Foreign Investment in India- Route and Eligibility

Foreign Investment, Route of Foreign Investment, And Eligibility for Investing in India

Foreign Investment: Foreign Investment means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.

Foreign Direct Investment (FDI): Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

Foreign Portfolio Investment: Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid-up value of each series of capital instruments of a listed Indian company.

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA) 1999. Reserve Bank of India has issued Notification No. FEMA 20/2000-RB dated May 3, 2000, which contains the Regulations in this regard. This notification has been amended from time to time.

ENTRY ROUTES FOR INVESTMENTS IN INDIA

Foreign investment is freely permitted in almost all sectors. Foreign Direct Investments (FDI) can be made under two routes—Automatic Route and Government Route. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from RBI or the Government of India for the investment. Under the Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required. Entry routes for foreign investors, as well as sector-specific investment limits in India.

FDI Policy is formulated by the Government of India. The policy and procedures in respect of FDI in India are available in ‘the Manual on Investing in India- Foreign Direct Investment, Policy & Procedures’. This document is available in the public domain and can be downloaded from the website of the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion— www.dipp.nic.in. FEMA Regulations prescribe the mode of investments i.e. manner of receipt of funds, issue of shares/convertible debentures and preference shares, and reporting of the investments to RBI.

There are three categories through which FDI flows into India. They are described in the following table:

 ROUTING INVESTMENTS IN INDIA

Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval of the government or the RBI.

Examples:

• Medical devices: up to 100%
• Thermal power: up to 100%
• Services under Civil Aviation Services such as Maintenance & Repair Organizations
• Insurance: up to 49%
• Infrastructure company in the securities market: up to 49%
• Ports and shipping
• Railway infrastructure
• Pension: up to 49%
• Power exchanges: up to 49%
• Petroleum Refining (By PSUs): up to 49%

Government Route FDI

Under the government route, the foreign entity should compulsorily take the approval of the government. It should file an application through the Foreign Investment Facilitation Portal, which facilitates single-window clearance. This application is then forwarded to the respective ministry or department, which then approves or rejects the application after consultation with the DPIIT.

Examples:

• Broadcasting Content Services: 49%
• Banking & Public sector: 20%
• Food Products Retail Trading: 100%
• Core Investment Company: 100%
• Multi-Brand Retail Trading: 51%
• Mining & Minerals separations of titanium bearing minerals and ores: 100%
• Print Media (publications/printing of scientific and technical magazines/specialty journals/periodicals and a facsimile edition of foreign newspapers): 100%
• Satellite (Establishment and operations): 100%
• Print Media (publishing of newspaper, periodicals, and Indian editions of foreign magazines dealing with news & current affairs): 26%

Prohibition on investment in India

Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as Trusts) which is engaged or proposes to engage in the following activities:

1. Lottery Business including Government/ private lottery, online lotteries.

2. Gambling and betting including casinos.

3. Chit funds (except for investment made by NRIs and OCIs on a non-repatriation basis).

4. Nidhi company.

5. Trading in Transferable Development Rights (TDRs).

6. Real Estate Business or Construction of Farm Houses.

7. Manufacturing of Cigars, cheroots, cigarillos, and cigarettes, of tobacco or of tobacco substitutes. The prohibition is on the manufacturing of the products mentioned and foreign investment in other activities relating to these products including wholesale cash and carry, retail trading, etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).

1. Activities/ sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations

2. 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

ELIGIBILITY FOR INVESTING IN INDIA

1. a) non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy, and sectors/activities prohibited for foreign investment.

2. b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.

3. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

4. OCBs have been derecognized as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments as incorporated non-resident entities in accordance with the FDI Policy and Foreign Exchange Management (Non-Debt Instrument) Rules, 2019.

5. A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.

6. Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms and conditions specified in Schedule II of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

7. Registered FPIs and NRIs can invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges as per the applicable Schedule under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended from time to time.

8. A Foreign Venture Capital Investor (FVCI) may make investments in the manner and subject to the terms and conditions specified in Schedule VII of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

9. An NRI or an OCI may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.