FDI – Industrywise Sectoral Caps
Sectoral Caps/Limits on Investments by Persons Resident Outside India or Foreign Companies for each Industry
S. No. 1. 2. Sector Investment Cap Sector 49% 100% Description of Activity/Items/Conditions Subject to guidelines issued by RBI from time to time FDI/NRI investments allowed in the following 19 NBFC activities shall be as per the levels indicated below :
Private Banking Non-Banking Financial Companies (NBFC)
(a) Activities covered – Merchant Banking; Under Writing; Portfolio Management Services; Investment Advisory Services; Financial Consultancy; Stock-broking; Asset Management; Venture Capital; Custodial Services; Factoring; Credit Reference Agencies; Leasing & Finance; Housing Finance; Forex-broking; Credit Card Business; Money-changing Business; Microcredit; Rural credit.
(b) Minimum Capitalisation norms for fund based (NBFCs) – (i) For FDI upto 51%, US $ 0.5 million to be brought in upfront; (ii) If the FDI is above 51% and upto 75%, US $ 5 million to be brought upfront; (iii) If the FDI is above 75% and upto 100%, US $ 50 million out of which $ 7.5 million to be brought in upfront and the balance in 24 months.
(c) Minimum Capitalisation norms for non-fund based activities – Minimum Capitalisation norm of US $ 0.5 million is applicable in respect of non-fund based NBFCs with foreign in¬vestment.
(d) Foreign investors can set up 100% operating subsidi¬aries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US $ 50 million as
at (b) (iii) above (without any restriction on number of oper¬ating subsidiaries without bringing in additional capital).
(e) Joint Venture Operating NBFCs that have 75% or less than 75% foreign investment will also be allowed to set up sub¬sidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capital inflow i.e., (b)(i) and (b)(ii) above.
(f) FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard. FDI upto 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory and Development Authority (IRDA) (i) In basic, Cellular, Value Added Services, and Global Mobile Personal Communications by Satellite, FDI is limited to 49% subject to licencing and securi¬ty requirements and adherence by the companies (who are investing and the companies in which the investment is being made) to the license conditions for foreign equity cap and lock-in-period for transfer and addition of equity and other license provisions.
(ii) ISPs with gateways, radio paging and endto-end bandwidth, FDI is permitted upto 74% with FDI, beyond 49% requiring Government approval. These services would be subject to licensing and security requirements.
(iii) No equity cap is applicable to manufacturing activities
(iv) FDI upto 100% is allowed for the following activities in the telecom sector – (a) ISPs not providing gateways (both for satellite and
and (b) the discovered fields of national oil companies Subject to and under the Government Policy and Regulations thereof. including both roads and bridges. and (d) Voice Mail. (g) Investment in Housing Finance Institutions which is also opened to FDI as an NBFC. (c) Proposal for FDI beyond 49% shall be considered by FIPB on case to case basis. if these companies are listed in other parts of the world. wherever required. (d) City and regional level urban infrastructure facilities. FDI permitted upto 100% in case of private Indian companies Subject to the existing sectoral policy and regulatory frame-work in the oil marketing sector Subject to and under the policy of Government on private partici-pation in – (a) exploration of oil.
Coal & Lignite
. (e) Investment in manufacture of building materials.
(iv) Petroleum Product Pipelines Housing and Real Estate
7. (b) The above services would be subject to licensing and security requirements. (i) Private Indian companies setting up or operating power projects as well as coal and lig¬nite mines for captive consumption are
5. (b) Investment in real estate covering construction of residential and commercial premises including business centres and offices. (b) Infrastructure providers providing dark fibre (IP Category I). The above would be subject to the following conditions – (a) FDI upto 100% is allowed subject to the condition that such companies would divest 26% of their equity in favour of Indian public in 5 years. (f) Investment in participatory ventures in (a) to (c) above. (c) Development of townships.] Only NRIs are al¬lowed to invest upto 100% in the areas listed below – (a) Development of serviced plots and construction of built-up residential premises. (c) Electronic Mail.submarine cables).
