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FDI POLICY AND ENTRY

OPTIONS

INTRODUCTION
India
has
one
of
the
most
transparent and liberal Foreign Direct
Investment (FDI) regimes among
emerging and developing economies.
Differential treatment is limited to a
few entry rules, predominantly in
some Services sectors, spelling out
the proportion of equity that the
foreign investor can hold in an Indiaregistered
company
or
more

Foreign corporate and individual


investment
in
India,
termed
collectively
as
Foreign
Direct
Investment (FDI) when it relates to
control or ownership of a company in
India, takes one of two routes

1)Automatic route or Automatic


Approval:
This requires no prior approval for FDI. Postfacto filing of data relating to the investment
made with the Reserve Bank of India (RBI) are
for record and data purposes.
This route is available to all sectors or
activities that do not have a sector cap i.e.
where 100% foreign ownership is permitted, or
for investments that are within a sector cap
(e.g. less than or equal to 26% share of an
Insurance company) and where the Automatic
route is allowed.

FIPB Approval
FIPB Approval the Foreign Investment
Promotion
Board
(FIPB)
approves
investment proposals:
Where the proposed shareholding is above
prescribed sector cap
OR

where the activity belongs to that small list


of sectors where FDI is either not allowed
OR
where it is mandatory that proposals be routed through
the FIPB (e.g. sectors that require industrial licensing)

Mechanism of approval
by FIPB
The FIPB ensures a single-window
approval for the investment and acts
as
a
screening
agency
(for
sensitive/negative list sectors).
FIPB approvals (or rejections) are
normally received in 30 days.
Some foreign investors use the FIPB
application route where there may be
absence of stated policy or lack of
policy clarity.

An outline of the broad policies for


groups of sectors

RECENT POLICY MEASURES (1)

100% FDI allowed in the telecom sector.


100% FDI in single-brand retail.
FDI in commodity exchanges, stock exchanges
& depositories, power exchanges, petroleum
refining by PSUs, courier services under the
government route has now been brought
under the automatic route.
Removal of restriction in tea plantation sector.
FDI limit raised to 74% in credit information &
100% in asset reconstruction companies.

RECENT POLICY
MEASURES (2)
FDI limit of 26% in defence sector raised to
49% 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

Different Options for


Entry (1)
INCORPORATING A COMPANY IN INDIA:
It can be a private or public limited company. Both
wholly owned & joint ventures are allowed. Private
limited company requires minimum of 2 shareholders.
LIMITED LIABILITY PARTNERSHIPS:
Allowed under the Government route in sectors which
has 100% FDI allowed under the automatic route and
without any conditions.
SOLE PROPRIETORSHIP/PARTNERSHIP FIRM:
Under RBI approval. RBI decides the application in
consultation with Government of India.

Different Options for


Entry (2)
EXTENSION OF FOREIGN ENTITY:
Liaison office, Branch office (BO) or Project Office
(PO). These offices can undertake only the activities
specified by the RBI. Approvals are granted under
the Government and RBI route. Automatic route is
available to BO/PO meeting certain conditions.
OTHER STRUCTURES:
Foreign investment or contributions in other
structures like not for profit companies etc. are also
subject to provisions of Foreign Contribution
Regulation Act (FCRA).

STEPS INVOLVED IN INVESTMENT (1)

Identification of structure
Central Government approval if required
Setting up or incorporating the structure
Inflow of funds via eligible instruments and
following pricing guidelines
Meeting reporting requirements of RBI and
respective Act
Registrations/obtaining key documents like
PAN etc.
Project approval at state level

STEPS INVOLVED IN INVESTMENT (2)


Finding ideal space for business activity based on
various parameters like incentives, cost, availability of
man power etc.
Manufacturing projects are required to file Industrial
Entrepreneurs Memorandum (IEM), some of the
industries may also require industrial license.
Construction/renovation of unit
Hiring of manpower
Obtaining licenses if any
Other state & central level registrations
Meeting annual requirements of a structure, paying
taxes etc.

