Foreign Direct Investment is a concept where a controlling investment is made by a company based in one country into a company based in another company. Not all businesses in India can attract FDI and hence, the rules and regulations differ for companies from different sectors and industries.INVESTMENT IN INDIA
During the past few years, it has been observed that investment into India has been a major non- debt financial force behind the rise of the Indian Economy. FDI in India is done through a wide range of industries and it reflects the remarkable scope, faith and trust that foreign investors have in the Indian economy.
To ensure an uninterrupted inflow of investment, the Indian government has created conducive trade atmosphere and effective business policy measures. This strategy is reflected in the steps taken by the government, such as easing out the restrictions levied on sectors like stock exchanges, power exchanges, defence, telecommunications, aviation etc.
Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.
The investment activities, which are not covered under the automatic route, require prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), the Department of Economic Affairs, and the Ministry of Finance. The application has to be filed in the Form FC-IL and has to be addressed to the FIPB. Interestingly, the Board has also allowed and started entertaining applications which are written in plain paper with the only conditions that it should carry all the relevant details. Another important element is that no fees are to be paid to the Board. The main objective behind these is to make the process hassle free so that foreign investment can easily thrive into the Indian Market, which would result into the rise of the of Indian Economy.
Subsequently, the Indian companies having foreign investment approved through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.
a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO
b) Account is maintained with Authorized Dealers/Authorized banks.
c) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
d) Amount invested shall not be eligible for repatriation outside India.
FDI is not permitted in Trusts other than in the ones registered and regulated by SEBI and investment vehicle?
FDI in LLPs is permitted, subject to the following conditions:
b) Gambling and Betting, including casinos etc.
c) Chit funds: As per Chit Fund Act, 1982, Chit means a transaction whether called chit, chit fund, chitty, kuree or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount".
d) Nidhi company: These companies belong to the non-banking Indian Finance sector and their main business is borrowing and lending money only between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.
e) Trading in Transferable Development Rights (TDRs)
a) Real Estate Business or Construction of Farm Houses shall not include development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.
b) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
c) Activities/sectors not open to private sector investment e.g. (I) Atomic Energy and (II) Railway operations (other than permitted activities)
d) Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.
PERMITTED SECTORS OF INVESTMENTS AGRICULTURE SECTOR
Sector | % of Equity/ FDI Cap | Entry Route |
a) Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions; | 100 | Automatic |
Besides the above, FDI is not allowed in any other agricultural sector/activity.
PLANTATION SECTOR
Sector | % of Equity/ FDI Cap | Entry Route |
(i) Tea sector including tea plantations | 100 | Automatic |
*Besides the above, FDI is not allowed in any other plantation sector/activity.
*Prior approval of the State Government concerned is required in case of any future land use change.
MINING AND PETROLEUM & NATURAL GAS
Sector | % of Equity/ FDI Cap | Entry Route |
Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957. | 100 | Automatic |
PETROLEUM & NATURAL GAS
Sector | % of Equity/ FDI Cap | Entry Route |
Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. | 100 | Automatic |
Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs. | 49 | Automatic |
DEFENCE
Sector | % of Equity/ FDI Cap | Entry Route |
Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951 | 49 | Automatic up to 49% |
BROADCASTING SERVICES
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(1)Teleports(settingup of up-linking HUBs/Teleports); | 100% | AUTOMATIC | |
Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)) | |||
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval |
NON-BANKING FINANCE COMPANIES (NBFC)
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WHITE LABEL ATM OPERATIONS
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POWER EXCHANGES
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PENSION SECTOR
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INSURANCE SECTOR
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INFRASTRUCTURE COMPANY IN THE SECURITIES MARKET
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CREDIT INFORMATION COMPANIES (CIC)
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BANKING- PUBLIC SECTOR
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BANKING- PRIVATE SECTOR
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ASSET RECONSTRUCTION COMPANIES
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RAILWAY INFRASTRUCTURE
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DUTY FREE SHOPS
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MULTI BRAND RETAIL TRADING
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SINGLE BRAND RETAIL TRADING
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E-COMMERCE ACTIVITIES
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TRADING
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TELECOM SERVICES
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PRIVATE SECURITY AGENCIES
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* "Private Security Agency" means a person or body of persons other than a government agency, department or organisation engaged in the business of providing private security services including training to private security guards or their supervisor or providing private security guards to any industrial or business undertaking or a company or any other person or property
SATELLITES- ESTABLISHMENT AND OPERATION
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INDUSTRIAL PARKS
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CONSTRUCTION DEVELOPMENT: TOWNSHIPS, HOUSING, BUILT-UP INFRASTRUCTURE
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CIVIL AVIATION Airport
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AIR TRANSPORT SERVICES
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OTHER SERVICES UNDER CIVIL AVIATION SECTOR
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*Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and seaplane services.
*Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above.
PRINT MEDIA
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PROCEDURE AFTER INVESTMENT MADE THROUGH AUTOMATIC ROUTE OR GOVERNMENT APPROVAL
I.On receipt of share application money
Within 30 days of receipt of the share application , the Indian company is required to report to the Regional Office concerned of the Reserve Bank of India.
II. Upon issue of shares to non-resident investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR along with the following documents should be filed with the Regional Office concerned of the Reserve Bank of India:
GUIDELINES FOR TRANSFER OF EXISTING SHARES FROM NON-RESIDENTS TO RESIDENTS OR RESIDENTS TO NON-RESIDENTS
Following are the two ways:
The FEMA Regulations give specific permission covering the following forms of transfer i.e. transfer by way of sale and gift:
i. Transfer of shares or fully and mandatorily convertible debentures by way of sale:
a) Any person resident outside India (not being a Non Resident Indian (NRI) or erstwhile Overseas Corporate Bodies), can transfer by way of sale the shares or fully and mandatorily convertible debentures to any person resident outside India or an NRI may transfer by way of sale.
b) Any person resident outside India may sell shares or fully and mandatorily convertible debenture acquired in accordance with the FEMA Regulations.
ii. Transfer of shares or fully and mandatorily convertible debentures by way of Gift:
2. An NRI may transfer by way of gift, the shares or convertible debentures held by him to another NRI only provided that the person to whom the shares are being transferred has obtained prior permission of the Central Government to acquire the shares.
3. Any person resident outside India may transfer share or fully and mandatorily convertible debentures to a person resident in India by way of gift.
B. Transfer of shares or fully and mandatorily convertible debentures from Resident to Non-Resident:
A person resident in India may transfer by way of sale to a person resident outside India any shares or fully and mandatorily convertible debenture of an Indian company whose activities (other than financial service sector activities) fall under the Automatic Route of the FDI Scheme.
However, the above general permission is not available where:
a) The transfer of shares or fully and mandatorily convertible debentures falls within the provisions of SEBI.
b) The transfer of shares or fully and mandatorily convertible debentures is at a price which does not adhere to the pricing guidelines specified by the Reserve Bank of India from time to time
c) The activity of the Indian investee company falls outside the automatic route and where Foreign Investment Promotion Board (FIPB) approval has been obtained for the said transfer.
C. Transfer of security by way of gift to a person resident outside India by a person resident in India:
A person resident in India who proposes to transfer security by way of gift to a person resident outside India shall make an application to the Central Office of the Foreign Exchange Department, by submitting the following information, such as:
i. The donee is eligible to hold such security.
ii. The gift does not exceed 5 per cent of the paid up capital of the Indian company
iii. The applicable sectoral cap/ foreign direct investment limit in the Indian company is not breached.
vi. Such other conditions as specified by the Reserve Bank.
Guidelines on issue and valuation of shares in case of existing companies:
b) The price of shares transferred from resident to a non-resident and vice versa should be determined as under:
i.Transfer of shares from a resident to a non-resident:
a) In case of listed shares, at a price which is not less than the price at which a preferential allotment of shares would be made
b) In case of unlisted shares at a price which is not less than the fair value as per the Discount Free Cash Flow (DCF) Method to be determined by a SEBI.
ii)Transfer of shares from a non-resident to a resident - The price should not be more than the minimum price at which the transfer of shares would have been made from a resident to a non-resident.
Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift:
Investment in sectors/activities under government approval route will be subject to government approval where: