Foreign Direct Investment (FDI) compliance in India: – Invest: Comply
In January 2022, Google announced an investment of US$ 1 billion in Indian telecom company Bharti Airtel, which includes an equity investment of US$ 700 million for 1.28% stake in the company, and US$ 300 million for potential future investment in areas like smartphone access, networks, and cloud. Also, Canada’s pension fund investment board invested US$ 160.49 million as an anchor investor in the IPO of multiple Indian companies – One 97 communication (Paytm), Zomato, FSN E-Commerce Ventures (Nykaa), and PB Fintech.
Further, as per the data provided by the Government of India FDI equity inflow grew by 168% in the first three months of F.Y. 2021-22 (US$ 17.57 billion) compared to the same corresponding period F.Y. 2020-21 (US$ 6.56 billion). Over the years India has emerged as a preferred destination for foreign investment to any international business, thanks to its large economy, huge consumer market, and abundant skills and talent. However, for the first quarter of the FY 2021-22 the Indian Automobile Industry was the winner with Karnataka attracting the highest FDI.
Foreign direct Investment is largely a matter of commercial business decisions and FDI inflow depends on a host of factors such as availability of natural resource, market size, infrastructure, political and general investment climate as well as macro-economic stability and investment decision of foreign investors but once the Investment is made, there are certain compliances which have to be taken care of which involves SEBI, ROC and RBI reporting.
Since it involves foreign currency exchange, timely reporting to Reserve Bank of India is important which if avoided involves a penalty of INR 5000 or 1 % of the total amount of investment, which can run up to a maximum of 5 lakh or Part thereof for the first six months of delay post which it becomes twice. Also such omission if made, may also be conveyed in Audit Report and Annual Return (Form MGT-7) filed to Registrar of Companies.
RBI has thus simplified the reporting procedure by introduction of Single master form (SMF) on https://firms.rbi.org.in/firms/.
Steps to be taken to successfully filing form FC-GPR
- Once the decision of FDI is made by the Board, the very first step is to set up a good co-ordination with the Authorized Dealer Bank in India and the remitting foreign bank in advance so that all the documents are received on time from both the banks, consequently avoiding any unexpected delay in paperwork.
- Let both the banks know that the remittance is for the purpose of subscription towards Equity Shares and that FIRC and KYC from the respective banks will be required.
- The FDI amount must be transferred from the foreign bank account of the respective Investor only; In case of new Incorporation, subscription money is remitted from the respective bank accounts of the subscribers mentioned in Memorandum of Association of the company.
- Meanwhile we need to register at two stages in the RBI portal (i.e. <https://firms.rbi.org.in/firms/>).
- First is Entity User Registration, which is created by the authorized representative of the company furnishing his/her necessary information along with PAN card and a letter authorizing them for the same.
- Within 3-4 working days a login Id and password is provided to the authorized representative using which an Entity Master is created wherein details amongst others including- Name of the FDI receiving company, date of allotment of securities, Number of Instruments, Type of business project (Green field/Brown field), ITC code of the business of the company etc..is to be provided.
- Next is Business User Registration which is same as entity user registration except that details of the Bank in India receiving FDI is to be mentioned.
- Once an Email is received proving login Id for Business User Registration, Form FC-GPR can accessed on the RBI firms portal and all the details shall be provided along with attachments as may be required depending upon of the type of issue of securities including mandatory attachments like FIRC, KYC, CS certificate and a declaration.
After thoroughly scrutinizing the form, RBI either approves the form or asks for further information as may be required by them before finally taking it on record.
Thus, whether the FDI is made for the first time by creating a Wholly Owned subsidiary of a foreign entity in India or by purchase of Equity stake in an existing company like Bharti Airtel by Google, FDI reporting is a mandatory compliance which shall not be avoided at any cost.
Bibliography:
https://firms.rbi.org.in/firms/faces/pages/login.xhtml
https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1749890
<https://www.ibef.org/economy/foreign-direct-investment>
<https://www.ndtv.com/business/fdi-inflow-to-india-declines-to-74-01-billion-in-2021-2838965>
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