The note states that Reserve Bank of India will be given the powers to clear foreign direct investment under the automatic approval scheme in EOU and EPZ units engaged in businesses covered under Annexure III of Manual on Industrial Policy & Procedures except the units engaged in cotton spinning.

The foreign equity would, however, be subject to sectoral policy and sectoral equity cap for FDI. EOUs and EPZ units manufacturing licesable products would also been allowed to infuse foreign equity under the automatic approval route, provided such equity is being invested in an existing unit having a valid licence. The policy change would empower RBI to permit FDI in EOU and EPZ units without any reference to the Foreign Investment Promotion Board. The proposal has been cleared by the ministries of finance, commerce andtextiles and departments of electronics and small scale industries.

The move is a part of the government policy to further liberalise foreign direct investment procedures. Industry ministry sources said this move would result in more investment in EOU and EPZ units. The ministry proposes to notify the changes within a week of the Cabinet granting its approval. Sources said that the EOU and EPZ cotton spinning mills have been excluded from the scheme on the recommendation of the ministry of textiles. The other ministries cleared the proposal without any imposing any conditions.

Under the provisions of the industrial policy, the RBI can accord automatic approval for foreign direct investment involving foreign equity of up to 50 per cent for three categories of activities in the mining sector, up to 51 per cent for 21 categories of manufacturing/services activities, up to 74 per cent for eight categories of manufacturing/services activities and up to 100 per cent for two categories of infrastructure-relatedactivities without any reference to the FIPB.

The Centre is also easing provisions relating to sectoral caps. The industry ministry has proposed that foreign investment by overseas mutual and other funds, multilateral agencies and through GDRs and ADRs should not attract the sectoral cap. A proposal allowing FIIs to make equity investment in Indian companies through direct negotiated deals in excess of the 30 per cent ceiling for portfolio investment is also being considered.