4. Industrial Policies
The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted the following: duty-free import of intermediate goods, income tax holidays, exemption from excise tax on capital goods, components, and raw materials, and a waiver on sales taxes. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. These initiatives are governed by separate rules and granted different benefits, details of which can be found at:
The GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs
Performance and Data Localization Requirements
Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:
1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
b. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
4. The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7,500), whichever is higher.
In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website:
Research and Development
The Government of India allows for 100 percent FDI in research and development through the automatic route.
Data Storage & Localization
In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.
In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights