This information is derived from the State Department's Office of Investment Affairs' Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 8/2/2017

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). The newest category is the National Industrial and Manufacturing Zones (NIMZs), of which 14 are being established across India. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: Sez IndiaSTPI and Make India.

SEZs are treated as foreign territory; therefore businesses operating within SEZs are not subject to customs regulations, nor FDI equity caps. They also receive exemptions from industrial licensing requirements, and enjoy tax holidays and other tax breaks. 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.

The current government established NIMZs as new integrated industrial townships with a minimum area of 5,000 hectares, to be managed by a special purpose vehicle and headed by a government official. Publicly available information suggests that foreign and domestic companies will be able to seek all state and central government authorizations for operating with NIMZs via single window. The government has planned the establishment of eight NIMZs on the Delhi-Mumbai Industrial Corridor (DMIC) route and six NIMZs outside the DMIC.

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India, as Public Sector Companies and the government accord a 20% price preference to vendors utilizing more than 50% 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:
    1. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
    2. 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.
    3. 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 ($3000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7500), whichever is higher.

The Union Cabinet further approved a new procurement policy providing preference to domestically manufactured goods for government procurement in May 2017. The policy mandates that only local suppliers will be eligible for procurement of goods and services above INR 500,000 ($7,500), provided the specific ministry determines there is sufficient local capacity and competition. The order covers government entities, autonomous bodies, government companies, or entities under the government’s control, including the armed and paramilitary forces.

In 2010, India initiated the Jawaharlal Nehru National Solar Mission (JNNSM), which aimed to bring 100,000 megawatts (MW) of solar-based power generation online by 2022, as well as promote solar module manufacturing in India. Under the JNNSM, India imposed certain local content requirements for solar cells and modules. Specifically, under the JNNSM, participating solar power developers must use solar cells and modules made in India in order to enter into long-term power supply contracts and receive other benefits from the Indian government. The United States challenged India’s position at the WTO and, in September 2016, the WTO Appellate Body report sustained that India's local content requirements are inconsistent with WTO non- discrimination obligations.

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: Meity

Research and Development

The Government of India allows for 100% FDI in research and development through the automatic route.

Data Storage

The National Telecom Machine-to-Machine (M2M) Roadmap, released on May 25, 2015, states that all M2M gateways and application servers serving customers in India, must be physically located in India. The Roadmap proposes that foreign SIM cards not be permitted in devices used in India. India does not require foreign providers to turn over source code or provide access to encryption. The Telecom Regulatory Authority (TRAI) has issued a consultation paper to examine policy issues concerning cloud computing services and cross-border data flows.

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India Economic Development and Investment