CENTRAL GOVERNMENT INCENTIVES


Investment allowance (additional depreciation) at the
rate of 15 percent to manufacturing companies that
invest more than INR 1 billion in plant and machinery
available till to 31.3.2015.
Incentives available to units set-up in SEZ & EOUs.
Exports
incentives
like
duty
drawback,
duty
exemption/remission schemes, focus products & market
schemes etc.
Areas based incentives like unit set-up in north east
region,
Jammu
&
Kashmir,
Himachal
Pradesh,
Uttarakhand.
Sector specific incentives like M-SIPS (Modified Special
Incentive Package Scheme) in electronics.

STATE GOVERNMENT INCENTIVES

Each state government has its own incentive


policy, which offers various types of incentives
based on the amount of investments, project
location, employment generation, etc. The
incentives differ from stateto state and are
generally laid down in each states industrial
policy.
The broad categories of state incentives include:
stamp duty exemption for land acquisition,
refund or exemption of value added tax,
exemption from payment of electricity duty etc.

SPECIAL DISPENSATION

Special dispensations have been


envisaged for NRI investments in the
following :
Construction development
Ground Handling & Air transport
services
NRI investing on non repatriable
basis
FDI from NEPAL & BHUTAN is allowed
in Indian rupees

SECTORS WHERE FOREIGN DIRECT INVESTMENT IS PROHIBITED (1)

Lottery Business including Government


/private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Chit funds
Nidhi company-(borrowing from members and
lending to members only).
Trading in Transferable Development Rights
(TDRs)
Real Estate Business (other than construction
development) or Construction of Farm Houses

SECTORS WHERE FOREIGN DIRECT


INVESTMENT IS PROHIBITED (2)
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes
Activities / sectors not open to private sector investment e.g.
Atomic Energy and Railway Transport (other than construction,
operationand maintenance of (i) Suburban corridor projects
through PPP, (ii) High speed train projects, (iii) Dedicated
freight lines, (iv) Rolling stock including train sets, and
locomotives/coaches
manufacturing
and
maintenance
facilities, (v) Railway Electrification, (vi) Signaling systems, (vii)
Freight terminals, (viii) Passenger terminals, (ix) Infrastructure
in industrial park pertaining to railway line/sidings including
electrified railway lines and connectivities to main railway line
and (x) Mass Rapid Transport Systems.)
Services like legal, book keeping, accounting & auditing.

FDI POLICYCONSTRUCTION (1)


100% FDI through the automatic route is permitted in townships,
housing, built-up infrastructure and construction-development
projects (including, but not restricted to housing, commercial
premises, hotels, resorts, hospitals, educational institutions,
recreational facilities, city and regional level infrastructure). The major
conditions under which foreign investment can be made in this sector
are:
10 hectares is the minimum land area for the development of serviced
housing plots. 50,000 sq.mts. is the minimum built-up area for
construction-development projects. For combination projects, any one
of the prior two conditions would suffice. There are specific
exemptions for smart cities, housing projects and old age homes.
A minimum capitalization of USD 10 Million is envisaged for whollyowned subsidiaries and USD 5 Million for joint ventures with Indian
partners. The funds will have to be brought in within six months of
date commencement of business of the company.

FDI POLICYCONSTRUCTION (2)


The original investment cannot be repatriated before a period of three
years from completion of minimum capitalization. The term original
investment means the entire amount is brought in as FDI. The lock-in
period of three years will be applied from the date of receipt of each
installment/tranche of FDI or from the date of completion of minimum
capitalization, whichever is later. However, the investor may be permitted
to exit earlier, with prior approval of the government through the Foreign
Investment Promotion Board (FIPB).
The conditions of minimum capitalization, minimum area requirement,
lock in period and minimum development above do not apply to hotels
and tourism sectors, hospitals, Special Economic Zones (SEZs), the
education sector, old age homes and investment by NRIs.
FDI is not allowed in the real estate business or construction of a
farmhouse.
100% FDI is allowed under the automatic route for urban infrastructure
areas like urban transport, water supply, sewerage and sewage treatment
subject to relevant rules and regulations.

