FDI in IndiaLegislative

Framework
1

Meaning of FDI
FDI means:
investment by non-resident
entity/person resident outside India
in the capital of an Indian company
under Schedule 1 of Foreign
Exchange Management (Transfer or
Issue of Security by a Person
Resident outside India) Regulations
2000.
2

Primarily, foreign investment in India is

allowed in two ways, viz.:
Through Portfolio Investment Scheme (i.e.,
through secondary market operations)
Through Direct Investment (i.e.,
directly through purchase of equity or
debt instruments of a
company/Partnership /LLP/sole
Proprietorship firm)
3

Objectives of FDI
to supplement domestic capital,
technology and skills, for accelerated
economic growth
Foreign Direct Investment, as
distinguished from portfolio
investment, has a lasting interest in
an enterprise.

New Economic Policy

On 24 July, 1991, Dr. Manmohan Singh, as
the Finance Minister, announced a New
Economic Policy which, inter alia, sought to
bring in foreign funds including through
Direct Foreign Investment.
In early 1991 India had :
Extremely low foreign exchange reserves
of Rs. 2400 crore (just enough to buy from
abroad only three weeks requirements.)
Inflation was as high as 13.5%
5

FDI Prior to
1991

New
Industrial
Policy

FDI averaged only around

$200million annually
between 1985 and 1991.
The New Industrial
Policy, at one stroke,
opened up the
manufacturing sector by
dismantling the system
of licences and controls
for most industries and
allowed 51% foreign
equity in Indian
companies.
6

Position in
2005

100% FDI in :
Construction sector

In March 2005, the

government amended the
rules to allow 100% FDI in
the construction sector,
including built-up
infrastructure and
construction development
projects comprising
housing, commercial
premises, hospitals,
educational institutions,
recreational facilities, and
city- and regional-level
infrastructure.
7

Position in
2010

In 2010, India became

the ninth most
attractive
destination for foreign
direct investment
(FDI).

Table-1 gives a bird eye view of FDI inflows into India between 2000 and 2015 (Figures are based on the data published by RBI)
TABLE-1

Cumulative FDI Flows US$ 331,923 Million

into India (20002014): [Equity Inflows
+Re-invested
Earnings & Other
Capital]
Equity Inflows:

US$ 331,923 Million,

i.e., Rs. 1,075,560
crores

FDI Inflows during

US$ 8011 million
F.Y. 2014-15 (Between
March 2014 and May
2014)
Total FDI Inflows
during 2014-15

$24748 million
9

Who Can Invest in India?

A non-resident entity (other than a citizen of

Pakistan or an entity incorporated in
Pakistan) can invest in India, subject to the
FDI Policy.
A non- resident entity means:
a person resident outside India including PIO,
a body corporate registered or incorporated
outside India (other than OCBs),
an office, branch or agency outside India owned
or controlled by a person resident outside India.
10

 A citizen of Bangladesh or an
entity incorporated in
Bangladesh can invest only
under the Government route.

11

NRIs resident in Nepal and Bhutan as

well as citizens of Nepal and Bhutan
NRIs resident in Nepal and Bhutan as
well as citizens of Nepal and Bhutan
are permitted to invest in the capital
of Indian companies on repatriation
basis, subject to the condition that
the amount of consideration for such
investment shall be paid only by way
of inward remittance in free foreign
exchange through normal banking
channels.

12

Entities into which FDI can be Made

Indian companies can issue equity

shares, fully compulsorily and
mandatorily convertible debentures
and fully compulsorily and
mandatorily convertible preference
shares subject to pricing
guidelines/valuation norms
prescribed under FEMA Regulations.
13

FDI in Limited Liability

Partnerships (LLPs)
FDI will be allowed, through the Government
approval route.
Only in sectors where 100% FDI is allowed.
Not allowed in agricultural/plantation
activity, print media or real estate business.
only by way of cash consideration, received
by inward remittance, through normal
banking channels or by debit to NRE/FCNR
account of the person concerned, maintained
with an authorized dealer/authorized bank
14

Procedure for receiving Foreign Direct Investment in an Indian

Company

Under Automatic Route

No prior approval either of the
Government or the Reserve Bank of
India is required.
Up to 100 per cent in all
activities/sectors except where the
provisions of the Consolidated FDI
Policy, 2015 are attracted.

