Ministry rules out raising FDI limit in small scale units

NEW DELHI: The proposal to increase the FDI cap in small scale industries (SSI) has run into rough weather. It has been noticed that the proposal ��� piloted by the Department of Industrial Policy and Promotion ��� to raise the FDI limit in small scale industrial units from the current 24% to 49%, is incompatible with SSI definitions and guidelines.

The ministry of SSI has pointed out that as per the existing rules, if foreign stake in a small scale unit exceeds 24% of the total equity, the unit ceases to remain a SSI.

���We have time and again clarified with the DIPP, that the SSI ministry does not impose any restrictions on foreign equity for SSI units. But foreign investors cannot have the cake and eat it too,��� a senior SSI official told ET.

The reason is that once a unit gets foreign capital beyond the 24% mark, it cannot avail of the benefits and concessions that domestic SSI units get.

These benefits include customs and excise benefits, alongwith incentives like tax sops, he added.���A small-scale unit cannot have more than 24% equity in its paid-up capital from any industrial undertaking, either foreign or domestic.

If the equity from another company (including foreign equity) exceeds 24%, the unit loses its small-scale status and shall require an industrial license to manufacture items reserved for the small-scale sector,��� according to a notification of rules issued by the ministry of SSI.

The rule extends to all investors, irrespective of the fact that they are Indian or foreign investors. Once an entity loses its SSI status, FDI norms are applicable, depending on the nature of the industry.

���In case, investment in a unit crosses the 24% mark, FDI norms will apply depending on the nature of its core activity,��� the official said.

There is, however, only one exception to the above stipulation. An investor is allowed to invest up to 100% in an SSI unit, if the investing entity does not already have an industrial interest or undertaking in India or abroad. This rule is applicable to both domestic and foreign investors.