Prohibition on investment in India

Prohibition on investment in India

Investment in the form of FDIis prohibited in the following sectors.

a.    Retail Trading (except single brand product retailing)

b.   Atomic Energy

c.    Lottery Business including Government / private lottery, online lotteries, etc.

d.   Gambling and Betting including casinos, etc

e.    Business of chit fund

f.     Nidhi company

g.    (c) Agricultural or plantation activities, or

h.   (d) Real estate business, or construction of farm houses, or

i.     Trading in Transferable Development Rights(TDRs)

j.     Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)

k.   Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

“Real estate business” does not include development of townships, construction of residential / commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.

Partnership firms /proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector.

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Foreign Direct Investment (FDI in LLP

Foreign Direct Investment (FDI in LLP

Foreign Direct Investment (FDI) is permitted in Limited Liability Partnership (LLP), subject to following conditions.

a.    FDI is allowed with the approval of Foreign Investment Promotion Board  (FIPB) in LLP’s operating in sectors/activities where 100% FDI is allowed, through the automatic route. LLPs with FDI will not be allowed to operate in agricultural/plantation activity,print media or real estate business.

b.   An Indian company, having FDI, will be permitted to make downstreaminvestment in an LLP only if both-the company, as well as the LLP- are operatingin sectors where 100% FDI is allowed, through the automatic route.

c.    Foreign Capital participation in the capital structure of LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels..

d.   Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign VentureCapital Investors (FVCIs) will not be permitted.

e.    LLPs will not be permitted to avail External Commercial Borrowings (ECBs).

f.     LLPs with FDI will not be allowed to make any downstream investments.

An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route. A company with FDI can be converted  toan LLP, with the prior approval of FIPB.

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FDI Compliance Requirements

FDI Compliance Requirements

An Indian company receiving FDI either under the Automatic route or the Government route is required to comply the following:

1.   Report to RBI, the details of the receipt of the amount towards issue shares through an AD Category –I Bank, together with copy of the Foreign Inward Remittance Certificate (FIRC) evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas bank remitting the amount within 30 days from the date of receipt of inward remittances.

2.   Indian company is required to issue the shares within 180 days, from the date of receipt of inward remittance.

3.   After issue of shares, the Indian company has to file the Form FC-GPRWITH the required documents  toReserve Bank of India through an AD Category –I Bank within 30 days of issue of shares to the non-resident investors.

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Entry routes for investments in India

Entry routes for investments in India

A.   Foreign Direct Investment (FDI in Limited Company

B.   Foreign Direct Investment (FDI in Limited Liability Partnership (LLP)

Foreign Direct Investment (FDI in Limited Company

Foreign Direct Investment is freely permitted in almost all sectors. Under the Foreign Direct Investments (FDI) Scheme, investments can be made by non-residents in the shares / convertible debentures / preference shares1 of an Indian company, through two routes:

1.   Automatic Route

Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment

2.   Government Route

Under the Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required.

An Indian company may receive Foreign Direct Investment (FDI) under the following routes:

1.   Automatic Route

FDI is permitted under automatic route up to 100 per cent subject to sectorial caps as stipulated in the Consolidated FDI Policy of India.

FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.

2.   Government Route

FDI in activities not covered under the automatic route requires prior approval of the Foreign Investment Promotion Board (FIPB).

An Indian company having FDIapproval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.

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Foreign Direct Investment (FDI) in India

Foreign Direct Investment (FDI) in India

Foreign Direct Investment (FDI) 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.

FDI Policy is formulated by the Government of India. 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 the Reserve Bank.

A foreign company planning to set up business operations in India may:

·         Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.

·         Incorporate an Limited Liability Partnership In India and investment is subject  to Foreign Investment Promotion Board  (FIPB)

·         Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company.  Such company can undertake only those activities permitted under the Foreign Exchange Management

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