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In India there are basically two forms of foreign collaboration. The collaboration may be either financial collaboration or it may be technical. In case of financial collaboration the approving authority is the Reserve Bank of India and in the case of technical collaboration the approving authority is department of Industrial Development in the Ministry of Industry, Government of India.

The approach of the Government has been roughly the same since the year 1949 that is to allow foreign direct investment on preferential basis in sectors that will be beneficial for the country. The foreign or Indian undertakings will have to conform to the Industrial policy of the country. Foreign investors are in all cases considered equal to their Indian partners.

The Government has enforced The Foreign Exchange Management Act 1999 (FEMA) in place of the Foreign Exchange Regulation Act,1973 (FERA). The Old act aimed at controlling foreign exchange whereas the new Act seeks to regulate foreign exchange.

A breach of the provisions of the old act resulted in a criminal offence with the burden of proof lying on the guilty. However the new Act provides for only a civil remedy and for an offence the accused cannot be arrested unless he defaults in payment of penalty for contravention.

For setting up a foreign collaboration, approval from the government under the relevant foreign exchange laws in force and the requisite Government policy is required.

Under the Act now a foreign collaboration may be formed by a foreign company without the necessity of forming a company with an Indian counterpart. Any Foreign collaboration which exceeds the minimum limited set out in the automatic route requires approval from the government.

The Government has set up a foreign investment promotion board to encourage foreign investment in India. Some of the functions of the Board include :

• speed up clearance of proposals

• to review the collaborations cleared

• Earmarking and ascertaining of contacts to invest in India.