FDI beyond 24% in micro units to require FIPB nod

Any foreign investment in excess of 24 per cent in an industrial unit, which manufactures items reserved for micro and small enterprises, will require prior approval of the Foreign Investment Promotion Board, according to Press Note 6 issued by the government.

Moreover, any industry which manufactures items reserved for MSEs will require an industrial license subject to some general conditions, including export of at least 50 per cent of new or additional production over a period of three years. This was notified by the government in a new Press Note on Friday.

Non-MSE units engaged in the production of 21 reserved items like bread, pickles and aluminum utensils will come under this notification.

The Press Note also allows enactment of the Micro, Small and Medium Enterprises Development Act of 2006, which removed the ceiling of 24 per cent foreign equity in these units.

Earlier, any unit having more than 24 per cent foreign direct investment had to withdraw its registration as a small-scale unit and obtain industrial licence. However, the new Press Note removed this process which will help in attracting more FDI into the cash-starved MSEs.

The Act defined micro units in the manufacturing sector as those where investment in plant and machinery does not exceed Rs 25 lakh, while small units as those investing between Rs 25 lakh and Rs 5 crore.

In the services sector, the investment in equipment up to Rs 10 lakh is defined as micro enterprises and Rs 10 lakh to Rs 2 crore as small units. The new Press Note is sixth in a series in 2009.

Some of the earlier press notes like 2, 3 and 4 had raised a controversy relating to the manner of calculating FDI and downstream investment in subsidiaries.

The MSE sector in India has around 26 million units which employ about 60 million people.