15

Procedure for receiving Foreign Direct

Investment in an Indian Company.Contd.

Government Route
Requires prior approval of the
Government which is considered by the
Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs,
Ministry of Finance.
No fee is payable.
No further clearance from the Reserve
Bank of India for receiving inward
remittance and for the issue of shares to
the non-resident investors.
16

Statutory Requirements:
Under Automatic Route + Government Route

To report in the Advance Reporting Form

to RBI.
within 30 days from the date of receipt of
inward remittances giving the prescribed
details.

to issue the equity instrument within 180

days
Within 30 days from the date of issue of
shares, file a report in Form FC-GPR- PART
A together with the prescribed documents.
17

Sectors Where FDI is Not

Allowed
Atomic Energy
Lottery Business
Gambling and Betting
Business of Chit Fund
Nidhi Company
Agricultural (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 activities (other than Tea Plantations)
18

Sectors Where FDI is Not

AllowedContd.
Housing and Real Estate business (except
development of townships, construction of
residential/commercial premises, roads or
bridges)
Trading in Transferable Development Rights
(TDRs).
Manufactureof cigars, cheroots, cigarillos and
cigarettes, of tobacco or of tobacco substitutes.
Activities / sectors not open to private sector
investment e.g. Atomic Energy and Railway
Transport (other than Mass Rapid Transport
Systems).
19

Sectors/Activities Where Government/FIPB Approval would be

Required in All Cases

Defence Production
Air Transport Services
Ground Handling Services
Asset Reconstruction
Companies
Private Sector Banking
Broadcasting
20

 Commodity Exchanges
(A new concept of Power Trading Exchanges has evolved in India and vide its
Press Release dated 14.9.2012, the Cabinet Committee on Economic affairs
has allowed foreign investment up to 49%[FDI- up to 26%+FII investment
up to 23%]. FDI will be through Government Route but FIIs have been
allowed through Automatic Route).

Credit Information Companies

Insurance
Print media
Telecommunications and
Satellites
21

FDI Sectoral Caps

The

S.No.

Sector/
Activity
where
100%
FDI is
Permitt
ed

Entry
Route

1.

Agricult
ure &
Animal
Husban
dry
a)
Floricul
ture,
Horticul
ture,
Apicult
ure and
Cultivat

Automa
tic

22

Table Showing 74% Sectoral Cap

S. No.

Sector/Activity
where 74% FDI is
Permitted

Entry Route

1.

Cable Network,
DTH

49% Automatic;
Balance Government
Route

2.

Non-Scheduled Air
Transport Service

49% Automatic;
Balance Government
Route

3.

Civil Aviation- Ground

Handling Services

49% Automatic;
Balance Government
Route

4.

Telecom Services

49% Automatic;
Balance Government23
Route

Table Showing 49% Sectoral Cap

S. No.

Sector/Activity
where 74% FDI is
Permitted

Entry Route

1.

Petroleum Refining
by PSUs

Government Route

2.

Domestic
Scheduled
Passenger Airline

Automatic

3.

Air Transport
Services (Foreign
Airlines) w.e.f.
14.9.2012

Government Route

4.

Asset
Reconstruction

Government Route

24

Table Showing Different Sectoral Caps

S. No.

Sector/Activit
y

Permissible
Cap

Entry Route

1.

Print Media

26%

Government

2.

Broadcasting
FM (Radio)

26%

Government

3.

Insurance

26%

Automatic

4.

Public Sector
Banks

20%

Government

5.

Multi Brand
Retail

51%

Government

25