(i)] Petroleum Refining (Private Sector) (ii) Petroleum Product Marketing (iii) Oil Exploration in both small and medium sized fields
under the FIPB route – (i) 100% FDI is permitted in case of trading companies for the following activities : (a) exports. (b) bulk imports with export/expanded warehouse sales.
(iv) In all the above cases.
However. (d) other import of goods or services provided at least 75% is for procurement and sale of the same group and not for third party use or onward transfer/distribution/sales. FDI is allowed upto 50% under the automatic route subject to the condition that such investment shall not exceed 49% of the equity of a PSU. Trading is permitted under automatic route with FDI upto 51% provided it is primarily export activi¬ties and the undertaking is an export house/trading house/super trading house/star trading house.
(ii) 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
Venture Capital Fund (VCF) and Venture Capital Company (VCC) Trading ***
9. (c) cash and carry wholesale trading. Offshore Ven¬ture Capital Funds/companies are allowed to invest in domestic venture capital undertaking as well as other companies through the automatic route.
(iii) FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption.
. sub¬ject only to SEBI regulation and sector specific caps on FDI.allowed FDI upto 100%.
(f) Trading of items sourced from the small scale sector under which. if these companies are listed in other parts of the world.
(d) Trading of items for social sector.
. a company can market that item under its brand name. based on technology provided and laid down quality specifications.
(e) Trading of hi-tech. subject to provisions of Exim Policy – (a) Companies for providing after-sales services (that is not trading per se). (c) Trading of hi-tech items/items requiring specialised after-sales service.
(i) FDI upto 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years.
(g) Domestic sourcing of products for exports. and investment in setting up manufacturing facilities commence simultaneously with test mar¬keting. (b) Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India. (h) Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years. medical and diagnostic items.(ii) The following kinds of trading are also permitted.
surface. FDI permitted upto 100% for manufacture of drugs and pharmaceuticals provided the activi¬ty does not attract compulsory licensing or involve use of recom¬binant DNA technology and specific cell/tissue targeted formula¬tions. transmission and distribution.10. The term ‗hotels‘ includes res¬taurants. Tourism related industry include travel agencies.
Road and highways. tour operating agencies and tourist transport operating agencies. FDI proposal for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA tech¬nology and specific cell/tissue targeted formulations will re¬quire prior Govt. other than atomic reactor power plants. including incentive fee. entertainment. adventure and wild life experience to tourists.. There is no limit on the project cost and quantum of foreign direct investment. In projects for construction and maintenance of roads.
11. (ii) Upto 3% of the net turnover is payable for franchising and marketing/publicity support fee. Ports and harbours Hotel & Tourism
13. leisure. vehicular bridges. vehicular tunnels. sports and health units for tourists and Convention/Seminar units and Organisations. automatic approval is granted if – (i) Upto 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects design. amusement. ports and harbours.
For foreign technology agreements.
. FDI allowed upto 100% in respect of projects relating to electricity generation.
Such companies would engage only in business to business (B2B) e-commerce and not in retail trading. approval. etc. beach resorts and other tourist complexes providing accommodation and/or catering and food facilities to tourists. air and water transport facilities to tourists. highways. toll roads. and (iii) Upto 10% of gross operating profit is payable for management fee. supervision. units provid¬ing facilities for cultural.
subject to a declaration from the applicant that he has no existing joint venture for the same area and/or the particular mineral. In both manufacture of pollu¬tion control equipment and consultancy for integration of pollution control systems is permitted on the automatic route. explosives and allied items of defence equipments.14. Sub¬stances Narcotics and and Hazardous
(iii) Distillation and brewing of Alcoholic drinks. defence aircrafts and warships.
(i) For exploration and mining of diamonds and precious stones FDI is allowed upto 74% under auto¬matic route.
Pollution Control & Management
20. metallurgy and processing FDI is allowed upto 100% under automat¬ic route.
Airports Mass Rapid Transport Systems
(ii) For exploration and mining of gold and silver and minerals other than diamonds and precious stones.
