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Kerala PSC Indian Economy Book Study Materials Page 263Book's First Page
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 now.32 level. 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.