this article talks about the role played by Foreign Direct Investments in the Indian Economy.
India's Economic Growth and the Role of Foreign Direct Investment
ABSTRACT
The Indian economy has reached in the orbit of high rate of economic growth. It is being widely acclaimed and considered as an emerging global economic power. The rate of growth recorded during the period 1950-51 to 2006-07 clearly indicated a tendency of steady upward trend. However, the decade of 80's emerged as a beginning of the high rate of economic growth or at least a dramatic departure from the past growth performance. This tendency had continued in the nineties and further growth stimulus has occurred in the early 21st century.
Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.
As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). India's recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc. The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people. Today, India provides highest returns on FDI than any other country in the world.
Introduction
The Indian economy is the third largest in the world as measured by Purchasing Power Parity, with a gross domestic product of US $3.611 trillion. When measured in USD exchange-rate terms, it is the 10th largest in the world, with a GDP of US $800.8 billion (2006). India is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at the end of the first quarter of 2006-2007. However, India's huge population results in a per capita income of $3,300 at PPP and $714 at nominal.
The Indian economy is diverse and encompasses agriculture, handicrafts, manufacturing, textile, and a multitude of services. Although two-thirds of the Indian workforce still earns their livelihood directly or indirectly through agriculture, service sector is a growing one and are play an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global (multinational) companies for the outsourcing of their customer services and technical support. India is a major exporter of highly talented workforce in software and financial services, and software engineering.
India adopted a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early nineties, India has gradually opened up its markets through economic reforms by reducing government controls on foreign investment. The privatization of publicly owned industries and the opening up of some sectors to private and foreign investors has proceeded slowly amid political debate.
India faces a burgeoning population and the challenge of reducing social and economic inequality. Even though Poverty remains a serious problem, it has declined considerably since independence, mainly due to the green revolution and economic reforms.
FDI up to 100% is allowed under the automatic route in all activities/sectors except the sectors, which will require approval of the Government.
The question that begs for an elaboration is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improving the lot of bottom section of the Indian economy, which are living in abysmally poor socio-economic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post-reform period, therefore, the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital-intensive sectors; therefore, the required employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled workforce gained substantially. That is why high growth is called urban centric and thus has developed a wedge between the urban and rural economy. There is urgent need to fill this void. The process of Policymaking has matured in the democratic Indian polity since the independence. It is thus predicted that the growing problems will receive mature response and policy will be articulated in such a way to use FDI the way China has used to enhance economic growth while taking more and more investment to industrialize the rural sector of the Indian economy.
Foreign direct investment in India
As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in information technology and other important areas such as auto components, apparels, chemicals, pharmaceuticals, jewellery and so on. Although India has always held promise for global investors, but its rigid FDI policies were a significant hindrance in this context. However, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned(projected) itself as one of the front-runners in Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population at 300 million exceeds the population of both the US and the EU, and represents a powerful consumer market.
India's recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining and so on. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas like insurance and retailing. According to the government's Secretariat for Industrial Assistance, FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March). This was more than double the total of US$7.8bn in the previous fiscal year. Between April and September 2007, FDI inflows were US$8.2bn.
There is no doubt about the fact that there has been a worldwide stir about foreign direct investment in India. India's growth rate of 8% certainly owes a lot to foreign equity capital and foreign direct investment. Here are the highlights of the latest trend figures concerned with FDI in India:
* Increase in total FDI: 46.8%
* Rise in foreign equity: 36%
* Reinvested foreign earnings and other capital: $3.2 billion
* Total FDI earnings (inward) in Apr-Jan 2005-06: $5.7 billion
* Total FDI earnings (outward) increase: 2000-01: $757 million
2004-05: $2.4 billion
In the backdrop of this flourishing Indian economy The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected India to double its GDP reaching a phenomenal USD 1100 billion from present USD 550 billion by 2010. Why do you think so? Well statistics also say that an average Indian will be growing richer as per capita income rises from USD 600 per annum to USD 1200 per annum by 2010.
The GDP investments will likewise increase from current 5% to 35% by 2010. No wonder India has tremendous potential to attract USD 50 billion FDI in the next 5 years. With so much of visibility of MNCs, JVs, foreign investors etc it is little contradictory to say that the current flow of foreign direct investment India has been only 0.8% of GDP, compared to other nations of south-east Asia like Malaysia and Thailand with a FDI flow of 3% of GDP. Hence with more liberalization and opening of other sectors of the economy like the latest relaxation in FDI policies in real estate or direct foreign investment in real estate India etc, FDI will increase by at least 1.6% of GDP in the next 5 years.