FDI POLICY-OIL& GAS


FDI upto 100% is permitted under automatic route in exploration
activities of oil and natural gas fields, infrastructure related to
the marketing of petroleum products and natural gas, marketing
of natural gas and petroleum products, petroleum product
pipelines, natural gas/pipelines, LNG re-gasification, market
study and formulation and petroleum refining in the private
sector.
FDI in the above activity is subject to the existing 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.
FDI upto 49% is permitted under automatic route in petroleum
refining by Public Sector Undertakings (PSUs), without any
disinvestment or dilution of domestic equity in the existing
PSUs.

FDI POLICY-MINING

FDI up to 100% is allowed in exploration, mining,


minerals processing and metallurgy under the
automatic route for all non-fuel and non-atomic
minerals including diamonds and precious
stones.
Mining and mineral separation of titaniumbearing minerals and ores, its value addition and
integrated activities fall under the government
route of foreign direct investment up to 100%.
FDI in coal mining is allowed for captive
consumption only.

FDI POLICY-PORTS
100% FDI is allowed under the
automatic route for projects related
to the construction and maintenance
of ports and harbours, subject to
applicable regulations and laws.

FDI-RAILWAYS

100% FDI under automatic route is permitted for the following:


Construction, operation and maintenance of sub-urban corridor
projects through PPP.
High speed train projects.
Dedicated freight lines.
Rolling stock including train sets and locomotive/coaches
manufacturing and maintenance facilities.
Railway electrification.
Signaling systems.
Freight terminals.
Passenger terminals.
Infrastructure in industrial parks pertaining to railway line/siding
including electrified railway lines and connectivity to main railway
line.
Mass Rapid Transport Systems.

FDI-Renewable Energy
Foreign Direct Investment (FDI) up to
100% is permitted under the
automatic
route
for
renewable
energy generation and distribution
projects subject to provisions of The
Electricity Act, 2003.

FDI POLICY-ROADS & HIGHWAYS

100% FDI is allowed under the


automatic route in the road and
highways
sector,
subject
to
applicable laws and regulation.

FDI POLICY-THERMAL POWER


100% FDI is allowed under the automatic route in the power sector (except
atomic energy), subject to all the applicable regulations and laws.
FOREIGN DIRECT INVESTMENT IS PERMITTED IN THE FOLLOWING CATEGORIES
:
Generation and transmission of electric energy produced in hydro-electric,
coal, lignite, oil and gas-based thermal power plants.
Non-conventional Energy Generation and Distribution.
The distribution of electric energy to households, industrial, commercial and
others.
Power Trading.
FDI in power exchanges up to 49% (26% FDI+23% FII/FPI) is under the
automatic route.
FII/FPI purchases shall be restricted to secondary market only. No non-resident
investor/entity, including persons acting in concert, will hold more than 5% of
the equity in these companies and the foreign investment would be in
compliance with SEBI regulations.Other applicable laws/regulations, security
and other conditionalities apply.

FDI POLICY-AVIATION
100% FDI is permitted for greenfield airport projects under the automatic route.
Up to 74% FDI is permitted for existing airport projects under the automatic route,
above 74% and up to 100% permitted under government approval route.
Up to 49% FDI is permitted in domestic scheduled passenger airlines under the
automatic route. 100% permitted for NRIs. Up to 49% FDI under the automatic route
is permitted in Non-Scheduled Air Transport Service. FDI above 49% and up to 74% is
permitted under Government approval route. 100% FDI permitted for NRIs.
Up to 100% FDI is permitted in helicopter services and seaplanes under the
automatic route.
Up to 49% FDI is permitted in ground handling services under the automatic route.
FDI above 49% and up to 74% is permitted under government approval route. 100%
FDI permitted for NRIs.
Up to 100% FDI is permitted in maintenance and repair organizations; flying training
institutes; and techinical training institutes under the automatic route.
Investments are subject to relevant regulations, approvals from DGCA and security
and other conditions. Foreign airlines are also, henceforth, allowed to invest in the
capital of Indian companies, operating scheduled and non-scheduled Air Transport
Services, up to the limit of 49% of their paid-up capital. Investments will be subject to
government route.

