Foreign direct invesment ( FDI )

Foreign Direct Investments

Foreign Investments are approved through two routes

1. Automatic Route

2. Government Route

1. Automatic Route

FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government:
i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.

ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.
iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the Government or the Reserve Bank of India.

iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.

2.Government Route
FDI 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, which can be downloaded from http://www.dipp.gov.in
General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned Regional Office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.

For the following activities Automatic Route of Reserve Bank is not available for investment from person resident outside India.

• Domestic Airlines
• Petroleum sector (except for private sector oil filling)
• Investing companies in Infrastructure and Service Sector
• Defense and strategic sectors
• Atomic minerals
• Print media
• Broadcsting
• Postal Services
• Courier services
• Establishment and operation of satellite
• Development of integrated township
• Tea sector

FDI is not allowed in India, under the Automatic Route as well as Government Route.
i) Retail Trading (except single brand product retailing)
ii) Atomic Energy
iii) Lottery Business
iv) Gambling and Betting
v) Business of Chit Fund
vi) Nidhi Company
vii) Agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisiculture, and cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and plantations (other than tea plantation)
viii) Trading in Transferable Development Rights (TDRs).
ix) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005)

Only NRI’s are allowed to invest upto 100% in the areas listed below:

Development of serviced plots and construction of built up residential premises.
Investment in real estate covering construction of residential and commercial premises including business centers and offices.
Development of townships.
City and regional level urban infrastructure facilities including both bridges and roads.
Investment in manufacture of building materials.
Investment in participatory ventures in (first 3 items above)
Investment in Housing Finance Institution, which is also opened to FDI as an NBFC (Non Banking Financial Company)

Sectoral cap on investment by person resident outside India .

S.No.	Sector	Investment Cap
1	Private sector banking	49%
2	Non-Banking Financial Company	100%
3	Insurance	26%
4	Telecommunications	49%
5	Petroleum Refining (private sector)	100%
6	Housing and Real Estate	100%
7	Coal and Lignite	74% to 100%
8	Venture Capital Fund & Venture Capital Company	Subject to SEBI Regulations etc.
9	Trading	51%
10	Power	100%
11	Drugs & Pharmaceuticals	100%
12	Roads and Highways	100%
13	Hotel & Tourism	100%
14	Mining	#
15	Advertising	100%
16	Films	100%
17	Airports	74%
18	Mass rapid Transport System	100%
Insurance	26%
4	Telecommunications	49%
5	Petroleum Refining (private sector)	100%
6	Housing and Real Estate	100%
7	Coal and Lignite	74% to 100%
8	Venture Capital Fund & Venture Capital Company	Subject to SEBI Regulations etc.
9	Trading	51%
10	Power	100%
11	Drugs & Pharmaceuticals	100%
12	Roads and Highways	100%
13	Hotel & Tourism	100%
14	Mining	#
15	Advertising	100%
16	Films	100%
17	Airports	74%
19	Pollution Control & Management	100%
20	Special Economic Zones	100%

74% - for exploration and mining of Diamonds and precious stones FDI is allowed upto          
74% under automatic route
100%- for exploration and mining of gold and silver and minerals other than diamonds 
and precious stones, metallurgy and processing FDI is allowed upto 100% under  
automatic route.

Following are the modes of doing business in India
1. Branch or Liaison office
2. Project office
3. A branch office/unit may be established by foreign companies in Special Economic Zones in India.


1.   Branch or Liaison office

A person resident outside India can establish business in India by opening a branch or Liaison office in India by applying through Form FNC -1 to

The Chief General Manager 
Foreign Exchange Department,
10th floor, Central office Building, Reserve Bank of India,
Sahid Bahgat Singh Marg, Fort, Mumbai-400 001

Following activities may be undertaken by the Branch in India after getting permission from Reserve Bank of India:
1.         Export/Import of goods

2.         Rendering professional or consultancy services

3.         Carrying out research work, in which the parent company is engaged

4.         Promoting technical or financial collaborations between Indian companies and parent or overseas group companies.

5.         Representing the parent company in India and acting as buying/selling agent in India.

6.         Rendering services in Information Technology and development of software in India.

7.         Rendering technical support to the products supplied by parent/group companies

8.         Foreign airline/shipping company.

No other activities can be undertaken by the branch or liaison offign="center" valign="top">13 Hotel & Tourism 100% 14 Mining # 15 Advertising 100% 16 Films 100% 17 Airports 74% ice established in India by Foreign resident except specifically permitted by Reserve Bank of India.

Following activities may be undertaken by the Liaison office in India after getting permission from Reserve Bank of India:

• Representing in India the parent company/group companies.

• Promoting export/import from/to India.

 

• Promoting technical/financial collaborations between parent/group companies and companies in India.

• Acting as communication channel between the parent company and Indian companies.

2. Project office

A.         Foreign entities are now being permitted by Reserve Bank of India to establish a project office in India subject to the following conditions:

1.         It has secured from an Indian company a contract to execute a project in India.

2.         The project is funded by inward remittances from abroad or

3.          The project is funded by a bilateral or multi lateral international finance agency

4.         The project has been cleared by an appropriate authoritnt outside India can establish business in India by opening a branch or Liaison office in India by applying through Form FNC -1 to

The Chief General Manager 
Foreign Exchange Department,
10th floor, Central office Building, Reserve Bank of India,
Sahid Bahgat Singh Marg, Fort, Mumbai-400 001

Following activities may be undertaken by the Branch in India after getting permission from Reserve Bank of India:
1.         Export/Import of goods

2.         Rendering professional or consultancy services

3.         Carrying out research work, in which the parent company is engaged

4.         Promoting technical or financial collaborations between Indian companies and parent or overseas group companies.