Govt. substances. (ii) Atomic Psychotropic Chemicals. All manufacturing activi¬ties except – (i) Arms and ammunition. Advertising Sector – FDI upto 100% allowed on the automatic route Film Sector – (Film production. 18. exhibition and distribution including related services/products) FDI upto 100% allowed on the automatic route with no entry-level condition. approval required beyond 74% FDI upto 100% is permit¬ted on the automatic route in mass rapid transport system in all metros including associated real estate development. 16
(iii) Press Note 18 (1998 series) dated 14-121998 would not be applicable for setting up 100% owned subsidiaries in so far as the mining sector is concerned.
built up guidelines – infrastructure and construction (a) Minimum area to be developed under each development project shall be as under – projects.
(c) At least 50% of the project must be developed within a period of five years from the
21. project—50. the investor may be permitted to exit earlier with prior approval of the Government through the FIPB. mtrs. but (i) In case of development of serviced housing not be restricted to. plots—10 hectares housing. 100% The investment shall be subject to the following housing.
22. The sector would include. However.
Any other 100% sector/activity (if not included in Annexure A) Air Transport 100% for No direct or indirect equity participation by Services (Domestic NRIs 49% for foreign airlines is allowed. (ii) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. hotels.000 sq. hospitals. Airlines) others Townships. commercial (ii) In case of construction development premises. resorts. the above two conditions. The funds would have to be brought in within six months of commencement of business of the company. recreational facilities.and (iv) Cigarette/cigars and manufactured tobacco substitutes. educational (iii) In case of combination project. any one of institutions. city and regional level infrastructure (b) The investment shall be subject to the following conditions – (i) Minimum capitalization of US $ 10 million for wholly owned subsidiaries and US $ 5 million for joint ventures with Indian partners.
(e) The investor shall be responsible for obtaining all necessary approvals. and other regulations of the State Gov¬ernment/Municipal/Local Body concerned. including those of the building/layout plans.date of obtaining all statutory clearances. bye-laws. payment of development. have not been made available. The investor shall not be permitted to sell undeveloped plots.
(f) The State Government/Municipal/Local Body con¬cerned. developing internal and peripheral areas and other infra¬structure facilities. Note : For the purpose of these guidelines. shall monitor compliance of the above conditions by the developer. water supply. as laid down in the applicable building control regulations.
(d) The project shall conform to the norms and stand¬ards. as applicable under prescribed regulations. street lighting. rules. which approves the building/development plans. ―undeveloped plots‖ will mean where roads. drainage.]
. sewerage. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. external develop¬ment and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned. and other conveniences.
sulfur. Foreign Direct Investment in India In India. leisure. Tourism would include travel agencies. which unites to form a Multinational Corporation (MNC). manganese. transport facilities. tour operators.Foreign Direct Investment
Foreign Direct Investment (FDI) is normally defined as a form of investment made in order to gain unwavering and long-lasting interest in enterprises that are operated outside of the economy of the shareholder/ depositor. chrome. there is a parent enterprise and a foreign associate. diamonds. In FDI. sports and health units. beach resorts and business ventures providing accommodation and food facilities to tourist. gold. entertainment. zinc
Hotel & Tourism Hotels include restaurants. Foreign Direct Investment Policy allows for investment only in case of the following form of investments:
Through financial alliance Through joint schemes and technical alliance Through capital markets. copper. via Euro issues Through private placements or preferential allotments
Foreign Direct Investment in India is not allowed under the following industrial sectors:
Arms and ammunition Atomic Energy Coal and lignite Rail Transport Mining of metals like iron. In order to be deemed as a FDI. the investment must give the parent enterprise power and control over its foreign affiliate.
. 100 per cent FDI is permitted for this sector through the automatic route.
Trading For trading companies 100 per cent FDI is allowed for
Exports Bulk Imports Cash and Carry wholesale trading. gypsum. amusement.