Indian Government has a key role to play as far as investment laws are concerned. In this regard it is noteworthy to highlight some of the positive reforms that have brought a positive growth in the Indian economy in terms of GDP growth.
1. Govt. has removed 10% voting limit in banks.
2. Higher ceiling in FDI in airport revamp ventures and real estate investment.
3. Revisit foreign shareholding norms in telecom is welcome change.
4. Removal of unwarranted restrictions on hindrances to foreign investments has exceptionally increased FDI in India.
5. Govt. of India has already allowed FDI up to 51% with prior government approval in the retail trade of "single brand" products.
Foreign Direct Investment - Concept & Policy
Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.
Types of FDI
There are two types of FDI:
* Greenfield investment: It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India.
* Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes place.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
* Arms and ammunition.
* Atomic Energy.
* Railway Transport.
* Coal and lignite.
* Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.
Investment in India
Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and Transparent FDI policy.
FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
Foreign Direct Investment Policy
Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the nations globally. Its global popularity and positive output in augmenting of domestic capital, productivity and employment; has made it an indispensable tool for initiating economic growth for countries.
India is evolving as one of the 'most favored destination' for FDI in Asia and the Pacific. It has displaced US as the second-most favored destination for FDI in the world after China according to an AT Kearney's FDI Confidence Index. India attracted more than three times foreign investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38 billion during the subsequent period of 2004-05.
FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, thus makes a competitive business environment.
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are available at the website of Department of Industrial Policy & Promotion.
FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors.
Automatic Route
All activities which are not covered under the automatic route prior Government approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not open to FDI/NRI investment shall continue to be so unless otherwise decided and notified by Government. An investor can make an application for prior Government approval even when the proposed activity is under the automatic route.
Procedure for obtaining Government approval- FIPB
The Foreign Investment Promotion Board (FIPB) considers approving all proposals for foreign investment, which requires Government approval. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration.
For seeking the approval for FDI other than NRI Investments and 100% EOU, applications in form FC-IL should be submitted to the Department of Economic Affairs (DEA), Ministry of Finance.
FDI from NRI & for 100% EOU
FDI applications with NRI Investments and 100% EOU should be submitted to the Public Relation & Complaint (PR&C) Section of Secretariat of Industrial Assistance (SIA), Department of Industrial Policy & Promotion.
Proposals requiring Govt's approval
Application for proposals requiring prior Government's approval should be submitted to FIPB in FC-IL form. Plain paper applications carrying all relevant details are also accepted. No fee is payable. The following information should form part of the proposals submitted to FIPB: -
Whether the applicant has had or has any previous/existing financial/ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought; and If so, details thereof and the justification for proposing the new venture/ technical collaboration (including trademarks).
Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing. Foreign investment proposals received in the DEA are placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. The decision of the Government in all cases is usually conveyed by the DEA within 30 days.
FDI Prohibited
FDI is not permissible in Gambling and Betting, or Lottery Business, Business of chit fund, Nidhi Company, Housing and Real Estate business, Trading in Transferable Development Rights (TDRs), Retail Trading, Atomic Energy Agricultural or plantation activities or 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)
General permission of RBI under FEMA
RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the Government. Indian companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to the foreign investors.
The companies are, however, required to notify the Regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to file the required documents with the concerned Regional offices of the RBI within 30 days after issue of shares to the foreign investors or NRIs.
Besides new companies, automatic route for FDI/NRI investment is also available to the existing companies proposing to induct foreign equity. For existing companies with an expansion programme, the additional requirements include:
The increase in equity level resulting from the expansion of the equity base of the existing company without the acquisition of existing shares by NRI/foreign investors, the money to be remitted should be in foreign currency and proposed expansion programme should be in the sector(s) under automatic route. Otherwise, the proposal would need Government approval through the FIPB. For this a Board Resolution of the existing Indian company must support the proposal.
For existing companies without an expansion programme, the additional requirements for eligibility for automatic approval are: that they are engaged in the industries under automatic route; the increase in equity level must be from expansion of the equity base and the foreign equity must be in foreign currency.
The earlier SEBI requirement, applicable to public limited companies, that shares allotted on preferential basis shall not be transferable in any manner for a period of 5 years from the date of their allotment has now been modified to the extent that not more than 20 per cent of the entire contribution brought in by promoter cumulatively in public or preferential issue shall be locked-in.
India's Economic Growth and the Role of Foreign Direct Investment
ABSTRACT
The Indian economy has reached in the orbit of high rate of economic growth. It is being widely acclaimed and considered as an emerging global economic power. The rate of growth recorded during the period 1950-51 to 2006-07 clearly indicated a tendency of steady upward trend. However, the decade of 80's emerged as a beginning of the high rate of economic growth or at least a dramatic departure from the past growth performance. This tendency had continued in the nineties and further growth stimulus has occurred in the early 21st century.
Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.
As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). India's recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc. The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people. Today, India provides highest returns on FDI than any other country in the world.
Introduction
The Indian economy is the third largest in the world as measured by Purchasing Power Parity, with a gross domestic product of US $3.611 trillion. When measured in USD exchange-rate terms, it is the 10th largest in the world, with a GDP of US $800.8 billion (2006). India is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at the end of the first quarter of 2006-2007. However, India's huge population results in a per capita income of $3,300 at PPP and $714 at nominal.
The Indian economy is diverse and encompasses agriculture, handicrafts, manufacturing, textile, and a multitude of services. Although two-thirds of the Indian workforce still earns their livelihood directly or indirectly through agriculture, service sector is a growing one and are play an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global (multinational) companies for the outsourcing of their customer services and technical support. India is a major exporter of highly talented workforce in software and financial services, and software engineering.
India adopted a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early nineties, India has gradually opened up its markets through economic reforms by reducing government controls on foreign investment. The privatization of publicly owned industries and the opening up of some sectors to private and foreign investors has proceeded slowly amid political debate.
India faces a burgeoning population and the challenge of reducing social and economic inequality. Even though Poverty remains a serious problem, it has declined considerably since independence, mainly due to the green revolution and economic reforms.
FDI up to 100% is allowed under the automatic route in all activities/sectors except the sectors, which will require approval of the Government.
The question that begs for an elaboration is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improving the lot of bottom section of the Indian economy, which are living in abysmally poor socio-economic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post-reform period, therefore, the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital-intensive sectors; therefore, the required employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled workforce gained substantially. That is why high growth is called urban centric and thus has developed a wedge between the urban and rural economy. There is urgent need to fill this void. The process of Policymaking has matured in the democratic Indian polity since the independence. It is thus predicted that the growing problems will receive mature response and policy will be articulated in such a way to use FDI the way China has used to enhance economic growth while taking more and more investment to industrialize the rural sector of the Indian economy.
Foreign direct investment in India
As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in information technology and other important areas such as auto components, apparels, chemicals, pharmaceuticals, jewellery and so on. Although India has always held promise for global investors, but its rigid FDI policies were a significant hindrance in this context. However, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned(projected) itself as one of the front-runners in Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population at 300 million exceeds the population of both the US and the EU, and represents a powerful consumer market.
India's recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining and so on. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas like insurance and retailing. According to the government's Secretariat for Industrial Assistance, FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March). This was more than double the total of US$7.8bn in the previous fiscal year. Between April and September 2007, FDI inflows were US$8.2bn.
There is no doubt about the fact that there has been a worldwide stir about foreign direct investment in India. India's growth rate of 8% certainly owes a lot to foreign equity capital and foreign direct investment. Here are the highlights of the latest trend figures concerned with FDI in India:
* Increase in total FDI: 46.8%
* Rise in foreign equity: 36%
* Reinvested foreign earnings and other capital: $3.2 billion
* Total FDI earnings (inward) in Apr-Jan 2005-06: $5.7 billion
* Total FDI earnings (outward) increase: 2000-01: $757 million
2004-05: $2.4 billion
In the backdrop of this flourishing Indian economy The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected India to double its GDP reaching a phenomenal USD 1100 billion from present USD 550 billion by 2010. Why do you think so? Well statistics also say that an average Indian will be growing richer as per capita income rises from USD 600 per annum to USD 1200 per annum by 2010.
The GDP investments will likewise increase from current 5% to 35% by 2010. No wonder India has tremendous potential to attract USD 50 billion FDI in the next 5 years. With so much of visibility of MNCs, JVs, foreign investors etc it is little contradictory to say that the current flow of foreign direct investment India has been only 0.8% of GDP, compared to other nations of south-east Asia like Malaysia and Thailand with a FDI flow of 3% of GDP. Hence with more liberalization and opening of other sectors of the economy like the latest relaxation in FDI policies in real estate or direct foreign investment in real estate India etc, FDI will increase by at least 1.6% of GDP in the next 5 years.
