1.0 REGULATORY FRAMEWORK FOR FOREIGN DIRECT INVESTMENT (FDI) IN INDIA
2.0 MEANING OF FDI IN INDIA
3.0 ELIGIBLE ENTITIES FOR INVESTING IN INDIA
4.0 ELIGIBLE ENTITIES INTO WHICH INVESTMENT CAN BE MADE
5.0 INSTRUMENTS FOR RECEIVING FDI IN AN INDIAN COMPANY
6.0 ENTRY LEVEL PROCESS AND STRATEGY
7.0 FOREIGN INVESTMENT PROMOTION BOARD
8.0 PROHIBITED SECTORS OF FDI
9.0 PERMITTED SECTORS AND SECTOR SPECIFIC POLICY FOR FDI
10.0 DOWNSTREAM INVESTMENTS BY AN INDIAN COMPANY THAT IS NOT OWNED AND/OR CONTROLLED BY RESIDENT ENTITY/ENTITIES
The regulatory framework governing Foreign Direct Investment (FDI) in India consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.
The policy with respect to FDI is regulated by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, in the Government of India. The Circular on Consolidated FDI Policy, issued by DIPP, which is updated every year, makes provisions in respect of FDI, foreign technical collaborations, royalty payments, joint ventures abroad etc.
The DIPP makes policy pronouncements on FDI through Press Notes/ Press Releases. Till May 2015, DIPP has issued twelve press notes in this regard. These press notes/press releases are notified by the Reserve Bank of India (RBI) as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. Also the RBI issues a Master circular every year in July on “Foreign Investments in India” compiling the regulatory framework and instructions issued by the Reserve Bank on the subject which automatically stands withdrawn and replaced by a new master circular in the next year.
The procedural instructions regarding FDI are issued by the RBI vide A.P. Dir. (series) Circulars. [RBI authorizes ‘Authorised Persons’ to deal with matters related to foreign exchange, FDI etc as per directions issued by RBI in this regard. These directions are issued through these A.P (Dir) circulars where A.P stands for ‘Authorised Person’ and DIR stands for ‘Directions’]
Foreign Investment in India can broadly be divided into the following:
As per the Consolidated FDI Policy (effective from May 12th, 2015), “FDI” is defined to mean “investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000”.
FDI can be made into the following entities subject to specified conditions:
FDI in resident entities other than those mentioned above is not permitted.
A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided:
Authorized Dealers / Authorized banks.
Investments with repatriation option: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option. The application will be decided in consultation with the Government of India.
In case of a person resident outside India other than NRIs/PIO, they may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.
However, an NRI or PIO is not allowed to invest in a firm or proprietorship concern ‘engaged in any agricultural/plantation activity or real estate business or print media’.
FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI- linked performance conditions. An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008