Drugs & Pharmaceuticals For the production of drugs and pharmaceutical a FDI of 100 per cent is allowed. radio-paging and end to end bandwidth. But any FDI above 49 per cent would require government approval. Insurance Sector For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition of getting license from Insurance Regulatory and Development Authority (IRDA). value added services and mobile personal communications by satellite. Telecommunication
For basic. does not involve use of recombinant DNA technology.
Business Processing Outsourcing FDI of 100 per cent is permitted provided such investments satisfy certain prerequisites. subject to the fact that the venture does not attract compulsory licensing. FDI is allowed up to 74 per cent. Diagnostic Centers Shipping Deep Sea Fishing Oil Exploration Power Housing and Real Estate Development Highways. Private Banking FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the investment adheres to guidelines issued by RBI. FDI is 49 per cent.
Up to 100 per cent equity is allowed in the following sectors
34 High Priority Industry Groups Export Trading Companies Hotels and Tourism-related Projects Hospitals. Bridges and Ports Sick Industrial Units
. NRI's They And investment in OCB's infrastructure
industry. cellular. transmission and distribution other than atomic plants the FDI allowed is up to 100 per cent. For ISPs with gateways.Power For business activities in power sector like electricity generation.
Government of India issues a “Consolidated FDI Policy Circular ” on an yearly basis on March 31 of each year (since 2010) elaborating the policy and the process in respect of FDI in India. 1999.nic. • Government Route: Under the Government Route. if the investment is through the Government
. The Reserve Bank has issued Notification No. with the prior approval of the Government of India. the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. The Department of Industrial Policy and Promotion. investments can be made in shares. NRIs. India obtain prior approval of the Government of India. Erstwhile OCBs which are incorporated outside India and are not under adverse notice of the Reserve Bank can make fresh investments under the FDI Scheme as incorporated non-resident entities.pdf governed by the provisions of the Foreign Exchange Management Act (FEMA). 2003. Ministry of Finance. resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in shares and convertible debentures of Indian companies under FDI Scheme on repatriation basis. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme. issue or acquisition of shares / convertible debentures and preference shares. The latest “Consolidated FDI Policy Circular” dated April 10.in/English/Policies/FDI_Circular_01_2012.Basic Guidelines
Section 1. FEMA 20 /2000-RB dated May 3. Overseas Corporate Bodies (OCBs) have been de-recognised as a class of investors in India with effect from September 16. Foreign Investment Promotion Board (FIPB) 3. This Notification has been amended from time to time.
(other than an entity incorporated in Pakistan) can invest in India. Entry routes for investments in India Under the Foreign Direct Investments (FDI) Scheme. the foreign investor or the Indian company should for Eligibility for the Investment investment. 2000 which contains the Regulations in this regard. mandatorily and fully convertible debentures and mandatorily and fully convertible preference shares1 of an Indian company by nonresidents through two routes: • Automatic Route: Under the Automatic Route. 2. Ministry of Commerce and Industry. manner of receipt of funds. in
A person resident outside India2 (other than a citizen of Pakistan) or an entity incorporated outside India. 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.dipp. pricing guidelines and reporting of the investments to the Reserve Bank.2012 is available in public domain and can be downloaded from the website of Ministry of Commerce and Industry. Department of Industrial Policy and Promotion – – http://www. iii. FEMA Regulations which prescribe amongst other things the mode of investments i. Foreign Foreign Direct I Investment : Direct (FDI) Foreign Investment in India Direct in is Investment India :
– undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India. ii. with the prior approval of the FIPB.e.
Industries Requiring Compulsory Licensing Industries Reserved for Small Scale Sector
Foreign Direct Investment in India. subject to the FDI Policy of the Government of India. i.
