Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) is an investment made by foreign company or foreign individual or any other foreign entity in the productive capacity of another country. FDI is a movement of capital across national frontiers in a way that investor acquire a controlling position.
Over past 10-15 years, FDI in India has become an attraction for foreign investors. Leaving apart a few negative points (Political environment, Infrastructure, Bureaucracy etc) India is an investment destination for all global business players irrespective of their business size. There are various factors, which attract FDI in India eg. size of India, economic growth, skilled & english speaking population, abundant natural resources, Govt policies, robust financial sector, huge untapped market potential, cost competitiveness etc.
Foreign direct investment policy (FDI policy)
Before investment into India, a foreign investor wishing to set up business entity in India needs to appraise and structure their activities on various parameters. Of the various parameters, Govt policy on FDI in India is one major parameter. For this purposes, Govt of India has notified Foreign Direct Investment Policy (FDI Policy).
FDI policy of India prescribes the sectors/activities where foreign investment can be infused. Except few restricted business activities (i.e. atomic energy, lottery, gambling/betting, chit fund, nidhi co, agriculture/plantation, real estate, retail trading, TDR trading), the FDI policy allows foreign investment in India under two routes as under:
1. Automatic Approval Route
FDI is allowed under automatic route in almost all the sectors including services sectors, except a few sectors where the existing and notified sectoral policy allows FDI upto a ceiling limit only. No prior approval is required under automatic route, except reporting to RBI on receipt and issued of share capital.
2. Govt Approval Route
All other proposals for foreign investment, which do not fulfill any or all of the criterion prescribed for automatic approval, require prior Govt approval. Govt consider the approval on merits. In this regard, Government has delegated the powers to Foreign Investment Promotion Board (FIPB). The FIPB also grants composite approvals involving foreign technical collaborations and setting up of Export Oriented Units involving foreign investment/foreign technical collaboration.
FDI reporting to RBI
The company is required to report the details of the amount of consideration received, for issuing its securities, to Reserve Bank of India (through Authorized Dealer Bank) in the prescribed form. RBI regulations provide for the reporting procedure in two stages, which is:
Stage 1. On Receipt of Remittance in Bank towards Share Capital:
Within 30 days of receipt of foreign shareholder remittance into bank account, the Indian company is required to report to the RBI (through authorized dealer bank), an intimation wrt remittance received. The intimation shall contain the following details:
- Name and address of the foreign investor/s;
- Date of receipt of funds and the Rupee equivalent;
- Name and address of the authorised dealer through whom the funds have been received;
- Details of the Government approval, if any; and
- KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.
- Foreign Inward Remittance Certificate
On receipt of intimation, RBI allots a Unique Identification Number, which is to be used in all further correspondences with RBI. The importance of remittance receipt date is that Indian company has to issue shares within 180 days of receipt of remittance.
Stage 2. Upon Issue of Shares to Non-resident Investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A has to be filed with RBI (through authorized dealer). Form shall be filed along with following documents:
- A certificate from the Company Secretary of the Indian Company accepting investment from persons resident outside India certifying that
- the company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.
- the investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for investments under the Automatic Route.
- Certificate from Statutory Auditors/ SEBI registered Category - I Merchant Banker /Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
- Board of director resolution for allotment of shares.
- Copy of Memorandum of Association & Article of Association
- FIRC copy
- Copy of intimation to RBI
Annual Return to RBI
Indian company is required to file an annual return in form FC-GPR Part B to RBI. Annual return is to be submitted by July 31st of every year. The return shall contain details wrt all investments by way of direct/portfolio investments/re-invested earnings/other capital in the Indian company made during the previous years. The details of the investments to be reported would include all foreign investments made into the company which is outstanding as on the date of the latest balance sheet.
Where can we help?
Foreign investment in India is a very sensitive and technical matter, which is closely monitored by Govt of India through various windows. Also it needs to understand that a small mistake in making FDI can lead to blocking of invested money. Purpose of FDI in India is to repatriate profits on the investment outside India and also to repatriate the principal amount on a later stage. Therefore, if entry of FDI is not regularized as per applicable laws then exit (either of profits or principal) will not be allowed by the monitoring authorities.
Consequently, role of experience & technical knowledge comes into picture. Here, we will be helping you out to get your FDI complying with all parameters and registered with governing authorities properly. We help our clients wrt their all kind of their needs wrt FDI.
Important regulatory authorities for
investment in india
- Secretariat for Industrial Assistance (SIA)
- Foreign Investment Promotion Board (FIPB)
- The Foreign Investment Implementation Authority (FIIA)
- Reserve Bank of India (RBI)
- Registrar of Companies (RoC)