Saturday, November 14, 2009

INBOUND INVESTMENT IN INDIA

Foreign investment in India can come broadly in form of

  • Foreign Direct Investments (FDI)
  • Foreign Portfolio Investments
Foreign Direct Investment
Foreign Direct Investment is freely permitted in almost all sectors.

Types of Instruments: FDI includes investment in India by non residents in
  • Equity Shares
  • Fully and mandatory convertible debentures
  • Fully and mandatory convertible preference shares of an Indian company.
Routes for FDI
  • 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.
  • Government Route: prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required.
Prohibition on investment in India
Foreign investment in any form is prohibited in following activities:
  • Retail Trading (except single brand product retailing)
  • Atomic Energy
  • Lottery Business
  • Gambling and Betting
  • Business of chit fund
  • Nidhi company
  • Trading in Transferable Development Rights(TDRs)
  • Activities / sectors not opened to private sector investment
  • 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)
  • Real estate and farm houses except under specific condition and minimum size of project.
Eligibility for investment
Following persons are eligible for Investment in India:
  • A Person resident outside India (other than citizen of Pakistan)
  • Entity incorporated outside India (other than Entities incorporated in Pakistan)
  • Citizens / Entities of Bangladesh only with prior approval of RBI
  • Overseas Corporate Bodies incorporated outside India only with prior approval of RBI
Transfer of shares and convertible debentures
Foreign investors can also invest in Indian companies by purchasing / acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents / NRIs for acquisition of shares by way of transfer subject to certain stipulations 

Reporting Requirements
  • Reporting of Inflow: Intimation for receipt of Share Application Money to be filed with RBI in specified format within 30 days of such receipt in the Advance Reporting form
  • Time frame for issue of shares: Share to be issued within 180 days from days of receipt of inward remittance. Else refunded to non-resident investor
  • Issue of Shares: File Form FC-GPR with RBI within 30 days of allotment along-with the following documents:
  • Valuation certificate from a Chartered Accountant;
  • Foreign inward remittance certificate;
  • Compliance certificate from a Company Secretary.
  • Transfer of Shares (From Resident to a Non-resident and viceversa): File form FC-TRS to be filed with RBI through authorised dealer within 60 days of receipt of consideration on value as per CA valuation as per guidelines.
Foreign Portfolio Investment
Foreign Institutional Investors (FIIs) registered with SEBI and Non-resident Indians (NRIs) are eligible to purchase shares and convertible debentures issued by Indian companies under the Portfolio Investment Scheme (PIS).
  • NRIs may purchase/sell shares/convertible debentures through a designated bank branch on repatriation or non-repatriation basis. The paid-up value must not exceed-
  • 5% of total paid - up value, for each NRI
  • 10% in aggregate for all NRIs can be raised to 24% if special resolution is passed.
In case of FIIs, holding must not exceed
  • 10% of total paid-up value for each FII
  • 24% of total paid-up value for all FIIs.
Above limit can however be increased by passing a resolution of BOD and special resolution of General Body.

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