By Team Legal Helpline India, January 30, 2017

A brief write up on the process and procedures of Industrial Licensing in India by our expert team which provides all advice and services related to obtaining of Industrial Licensing for FDI in India.

The process and procedures for industrial licensing in India has now a global perspective with opne doors for various types of FDI in India udner different sectors thereby allowing investment of foreign capital in various forms. The process of foreign investment in India policy is based on the economic, social and political issues which also regulate the internal affairs of business in India.


The Government liberalization and economic reforms program aims at rapid and substantial economic growth, and integration with the global economy in a harmonized manner. The industrial policy reforms have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment.

Industrial Licensing

All industrial undertakings are exempt from obtaining an industrial licence to manufacture, except for the following industries:

(i) industries reserved for the Public Sector .

(ii) industries retained under compulsory licensing .

(iii) items of manufacture reserved for the small scale sector and

(iv) if the proposal attracts locational restriction.

Industrial Entrepreneurs Memorandum

Industrial undertakings exempt from obtaining an industrial license are required to file an Industrial Entrepreneur Memoranda (IEM) in Part (as per prescribed format) with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India, and obtain an acknowledgement. No further approval is required. Immediately after commencement of commercial production, Part B of the IEM has to be filled in the prescribed format. The facility for amendment of existing IEMs has also been introduced.

Locational Policy

Industrial undertakings are free to select the location of a project, there are however some restrictions for the location of the polluting industries near the cities. The location of industrial units is further regulated by the local zoning and land use regulations as also the environmental regulations.

Policy Relating to Small Scale Undertakings

  • An industrial undertaking is defined as a small scale unit if the investment in fixed assets in plant and machinery does not exceed Rs 10 million. The small scale units can get registered with the Directorate of Industries/District Industries Centre in the State Government concerned. Such units can manufacture any item including those notified as exclusively reserved for manufacture in the small scale sector. Small scale units are also free from locational restrictions. However, a small scale unit is not permitted more than 24 percent equity in its paid-up capital from any industrial undertaking either foreign or domestic.
  • Manufacturing of items reserved for the small scale sector can also be taken up by non small scale units, if they obtain an industrial license. In such cases, it is mandatory for the non small scale unit to undertake minimum export obligation of 50 per cent. This will not apply to non small scale EOUs that are engaged in the manufacture of items reserved for the SSI sector, as they already have a minimum export obligation of 66 per cent of their production. In addition, if the equity holding from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its small scale status.
  • A small scale unit manufacturing small scale reserved item(s), on exceeding the small scale investment ceiling in plant and machinery by virtue of natural growth, needs to apply for and obtain a Carry-on-Business (COB) License. No export obligation is fixed on the capacity for which the COB license is granted. However, if the unit expands its capacity for the small scale reserved item(s) further, it needs to apply for and obtain a separate industrial license
  • It is possible that a chemical or a by-product recoverable through pollution control measures is reserved for the small scale sector. With a view to adopting pollution control measures, Government have decided that an application needs to be made for grant of an industrial licence for such reserved items which would be considered for approval without necessarily imposing the mandatory export obligation.

Environmental Clearances

Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for setting up an industrial project, for 30 types of projects as listed, environmental clearance needs to be obtained from the Ministry of Environment, Government of India. This list includes industries like petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper etc. However, if investment is less than Rs. 1000 million, such clearance is not necessary, unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries. Further, any item reserved for the small scale sector with investment of less than Rs 10 million is also exempt from obtaining environmental clearance from the Central Government under the Notification. Powers have been delegated to the State Governments for grant of environmental clearance for certain categories of thermal power plants.

Setting up industries in certain locations considered ecologically fragile (eg Aravalli Range, coastal areas, Doon valley, Dahanu, etc.) are guided by separate guidelines issued by the Ministry of Environment of the Government of India.

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