Foreign Direct Investments(FDI) into India – FDI Investments
FDI is the Buzzword in the Indian business. FDI means Foreign Direct Investments made by a non-resident into a business in India.
India has seen a Foreign Direct Investments inflow of Rs 85,180 crores in the Q1 of 2018-19 which is a 27% growth in comparison with the Q1 of 2017-18 as per the Quarterly fact sheet on Foreign Direct Investments released by DIPP.
This shows that India is a favorite destination for investment. As per the sectoral breakup given by RBI, 18% of total investment is in Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis. Mumbai and Delhi attracting highest volumes of Foreign Direct Investments in the nation.
Most widely used form of legal entity for business entry is through an incorporation of a Private Limited Company which would act as a subsidiary or a wholly owned subsidiary.
Wholly Owned Foreign Subsidiary for foreign direct investments(FDIs)
Wholly-owned subsidiary is the result of the parent company owning all (100%) of the subsidiary’s shares. Since the parent company owns all of the subsidiary’s shares, it has the right to appoint the subsidiary’s board of directors, which controls the subsidiary. Wholly owned subsidiaries may be part of the same industry as the parent company or part of an entirely different industry. A company operating in more than one country may choose to operate a business through a wholly owned subsidiary. The Investment is subject to compliance of FDI Policy.
Key features of WOS:
- Wholly owned Subsidiary is regulated by Indian Law, Companies Act, 2013.
- Where 100% Foreign Direct Investments are permitted no prior approval of Reserve Bank of India (RBI) is needed.
- It is treated as the domestic company under Income Tax Law and is eligible for all exemptions, deductions, benefit applicable to any other Indian Company,
- Funding can be made in the form of Share Capital and loan.
- The business activities that can be carried out are specifically defined and restricted as per the FDI policy.
Foreign Subsidiary:
A foreign company can open up a subsidiary company in India. This can be done either by acquiring the majority of shares (more than 50%) of the company or by controlling the composition of board of directors of the company. Holding and subsidiary companies are separate legal entities and they are related to each other by virtue of subsidiary – holding company relationship. The Investment is subject to compliance of FDI Policy.
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Investment-Criteria
One can invest in India – either under Automatic route which does not require approval from RBI or under Government route, which requires prior approval from the concerned Ministries/ Departments via a single window – Foreign Investment Facilitation Portal (FIFP) administered by the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry, Government of India.
Every non-resident entity is allowed to invest in India either under Automatic or Government Approval route, except in prohibited sectors. However, individuals or entities of Bangladesh and Pakistan can invest only under Government route. Check out list of sectors which require prior approval as well as sectors under automatic route.
Foreign Direct Investments are prohibited under Government as well as Automatic route for the following sectors:
- Retail Trading
- Atomic Energy
- Lottery Business
- Gambling and Betting
- Housing and Real Estate business
- 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).
- Plantations (Other than Tea plantations.
A) Automatic route :
Foreign Direct Investments up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government:
- Activities/items that require an Industrial License;
- Proposals in which the foreign collaborator has an existing financial / technical collaboration in India in the ‘same’ field,
- Proposals for acquisition of shares in an existing Indian company in: Financial services sector and where Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 is attracted;
- All proposals falling outside notified sectoral policy/caps or under sectors in which Foreign Direct Investments are not permitted.
Foreign Direct Investments in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within prescribed period of receipt of inward remittances and file the required documents with that office and issue of shares to foreign investors.
B) Approval route:
Foreign Direct Investments in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL; Plain paper applications carrying all relevant details are also accepted. No fee is payable.