Any fresh request for opening of NRO current account for liquidating previous investment held on non-repatriation basis should be forwarded by the AD bank to Foreign Exchange Department. Central Office. (DIR Series) Circular No. ii. The acquisition of existing shares from Resident to Non-resident (i. However. i. not less than fair value of shares determined by a SEBI registered Merchant Banker or a Chartered
Accountant as per the Discounted Free Cash Flow Method (DCF) in case of unlisted companies. In the case of shares of a company not listed on a recognised stock exchange in India. shall be : • • on the basis of SEBI guidelines in case of listed companies. • Issue of shares by SEZs against import of capital goods: In this case. These accounts are to be maintained by the respective AD banks in the frozen status. fully and mandatorily convertible debentures and fully and mandatorily convertible preference shares subject to the pricing guidelines / valuation norms and reporting requirements amongst other requirements as prescribed under FEMA Regulations. the issue price shall not be less that the price as applicable to transfer of shares from resident to non-resident. Issue of other types of preference shares such as. • Acquisition/ transfer of existing shares (private arrangement). within 5. this NRO account should not be used for any fresh investments in India. • Preferential allotment: In case of issue of shares on preferential allotment. ADs should also ensure that OCBs do not maintain any account other than NRO current account in line with the instructions as per A. the share valuation has to be done by a Committee consisting of Development Commissioner and the appropriate Customs officials. Type of instruments i. 4. ii. 2003. guidelines
• Fresh issue of shares: Price of fresh shares issued to persons resident outside India under the FDI Scheme. at a price as determined by the company. foreign national. and with the prior approval of the Reserve Bank. (a) negotiated price for shares of companies listed on a recognized stock exchange in India which shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines. ADs should not close other category of accounts (NRE / FCNR / NRO) of OCBs which are in the adverse list of the Reserve Bank of India. before making any fresh FDI under the FDI scheme an erstwhile OCB should through their AD bank take a one time certification from RBI that it is not in the adverse list being maintained with the Reserve Bank of India. Mumbai. Indian companies can issue equity shares. optionally convertible or partially convertible. to incorporated non-resident entity other than erstwhile OCB. • Right Shares: The price of shares offered on rights basis by the Indian company to non-resident shareholders shall be. Reserve Bank of India. have to be in accordance with the guidelines applicable for External Commercial Borrowings (ECBs). a specified time would be reckoned Pricing as part of equity under the FDI Policy. at a price which is not less than the price at which the offer on right basis is made to the resident shareholders. The above pricing guidelines are also applicable for issue of shares against payment of lump sum technical know how fee / royalty or conversion of ECB into equity or capitalization of pre incorporation expenses/import payables (with prior approval of Government). 14 dated September 16. only those which are fully and mandatorily convertible into equity. However. if the investment is through the Automatic Route. Further. NRI.As far as debentures are concerned. In the case of shares of a company listed on a recognised stock exchange in India . FII) would be at a. as
.Route. non-convertible. iii.e.P.
preceding the relevant date. The details of the entry route applicable along with the sectoral cap for foreign investment in various sectors are given in Annex -1. in MSEs Limits
The details of the entry route applicable and the maximum permissible foreign investment / sectoral cap in an Indian Company are determined by the sector in which it is operating.e. • The pricing of shares / convertible debentures / preference shares should be decided / determined upfront at the time of issue of the instruments. transfer of existing shares by Non-resident (i. subject to the prescribed limits as per FDI Policy. by incorporated non-resident entity. (iii) conversion of royalty / lump sum / technical know how fee due for payment or conversion of ECB. (b) negotiated price for shares of companies which are not listed on a recognized stock exchange in India which shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow(DCF) method.
