Dispensing with FERA

THE presidential ordinance issued this week has brought on to the statute book the numerous relaxations and deletions of the provisions of the Foreign Exchange Regulation Act (FERA) effected through administrative notifications over a period of time. The changes made in the government's policies relating to foreign investment have been far-reaching, so much so that almost all the relevant major provisions of FERA have been dispensed with. Apart from automatic clearance by the Reserve Bank of direct foreign investment up to 51 per cent in priority industries (listed in Annexure III of the July 1991 industrial policy statement), the high- powered Foreign Investment Promotion Board (FIPB) is empowered to negotiate foreign investment proposals outside the 51 per cent limit as well as the industrial priorities enumerated in Annexure III. Existing manufacturing companies are allowed to raise their foreign equity to 51 per cent if they are engaged in Annexure III industries or if they have expansion programmes relating to these industries. Oil exploration and power generation are allowed substantially higher foreign equity participation. The terms for foreign technology agreements have been liberalised and royalty up to 5 per cent of domestic sale and 8 per cent of export sale along with lumpsum payment up to Rs I crore are auto- matically approved by the Reserve Bank and even higher payments are permissible with FIPB clearance. Apart from the terms extended to non-resident Indians (NRIs) for direct (even 100 per cent of equity on repatriable basis) as well as portfolio investment on repatriable and non-repatriable basis in priority and non-priority areas alike, including real estate development, the liberalisation effected in two other areas calls for special attention: First, the permission granted to foreign institutional investors (FIIs) such as pension funds, investment trusts and asset management companies, to invest in securities traded on the secondary and primary capital markets; and, second, the decision to permit the opening of branches of foreign manufacturing and trading companies. The new policy regime totally ignores the world-wide lesson of successful technological advance