TYPES OF INVESTORS
INDIVIDUAL:
FVCI
Pension/Provident Fund
Financial Institutions
COMPANY:
Foreign Trust
Sovereign Wealth Funds
NRIs / PIOs
FOREIGN INSTITUTIONAL INVESTORS:
Private Equity Funds
Partnership / Proprietorship Firm
Others
Note :Citizen or entity from Bangladesh & Pakistan can invest only under
the government route also investor from Pakistan cannot invest in defence,
space, atomic energy and sectors prohibited for foreign investment.

Entry Options for Foreign


Investors

A foreign company planning to set up


business operations in India has the
following options:
Incorporate a company under
Companies Act, 1956 through:
JOINT-VENTURE
WHOLLY OWNED SUBSIDIARY

Foreign equity in such Indian


companies can be up to 100%
depending on the requirements of
the investor, subject to equity caps in
respect of the sector/area of
activities under the FDI policy.

Enter as a Foreign Company through:


Liaison office/ Representative Office
Project Office
Branch Office
Such offices can undertake activities
permitted under the Foreign Exchange
Management
Regulations,
2000
(Establishment in India of branch or
office of other place of business).

INCORPORATION OF A COMPANY

For registration and incorporation, an


application has to be filed with the
Registrar of Companies (ROC).
Once a company has been registered
and incorporated as an Indian
company, it is subject to Indian laws
and regulations as applicable to
other domestic Indian companies

LIAISON OFFICE/REPRESENTATIVE OFFICE


The role of the liaison office is limited to collecting
information about possible market opportunities and
providing information about the company and its
products to prospective Indian customers.
It can promote export/import from/to India and also
facilitate technical/financial collaboration between
the parent company and companies in India.
A liaison office cannot, however, undertake any
commercial activity directly or indirectly and cannot,
therefore, earn any income in India.
Grant of approval for the establishment of a liaison
office in India is by the Reserve Bank of India (RBI).

PROJECT OFFICE

Foreign companies planning to execute specific


projects in India can set up temporary project/site
offices in India.
The RBI has now granted general permission to
foreign entities to establish project offices subject to
specified conditions.
Such offices cannot undertake or carry on any
activity other than which is related and incidental to
the execution of the projects.
Project offices may remit the surplus of the project
on completion outside India, a general permission
for which has been granted by the RBI.

BRANCH OFFICE
Foreign companies engaged in manufacturing and trading
activities abroad are allowed to set up Branch Offices in India
for the following purposes:
Export/Import of goods.
Rendering professional or consultancy services.
Carrying out research work, in which the parent company is engaged.
Promoting technical or financial collaboration between Indian
companies and parent or overseas group company.
Representing the parent company in India and acting as
buying/selling agent in India.
Rendering services in Information Technology and development of
software in India.
Rendering technical support to the products supplied by the
parent/group companies.
Foreign airline/shipping company.

A branch office is not allowed to carry out


manufacturing activities on its own but is
permitted to subcontract these to an Indian
manufacturer.
Branch offices established with the
approval of the RBI may remit outside India
the profit of the branch net of applicable
Indian taxes and subject to RBI guidelines.
Grant of permission for setting up branch
offices is by RBI.

BRANCH OFFICE ON 'STAND-ALONE BASIS' IN SEZ

Such branch offices would be isolated and


restricted to the Special Economic Zone (SEZ)
and no business activity/transaction will be
allowed outside the SEZ in India, which
include branches/subsidiaries of their parent
office in India.
No approval shall be necessary from the RBI
for a company to establish a branch/unit in
SEZs to undertake manufacturing and service
activities, subject to specified conditions.

INVESTMENT IN A FIRM OR A PROPRIETARY CONCERN BY NRIs

A Non-Resident Indian (NRI) or a Person of Indian


Origin (PIO) resident outside India may invest by way
of contribution to the capital of a firm or a proprietary
concern in India on non-repatriation basis provided:
the amount is invested by inward remittance or out of specified account
types (NRE/FCNR/NRO accounts) maintained with an Authorized Dealer
(AD).
the firm or proprietary concern is not engaged in any
agricultural/plantation or real estate business i.e. dealing in land and
immovable property with a view to earning profit or earning income
there-from.
the amount invested shall not be eligible for repatriation outside India.
NRIs/PIOs may invest in sole proprietorship concerns/partnership firms
with repatriation benefits with the approval of government/RBI.

I
INVESTMENT IN A FIRM OR A PROPRIETARY CONCERN BY OTHER THAN NRIs

No person residing outside India other


than NRI/PIO shall make any investment
by way of contribution to the capital of a
firm or a proprietorship concern or any
association of persons in India.
The RBI may, on an application made to it,
permit a person residing outside India to
make such an investment subject to such
terms and conditions as may be
considered necessary.

Investment Facilitation Agencies

Foreign Investment Promotion


Board
(FIPB)
The FIPB is a specially empowered
board chaired by the Secretary,
Ministry of Finance (MoF), set up
specifically
for
expediting
the
approval
process
for
foreign
investment proposals.

There are no prescribed application forms for


applying to FIPB, except in the case of purely
technical collaborations.
Proposals for FDI may be sent to the FIPB unit,
Department of Economic Affairs, Ministry of Finance
or through any of Indias diplomatic missions abroad.
The Government has introduced a mailbox facility for
accepting FDI proposals through the Internet and
providing an acknowledgement number for these,
with the condition that a hard copy should be
received in original before the proposal is considered
by the Government.

Foreign Investment Implementation Authority (FIIA)

Government of India has set up FIIA in the


Ministry of Industry and Commerce to facilitate
quick translation of FDI approval and
implementation.
The organization also provides a proactive onestop after-care service to foreign investors by
helping them obtain the necessary approvals,
sort out operational problems and meet
various government agencies to find solutions
to problems and maximize opportunities
through the partnership approach.

FIIA in accordance with its mandate assumes the


following role:
Understands and addresses the concerns of
investors
Understands and addresses the concerns of
approving authorities
Initiates multi-agency consultation
Refers matters not resolved at the FIA level to
higher levels on a quarterly basis, including
cases of project slippage on account of
implementation bottlenecks

Investment Commission (IC)

The three-member Investment Commission, set


up in the Ministry of Finance in December 2004 by
the Government of India, has Mr. Ratan Tata as
Chairman and Mr. Deepak Parekh and Dr. Ashok
Ganguly as members.
The
Investment
Commission
advises
the
Government of India on changes in policy and
procedures that will enhance investment in India,
recommends projects and investment proposals
that should be fast tracked/mentored and
promotes India as an investment destination.

Secretariat for Industrial Assistance


(SIA)
The SIA, functioning with the
Department of Industrial Policy and
Promotion, Ministry of Commerce and
Industry, acts as a gateway to
industrial investment in India.

It
provides
a
single-window
clearance
for
entrepreneurial
assistance
and
facilitates
the
processing of investors applications
requiring government approval.

India Brand Equity Foundation (IBEF)

IBEF collects, collates and disseminates


comprehensive information on India.
www.ibef.org has been developed as a
single-window resource for in-depth
information and insight on India.
IBEF also produces a wide range of well
researched publications focused on
Indias
economic
and
business
advantages.

THANK YOU!