India is one of fastest growing economies of the world as well as the
most desired place for doing business and as a reason of which India is ranked among
top 3 attractive destinations for business investments.
RECENT
DEVELOPMENTS
Indian Government has taken many steps to liberalise
the laws relating to the foreign investment in India to welcome foreign
investors. Some of the most recent initiatives of Indian Government are as
under:
-
100% FDI allowed in medical devices.
-
FDI cap in insurance and sub-activities
increased from 26% to 49%.
-
Telecom sector is opened for 100% FDI.
-
100% FDI in single brand retail.
-
FDI in sectors like Commodity Exchanges, Stock
Exchanges & Depositories, Power Exchanges, Petroleum refining by PSU’s
courier Services is now made under Automatic Route from Government Route.
-
Removal of restriction in Tea Plantation sector.
-
FDI limit raised to 74% in Credit Information
and 100% in Asset Reconstruction Companies.
-
FDI limit of 26% in Defence Sector raised to
100% under Government Approval Route, Foreign Portfolio Investment up to 24% permitted
under automatic route. FDI beyond 49% is also allowed on a case to case basis
with the approval of cabinet committee on Security
-
Construction, Operation and Maintenance of specified
activities of Railway sector opened to 100% Foreign Direct Investment under
automatic route.
ROUTES FOR FDI
1.
Automatic
Route- No central government approval is required.
2.
Approval
Route- Applications are considered by the Foreign Investment Promotion
Board (FIPB).
Any Indian Company receiving FDI under either
Automatic Route or Approval Route has to report the receipt of funds and
allotment of shares against the same to RBI in prescribed form and time limit.
TYPES
OF INVESTORS ALLOWED UNDER FDI ROUTE:
Individual
1. Foreign
Venture Capital Investors
2. Pension/Provident
Funds
3. Financial
Institutions
4. Non-Resident
Indian (NRI’s) / Persons of Indian Origin (PIO’s)
Company
1. Foreign
Trust
2. Sovereign
Wealth Funds
Foreign
Institutional Investors
1. Private
Equity Funds
2. Partnership
/ Proprietorship Firms
3. Others
PROHIBITED
SECTORS
1. Lottery
business
2. Gambling
and Betting including Casinos
3. Chit
Funds
4. Nidhi
Companies
5. Trading
in Transferrable Development Rights
6. Real
Estate Business (Other than construction development) or constructions of farm
houses
7. Manufacturing
of Cigars, Cheroots, Cigarillos and Cigarettes of tobacco and of tobacco substitutes
8. Atomic
Energy, Railway Transport (Other than as allowed specifically)
9. Service
like legal, book keeping, accounting and auditing.
SECTORS
WITH CAPS
SECTOR
|
CAP
|
Petroleum Refining by PSU’s
|
49%
|
Teleports (setting up of up-linking
HUBs/Teleports),Direct to Home (DTH), Cable Networks (Multi-system operators
(MSOs) operating at national, state or district level and undertaking
upgradation of networks towards digitalization and addressability), Mobile TV
and Headend-in-the-Sky Broadcasting Service (HITS)
|
74%
|
Cable Networks
|
49%
|
FM Radio
|
26%
|
Uplinking of news and current affairs TV Channels
|
26%
|
Print Media dealing with news and current affairs
|
26%
|
Scheduled Air Transport
|
49%
|
Non-Scheduled Air Transport
|
74%
|
Ground Handling Services – Civil Aviation
|
74%
|
Satellites – Establishment and Operation
|
74%
|
Private Security Agencies
|
49%
|
Public Sector Banking
|
20%
|
Commodity Exchanges
|
49%
|
Credit Information Companies
|
74%
|
Infrastructure Companies in Securities Market
|
49%
|
Insurance and sub-activities
|
49%
|
Power Exchange
|
49%
|
Defence
|
49% (more than 49% with approval from
Cabinet Committee)
|
SECTORS
REQUIRING CENTRAL GOVERNEMENT APPROVAL
SECTOR
|
INVESTMENT %
|
Tea sector including plantation
|
100
|
Mining and Mineral separation of titanium –bearing
minerals and ores
|
100
|
Enterprise manufacturing items reserved for Small
Scale Sector
|
100
|
Defence
|
49
|
Defence-With approval from Cabinet Committee for
security
|
Above 49
|
Teleports, DTH, Cable Networks, Mobile TV,
Headed-In-The-Sky (HITS)
|
Beyond 49 and upto 74
|
Uplinking and of news and current affairs channel
|
26
|
Uplinking and of non-news and current affairs TV channel
|
100
|
Terrestrial Broadcasting- FM Radio
|
26
|
Publication of facsimile edition of foreign news
paper
|
100
|
Airports-Brownfields
|
Beyond 74
|
Non-scheduled air transport service
|
Beyond 49 and upto 74
|
Ground handling services
|
Beyond 49 and upto 74
|
Satellites
|
74
|
Private Securities agencies
|
49
|
Telecom
|
Beyond 49
|
Single Brand Retails
|
Beyond 49
|
Asset Reconstruction Company
|
Beyond 49 and upto 100
|
Banking Private Sector (other than WOS/Branches)
|
Beyond 49 and upto 74
|
Banking- Pubic Sector
|
20
|
Pharmaceuticals-brownfield
|
100
|
All other
items not included in above are under automatic route.
BUSINESS
STRUCTURES TO BRING IN FDI
Below mentioned form of business can be used to
bring in the required FDI into India.
1.
Forming
a Company in India
a.
Private Company
b.
Public Company
2.
Limited
Liability Partnership
FDI
in LLP is allowed only with Government approval in sectors with 100% FDI under Automatic Route
3.
Firm
a.
Sole Proprietorship Firm
b.
Partnership Firm
These
structures falls under RBI approval. RBI decides on the application in
consultation with Government of India.
4.
Foreign
Entities
a.
Liaison Office, Branch Office or Project Office
of foreign entities. FDI approvals are granted under Govt. and RBI route.
Further, automatic route is available for Branch or Project office meeting certain
conditions.
5.
Other
Structures
Non-profit organizations etc. – Foreign investment
in these structure is also subject to provisions of Foreign Contribution
Regulation Act (FCRA)
STEPS
INVOLVED IN BRINGING IN THE FDI
-Identify the required business structure
-Incorporation of structure with necessary licenses
-Take central Govt. approval for proposed FDI, if
required
-Inflow of funds through eligible instruments
-Compliance with reporting requirements
REPATRIATION
OF FUNDS
Dividend-
Dividend is freely repatriable without any restrictions after TDS or Dividend
Distribution Tax
Capital –
AD –Category –I Bank can allow the repatriation of sale proceeds of securities
to person outside India, if such securities are issued on repatriation basis after
tax clearance certificate from Income Tax Dept. is obtained. Further, it is to
be noted that investments in construction development sector is subject to
lock-in period of 3 years.
Interest- Interest
on fully, mandatorily and compulsory convertible debentures are freely
repatriable, net of applicable taxes.
About author:
Dhanaji Shinde is a Practicing Company Secretary at
Bangalore and can be reached at 9844494678 or 9663811124 or pcs.dhanaji.shinde@gmail.com
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