Indian Government has a key role to play as far as investment laws are concerned. In this regard it is noteworthy to highlight some of the positive reforms that have brought a positive growth in the Indian economy in terms of GDP growth.
1. Govt. has removed 10% voting limit in banks.
2. Higher ceiling in FDI in airport revamp ventures and real estate investment.
3. Revisit foreign shareholding norms in telecom is welcome change.
4. Removal of unwarranted restrictions on hindrances to foreign investments has exceptionally increased FDI in India.
5. Govt. of India has already allowed FDI up to 51% with prior government approval in the retail trade of "single brand" products.
Foreign Direct Investment - Concept & Policy
Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.
Types of FDI
There are two types of FDI:
* Greenfield investment: It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India.
* Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes place.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
* Arms and ammunition.
* Atomic Energy.
* Railway Transport.
* Coal and lignite.
* Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.
Investment in India
Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and Transparent FDI policy.
FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
Foreign Direct Investment Policy
Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the nations globally. Its global popularity and positive output in augmenting of domestic capital, productivity and employment; has made it an indispensable tool for initiating economic growth for countries.
India is evolving as one of the 'most favored destination' for FDI in Asia and the Pacific. It has displaced US as the second-most favored destination for FDI in the world after China according to an AT Kearney's FDI Confidence Index. India attracted more than three times foreign investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38 billion during the subsequent period of 2004-05.
FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, thus makes a competitive business environment.
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are available at the website of Department of Industrial Policy & Promotion.
FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors.
Automatic Route
All activities which are not covered under the automatic route prior Government approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not open to FDI/NRI investment shall continue to be so unless otherwise decided and notified by Government. An investor can make an application for prior Government approval even when the proposed activity is under the automatic route.
Procedure for obtaining Government approval- FIPB
The Foreign Investment Promotion Board (FIPB) considers approving all proposals for foreign investment, which requires Government approval. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration.
For seeking the approval for FDI other than NRI Investments and 100% EOU, applications in form FC-IL should be submitted to the Department of Economic Affairs (DEA), Ministry of Finance.
FDI from NRI & for 100% EOU
FDI applications with NRI Investments and 100% EOU should be submitted to the Public Relation & Complaint (PR&C) Section of Secretariat of Industrial Assistance (SIA), Department of Industrial Policy & Promotion.
Proposals requiring Govt's approval
Application for proposals requiring prior Government's approval should be submitted to FIPB in FC-IL form. Plain paper applications carrying all relevant details are also accepted. No fee is payable. The following information should form part of the proposals submitted to FIPB: -
Whether the applicant has had or has any previous/existing financial/ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought; and If so, details thereof and the justification for proposing the new venture/ technical collaboration (including trademarks).
Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing. Foreign investment proposals received in the DEA are placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. The decision of the Government in all cases is usually conveyed by the DEA within 30 days.
FDI Prohibited
FDI is not permissible in Gambling and Betting, or Lottery Business, Business of chit fund, Nidhi Company, Housing and Real Estate business, Trading in Transferable Development Rights (TDRs), Retail Trading, Atomic Energy Agricultural or plantation activities or 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)
General permission of RBI under FEMA
RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the Government. Indian companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to the foreign investors.
The companies are, however, required to notify the Regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to file the required documents with the concerned Regional offices of the RBI within 30 days after issue of shares to the foreign investors or NRIs.
Besides new companies, automatic route for FDI/NRI investment is also available to the existing companies proposing to induct foreign equity. For existing companies with an expansion programme, the additional requirements include:
The increase in equity level resulting from the expansion of the equity base of the existing company without the acquisition of existing shares by NRI/foreign investors, the money to be remitted should be in foreign currency and proposed expansion programme should be in the sector(s) under automatic route. Otherwise, the proposal would need Government approval through the FIPB. For this a Board Resolution of the existing Indian company must support the proposal.
For existing companies without an expansion programme, the additional requirements for eligibility for automatic approval are: that they are engaged in the industries under automatic route; the increase in equity level must be from expansion of the equity base and the foreign equity must be in foreign currency.
The earlier SEBI requirement, applicable to public limited companies, that shares allotted on preferential basis shall not be transferable in any manner for a period of 5 years from the date of their allotment has now been modified to the extent that not more than 20 per cent of the entire contribution brought in by promoter cumulatively in public or preferential issue shall be locked-in.