A foreign investor has an option to make investment in India either directly or indirectly through an Indian entity owned or controlled by it. Direct investment by foreign investor in India is known as foreign direct investment (‘FDI’) and where the investments are routed through an entity set up in India, it becomes an indirect foreign investment.
Downstream Investment is an investment made by an Indian entity having FDI, into another Indian entity.
For Example: A Inc. (Company in USA) having a wholly owned subsidiary in India namely B Pvt. Ltd. Further, B Pvt. Ltd. having its subsidiary in India such as C Pvt. Ltd. Now, the investment of B Pvt Ltd. will be considered as Downstream Investment subject to compliance of some terms and conditions as listed below:
- Downstream investment in an existing Indian Company to be duly supported by a resolution of the Board of Directors, shareholders’ approval (if applicable) & shareholders’ agreement;
- Indian entity which has received indirect foreign investment shall comply with the entry route, sectoral caps, pricing guidelines and other conditions as applicable for foreign investment;
- Issue/transfer/pricing/valuation of capital shall be in accordance with applicable FEMA guidelines;
- For the purpose of downstream investment, the eligible Indian entities making the downstream investments would have to bring the requisite funds from abroad and not leverage funds from the domestic market;
- The downstream investments may be made through internal accruals and for this purpose, internal accruals shall mean profits transferred to reserve account after payment of taxes.
Reporting requirement: –
The Indian company shall notify the Secretariat for Industrial Assistance, DPIIT of its downstream investment on Foreign Investment Facilitation Portal within 30 days of such investment.
Form DI: Filing of Form DI with the RBI on FIRMS portal shall be done within 30 days from the date of allotment of capital instruments.
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