A Brief About Foreign Direct Investment in India

Gaurav Keswani
Company Secretary

WHAT IS FOREIGN DIRECT INVESTMENT?

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.

FOREIGN DIRECT INVESTMENT ('FDI') means investment through capital instruments

by a person resident outside India in:

(a)   Unlisted Indian company

(b)   10 % or more of the post issue paid-up equity capital on a fully diluted basis of a
listed Indian company.
♦   INVESTMENT means to subscribe, acquire, hold or transfer any security or
unit issued by a person resident in India.
♦   CAPITAL INSTRUMENTS means equity shares, debentures, preference
shares and share warrants issued by the Indian company.
•   Equity shares: Equity shares are those issued in accordance with
the provisions of the Companies Act, 2013 and will include partly
paid equity shares issued on or after July 8, 2014.
•   Share warrants: Share warrants issued on or after July 8, 2014 will
be considered as capital instruments.
•   Debentures: means fully, compulsorily and mandatorily convertible
debentures.
•   Preference shares: means fully, compulsorily and mandatorily
convertible preference shares.
Important Links:
FDI Policy - https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-
2020-29October2020.pdf read with https://dpiit.gov.in/sites/default/files
/Press_Note_1_2022_14March2022.pdf
Master Direction FDI - https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11200&
fn=5&Mode=0

FAQS on FDI - Reserve Bank of India - Frequently Asked Questions (rbi.org.in)

WHO ARE ELIGIBLE TO RECEIVE FOREIGN DIRECT INVESTMENT IN INDIA?

INDIAN COMPANY A company as defined in the Companies Act 2013 or a body

corporate established or constituted by or under Central or
 State Act
LIMITED LIABILITY A Limited Liability Partnership firm, formed and registered
PARTNERSHIP (LLP) under the Limited Liability Partnership Act, 2008.
PARTNERSHIP FIRM As defined in section 4 of the Indian Partnership Act, 1932
PROPRIETORSHIP Proprietorship concern can be defined as a kind of business
CONCERN that is owned, controlled and operated by an individual.
STARTUP COMPANY A Private Company incorporated under the Companies Act,
2013 and registered as Startup under DPIIT, Ministry of
Commerce and Industry.
TRUSTS Investment by a person resident outside India is not
permitted in Trusts other than in 'Venture Capital Fund'
registered and regulated by SEBI and 'Investment vehicle'.
WHO CAN INVEST IN FOREIGN DIRECT INVESTMENT IN INDIA?

NON-RESIDENT ENTITY Automatic and Government Route, as

(including NRI) means a 'person resident outside the case may be
India' as defined under Foreign Exchange
Management Act, 1999

ENTITY OF A COUNTRY, WHICH SHARES Only under the Government route

LAND BORDER WITH INDIA
(or if the beneficial owner of investment is situated
in or is a citizen of any such country)

A CITIZEN OF PAKISTAN OR AN ENTITY Only under the Government route and

INCORPORATED INPAKISTAN other than defence, space, atomic
energy and sectors/activities
prohibited for foreign investment.
FOREIGN VENTURE CAPITAL INVESTOR Subject to the terms and conditions
(FVCI) specified in Schedule VII of Foreign
[incorporated and established outside India and Exchange Management (Non-Debt
registered with the SEBI under the Securities and Instruments) Rules, 2019.
Exchange Board of India (Foreign Venture Capital
Investors) Regulations, 2000, as amended from time
to time]

FOREIGN PORTFOLIO INVESTORS (FPI) Subject to the terms and conditions

[a person registered in accordance with the specified in Schedule II of Foreign
provisions of Securities and Exchange Board of Exchange Management (Non-Debt
India (Foreign Portfolio Investors) Regulations, Instruments) Rules, 2019.
2019, as amended from time to time]

HOW CAN FOREIGN DIRECT INVESTMENT BE MADE IN INDIA?

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 a LLP.

A beneficial interest being held by a person resident outside India, even though the
investment may be made by a resident Indian citizen, the same shall be counted as foreign
investment.

THE INVESTMENT IN INDIA CAN BE MADE UNDER FOLLOWING ROUTES:

(1)   AUTOMATIC ROUTE: Foreign Investment is allowed under the automatic route
without prior approval of the Government or the Reserve Bank of India, in all
activities/ sectors as specified in the Regulation 16 of FEMA 20 (R).
(2)   GOVERNMENT ROUTE: Foreign investment in activities not covered under the
automatic route requires prior approval of the Government (Competent Authority)
and foreign investment received under this route shall be in accordance with the
conditions stipulated by the Government in its approval.
Important Links:
Link to apply for Government Route is https://fifp.gov.in/Public/ApplicantRegister.aspx
Procedure for applying for Government approval - http://fifp.gov.in/Forms/SOP.pdf

List of Automatic Route and Competent Authority - https://dpiit.gov.in/sites/default/files/FDI-

PolicyCircular-2020-29October2020.pdf

MODE OF PAYMENT

The Amount of consideration shall be paid as Inward Remittance from:

(a)   Abroad through banking channels; or

(b)   Out of funds held in NRE/ FCNR(B)/ Escrow account (as the case may be)
maintained in accordance with the Foreign Exchange Management (Deposit)
Regulations, 2016.
Important Links:
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments)
Regulations, 2019 –

https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=11723(refer for mode of payment)

Notes:

(1)   NRE Account is a bank account opened in India in the name of an NRI, to put his
foreign earnings.
(2)   NRO Account is a bank account opened in India in the name of an NRI, to manage
the income earned in India.
(3)   Repatriation Basis: Repatriation means the process of transferring or taking
money back into the same country from where the investment has been made by
PROI. An investment, the sale or maturity proceeds of which are, net of taxes,
eligible to be repatriated out of India.
(4)   Non-Repatriation Basis: An investment made by PROI and the sale or maturity
proceeds of which are, net of taxes, not eligible to be repatriated out of India and to
be kept in Indian bank accounts only including NRO account.
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