Foreign Direct Investment


India is the most preferable destination to foreign investment in world. In the year 2008 the FDI investment was $41.315 Billion and it was the four ranks. India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'.

 

India has got land mark position in the year 2010 on the world scenario as an important international trading partner, because of the implementation of its consolidated FDI policy. India framed more liberal policies in 2011 which may attract to foreigners for more investment. These policies benefits NRI/PIO/Non resident foreign investor to start business in India.

 

The foreign entities are legally allowed to set up Companies/ Subsidiaries/ Industries/Export House/ Import House/ Wholesale Trading House/Agriculture and Animal Husbandry /Plantation / Horticulture/ Liaison Offices / Branch Offices and many more various mercantile activities on repartition basis as per sactorial policies in India.

 

The current foreign investment guidelines allow foreign investment to be made freely in most of the sectors, including the services sector.

 

Foreign investment in Indian is primarily covered under the Foreign Exchange Management Act, 1999 (“FEMA”) the Regulations / Notifications made there under from time to time. All Regulations under FEMA are issued by the country’s Central Bank, the Reserve Bank of India (“RBI”). 

 

Foreign Direct Investment (“FDI”) Policy issued by the Government of India is covered in FEMA. The FDI Policy is periodically reviewed and modified. Changes in sectoral policy/sectoral equity cap are notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry.

 

There are two areas of foreign investment in regulatory policy, i.e. 1) Sectors where foreign investment is allowed freely on an automatic basis (Automatic Route) and 2) Sectors where prior approval of the Government of India is required FIPB Route mainly called Government Route. 

 

For investment proposals covered by the Automatic Route, the RBI has issued general permission to companies to issue shares to the foreign investor, without any prior approvals.

 

FDI in sectors / activities under the “Automatic Route” does not require any prior approval of the Government of India (FIPB) or the Reserve Bank of India (“RBI”). However, the Indian company in which such foreign investment is made is required to notify the RBI.

 

For proposals not falling under the Automatic Route, specific and prior approval of the Government of India would be required. Government approvals are accorded on the recommendations of the Foreign Investment Promotion Board (“FIPB”), Department of Economic Affairs, Ministry of Finance with the Union Finance Secretary, Commerce Secretary and other key secretaries of the Government as its members.

 

For investment proposals covered by the Automatic Route, the RBI has issued general permission to companies to issue shares to the foreign investor, without any prior approvals.

 

General permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do no require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.

The companies are required to notify the concerned Regional Office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.
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