system are governed or approved by the FIPB

  • The activities in EPZ in India belonging to the Domestic Tariff Area sector are converted into Export oriented units to meet the parameters set for the export production by the government

  • 100 percent FDI is granted to these zones


Special Economic Zone is a specifically delineated duty free enclave and shall deem to be a foreign territory for the purposes of trade operations, duties and tariffs. It provides an internationally competitive and hassle free environment for exports.

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