nd str and n rastr           t re        9.11
     foreign investment (FI) in both its forms—direct              6. Location of Industries
     and indirect. The direct form of FI was called as
                                                                   Related provisions were simplified by the policy
     the foreign direct investment (FDI) under which
                                                                   which was highly cumbersome and had time-
     the MNCs were allowed to set up their firms in
                                                                   consuming process. Now, the industries were
     India in the different sectors varying from 26
                                                                   classified into ‘polluting’ and ‘non-polluting’
     per cent to 100 per cent ownership with them—
                                                                   categories and a highly simple provision deciding
     Enron and Coke being the flag-bearers. The FDI
                                                                   their location was announced:
     started in 1991 itself. The indirect form of foreign
     investment (i.e., in the assets owned by the Indian                 (i) Non-polluting industries might be set up
     firms in equity capital) was called the portfolio                         anywhere.
     investment scheme (PIS) in the country, which                     (ii) Polluting industries to be set up at least
     formally commenced in 1994.31 Under the PIS                               25 kms away from the million cities.
     the foreign institutional investors (FIIs) having
     good track record are allowed to invest in the                7. Compulsion of Phased Production Abolished
     Indian security/stock market. The FIIs need to                With the compulsion of phased production
     register themselves as a stock broker with SEBI. It           abolished, now the private firms could go
     means India has not allowed individual foreign                for producing as many goods and models
     investment in the security market still, only
                                                                   simultaneously.34 Now the capacity and capital
     institutional investment has been allowed till
                                                                   of industries could be utilised to their optimum
     5. FERA Replaced by FEMA
                                                                   8. Compulsion to Convert Loans into Shares
     The government committed in 1991 itself to                        Abolished
     replace the draconian FERA with a highly liberal
                                                                   The policy of nationalisation started by the
     FEMA, which same into effected in the year
                                                                   Government of India in the late 1960s was based
     2000–01 with a sun-set clause of two years.33
                                                                   on the sound logic of greater public benefit and
       31.  Ministry of Finance, Economic Survey, 1994–95,     ew  had its origin in the idea of welfare state—it was
              elhi overnment of ndia,             .
       32. It becomes very complex and tough to regulate the         34.    This was another hurdle which the private sector
            individual foreign investment in the share market               industries have been complaining about. As the
            though it is an easier way of attracting foreign                industrial products were completely new to the Indian
                                                                            market and its consumers alike, the government
            exchange. It should be noted that the South East
                                                                            followed this policy with the logic to provide enough
            Asian economies which faced financial crisis
                                                                            time so that the products become domesticised
            in            all had allowed individual foreign
                                                                            i.e.,development of awareness about the product and
            investment in their share market. As the Indian                 its servicing, maintenance, etc. As for example, the
            security market was learning the art of regulation              MNC subsidiary Phillips India was allowed to produce
            in its nascent phase, the government decided not                a highly simple radio Commandar and Jawan models
            to allow such foreign investment. The logic was                 for comparatively longer periods of time then they were
            vindicated after the South East Asian currency crisis           allowed to come up with the smaller fashionable radio
            when India had almost no shocks inistry of inance,              sets or two-in-ones and three-in-ones. Such provisions
              conomic Survey             ew elhi      overnment of          hampered their full capacity utilisation as well as
            India, 1997).                                                   achieving the economy of scale had also been tougher.
       33.  The delayed action by the government in the foreign             The new industrial policy of 1991 did away with such
            exchange liberalisation was due to the delayed comfort          impediments. By that time, the Indian consumer as well
            the economy felt regarding the availability of foreign          as the market was fully aware of the modern industrial
            exchange.                                                       goods.