India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

FDI Regulations <strong>and</strong> Trends
Beginning in 1991, as part <strong>of</strong> <strong>India</strong>’s policy <strong>of</strong> opening to the global economy, the <strong>India</strong>n
government authorized FDI with foreign equity stakes <strong>of</strong> up to 51 percent in most
industries, including food processing. The equity limit for FDI in food processing was
later raised to 100 percent. Foreign investors generally are not permitted to own
agricultural l<strong>and</strong> in <strong>India</strong> <strong>and</strong> are prohibited from investing in most direct agricultural
(farming) activities. Exceptions exist for tea plantations <strong>and</strong> for investment in agriculture
under “controlled conditions,” such as farming in climate-controlled facilities such as
greenhouses (table 8.1). 1
TABLE 8.1 <strong>India</strong>: Specific FDI regulations in certain food-related industries
Equity
Industry
cap (%) Entry route Other conditions
Primary agricultural production
Floriculture, horticulture, development
<strong>of</strong> seeds, animal husb<strong>and</strong>ry,
pisciculture, aquaculture, cultivation <strong>of</strong>
vegetables <strong>and</strong> mushrooms under
controlled conditions, <strong>and</strong> services
related to agro <strong>and</strong> allied sectors. a 100 Automatic None reported.
Tea sector, including tea plantations. b 100 Approval from
the Foreign
Investment
Promotion
Board required
Food processing
Subject to divestment <strong>of</strong> 26 percent <strong>of</strong>
equity in favor <strong>of</strong> an <strong>India</strong>n partner or
the <strong>India</strong>n public within 5 years, <strong>and</strong>
prior approval <strong>of</strong> the state government
concerned in case <strong>of</strong> any change in
future l<strong>and</strong> use.
Alcohol distillation <strong>and</strong> brewing 100 Automatic Subject to license by appropriate
authority.
Manufacture <strong>of</strong> cigars <strong>and</strong> cigarettes 100 Approval from
the Foreign
Investment
Promotion
Board required
Subject to industrial license under the
Industries (Development <strong>and</strong>
Regulation) Act <strong>of</strong> 1951.
Source: Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion,
“Consolidated Policy on Foreign Direct Investment,” March 31, 2008.
a FDI is not allowed in any other agricultural sector/activity.
b FDI is not allowed in any other plantation sector or activity.
<strong>India</strong> also prohibits FDI in multibr<strong>and</strong> retail establishments, which may inhibit
investment in the agriculture sector. The ban on FDI in multibr<strong>and</strong> retail is meant to
protect the interests <strong>of</strong> <strong>India</strong>’s many small “kirana” retail shop owners. 2 For instance,
foreign food companies with established br<strong>and</strong>s may find it difficult to break into the
<strong>India</strong>n market through the kiranas because the shops are small <strong>and</strong> shelf space is at a
1 Beyond the agricultural industries noted in the table, FDI is not allowed in any other agricultural sector
or activity. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion,
“Consolidated Policy on Foreign Direct Investment,” 2008; government <strong>of</strong>ficial, interview by Commission
staff, New Delhi, <strong>India</strong>, May 5, 2009.
2 <strong>India</strong> permits FDI in single-br<strong>and</strong> retail establishments, defined as shops that only sell products by a
single producer, such as a footwear manufacturer. FDI is prohibited in multibr<strong>and</strong> retail establishments,
which are shops that sell products from more than one manufacturer, as do most U.S. supermarkets <strong>and</strong>
department stores.
8-2