5.         Representing the parent company in India and acting as buying/selling agent in India.

6.         Rendering services in Information Technology and development of software in India.

7.         Rendering technical support to the products supplied by parent/group companies

8.         Foreign airline/shipping company.

No other activities can be undertaken by the branch or liaison offign="center" valign="top">13 Hotel & Tourism 100% 14 Mining # 15 Advertising 100% 16 Films 100% 17 Airports 74% y

5.         A company or entity in India awarding the contract has been granted Term Loan by Public Financial Institution or a bank in India for a project.

B.        The foreign company shall have to furnish a report to the concerned Regional office of Reserve Bank of India under whose jurisdiction the project office is set up comprising the following details.

1.         Name and address of Foreign Company 

2.         Reference Number and date of letter awarding the contract

3.         Particulars of authority awarding the projects/contract   

4.         Total amount of contract

5.         Address and tenure of a Project Office

6.         Nature of project undertaken

3. Establishment of branch or unit office in Special Economic Zone in India

Foreign entities are permitted by Reserve Bank of India to establish a branch or unit office in Special Economic Zone in India subject to the following conditions:

1.         Such units are functioning in those sectors where 100% FDI is permitted, 

2.         Such units will comply with part XI of the Companies Act (Section 592 to 602)

            Section 592 to 602 of Companies Act prescribes the compliances for all foreign companies such as:

• Foreign Companies are required to deliver the documents relating to their respective companies to the Registrar of Companies in India.
• Returns to be delivered to Registrar by foreign company where documents etc. are altered.
• Accounts along with the documents required to be delivered to Registrar of Companies in India.
• Foreign Company shall in every prospectus inviting subscription in India, is required to mention the name of the country in which it is incorporated.
• Any document which any foreign company is required to deliver to the Registrar shall be delivered to the Registrar having jurisdiction over New Delhi.
• Non compliance of the above said provisions shall attract the penalty which may extend to Rs.10, 000 and in case of continuing offence an additional fine of Rs.1000 for every day during which the default continues.
• Company’s failure to comply with the part not to affect its liability under contracts etc.
• Provisions of Part V of Companies Act i.e. ‘Charges’ shall apply mutatis mutandis to

• Charges on properties in India which are created by foreign company after 15th day of January, 1937; and
• Charges on property in India which is acquired by any foreign company after the day aforesaid.

3.         Such unit functions on a stand-alone basis 

4.         In the event of winding -up of business and for remittance of winding -up proceeds, the branch or unit shall approach an authorized dealer with the following documents:

a)         Auditor’s Certificate

b)         No-objection or Tax clearance certificate from Income Tax Authority for the remittance 

c)         Confirmation from the applicant that no legal proceedings in any court in India are pending and there is no legal impediment to the remittances.

Person residing outside India can establish business in India with the prior approval of Reserve Bank of India. However such approval is not necessary in case of Banking Company, if such company has obtained necessary approval under the provisions of Banking Regulation Act, 1949.        
5.         Address and tenure of a Project Office

6.         Nature of project undertaken

3. Establishment of branch or unit office in Special Economic Zone in India

Foreign entities are permitted by Reserve Bank of India to establish a branch or unit office in Special Economic Zone in India subject to the following conditions:

1.         Such units are functioning in those sectors where 100% FDI is permitted, 

2.         Such units will comply with part XI of the Companies Act (Section 592 to 602)

            Section 592 to 602 of Companies Act prescribes the compliances for all foreign companies such as:

• Foreign Companies are required to deliver the documents relating to their respective companies to the Registrar of Companies in India.
• Returns to be delivered to Registrar by foreign company where documents etc. are altered.
• Accounts along with the documents required to be delivered to Registrar of Companies in India.
• Foreign Company shall in every prospectus inviting subscription in India, is required to mention the name of the country in which it is incorporated.
• Any document which any foreign company is required to deliver to the Registrar shall be delivered to the Registrar having jurisdiction over New Delhi.
• Non compliance of the above said provisions shall attract the penalty which may extend to Rs.10, 000 and in case of continuing offence an additional fine of Rs.1000 for every day during which the default continues.
• Company’s failure to comply with the part not to affect its liability under contracts etc.
• Provisions of Part V of Companies Act i.e. ‘Charges’ shall apply mutatis mutandis to

• Charges on properties in India which are created by foreign company after 15th day of January, 1937; and
• Charges on property in India which is acquired by any foreign company after the day aforesaid.

3.         Such unit functions on a stand-alone basis 

4.         In the event of winding -up of business and for remittance of winding -up proceeds, the branch or unit shall approach an authorized dealer with the following documents:

a)         Auditor’s Certificate

b)         No-objection or Tax clearance certificate from Income Tax Authority for the remittance 

c)         Confirmation from the applicant that no legal proceedings in any court in India are pending and there is no legal impediment to the remittances.