. (v) debit to non-interest bearing Escrow account5 in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and nonresidents towards payment of share purchase consideration. Further. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant. however the price at the time of conversion should not be less than the fair value worked out. 6. including an Export Oriented Unit or a Unit in Free Trade Zone or in Export Processing Zone or in a Software Technology Park or in an Electronic Hardware Technology Park. and which is not engaged in any activity/sector mentioned in Annex 2 may issue shares or convertible debentures to a person resident outside India (other than a resident of Pakistan and to a resident of Bangladesh under approval route). Further. 2006. a) Foreign period of Prohibited 180 days from the date Sectors and investment Investment of receipt. foreign national. If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR(B) / Escrow account the amount of consideration shall be refunded. as notified by the Ministry of Commerce & Industry. NRI. (ii) debit to NRE / FCNR account of a person concerned maintained with an AD category I bank. provided the same is determined for such duration as specified therein. FII) to Resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given above. at the time of issuance of these instruments. in accordance with the Entry Routes and the provision of Foreign Direct Investment Policy. Government of India. the Reserve Bank may on an application made to it and for sufficient reasons permit an Indian Company to refund / allot shares for the amount of consideration received towards issue of security if such amount is outstanding beyond the 7. Foreign Investment limits. Small and Medium Enterprises Development (MSMED) Act. erstwhile OCB. (iv) conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of FIPB. in accordance with the extant FEMA regulations. b) Investments in Micro and Small Enterprise (MSE) A company which is reckoned as Micro and Small Enterprise (MSE) (earlier Small Scale Industrial Unit) in terms of the Micro.applicable. from time to time. which shall be the date of purchase or sale of shares. The price for the convertible instruments can also be a determined based on the conversion formula which has to be determined / fixed upfront. Mode of Payment An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by: (i) inward remittance through normal banking channels. shall be treated as consideration for issue of shares.
A. 1951 for manufacturing items reserved for the MSE sector may issue shares to persons resident outside India (other than a resident/entity of Pakistan and to a resident/entity of Bangladesh with prior approval FIPB). or farm houses. of tobacco or of tobacco substitutes (i) Activities / sectors not open to private sector investment e.g.
Note : Foreign technology collaboration in any form including licensing for franchise. modes: Foreign Investment
8. Trusts) which is engaged or proposes to engage in the following a. whether incorporated or not (such as. cigarillos and cigarettes. construction of residential / commercial premises. Acquisition by way of transfer of existing shares by person resident in or outside India Foreign investors can also invest in Indian companies by purchasing / acquiring existing shares from Indian shareholders or from other non-resident shareholders. Modes Direct of Investment in under India can Foreign be done Direct through Investment the following Scheme. (d) Business of Chit funds (e) Nidhi company (f) Trading in Transferable Development Rights (TDRs) (g) Real Estate Business or Construction of Farm Houses (h) Manufacturing of Cigars. Foreign investment in the form of FDI is also prohibited in certain sectors such as (Annex-2)7:
(a) Retail Trading (except single brand product retailing) (b) Lottery Business including Government /private lottery.B. trademark. city and regional level infrastructure. online lotteries. etc. townships. to the extent of 24 per cent of its paid-up capital or sectoral cap whichever is lower. Agricultural or plantation Real estate business. d. Issue of shares in excess of 24 per cent of paid-up capital shall require prior approval of the FIPB of the Government of India and shall be in compliance with the terms and conditions of such c) Prohibition on foreign investment in approval. or construction of Trading in Transferable Development
fund. management contract is also prohibited for Lottery Business and Gambling and Betting activities.Any Industrial undertaking. General permission has been granted to non-residents /
. 8. which is not an MSE. or Rights (TDRs).
or or activities. India
(i) Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity.
company. cheroots. brand name. Issuance of fresh shares by the company An Indian company may issue fresh shares /convertible debentures under the FDI Scheme to a person resident outside India (who is eligible for investment in India) subject to compliance with the extant FDI policy and the FEMA Regulation. c. (iii) In addition to the above. educational institutions. 8. recreational facilities. with or without FDI. It is further clarified that partnership firms /proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector. having an industrial license under the provisions of the Industries (Development & Regulation) Act. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems). e. Business activities6:
b. (c) Gambling and Betting including casinos etc. roads or bridges.
(ii) It is clarified that “real estate business” means dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships.
reporting and other guidelines given in Annex . open offer/ substantial FC-TRS reporting acquisition to and / SEBI (SAST) and the given buy back). Non Resident to Resident(Sale / Gift): (i) Gift : A person resident outside India can transfer any security to a person resident in India by way of gift. book building. Non Resident to Non-Resident (Sale / Gift): A person resident outside India (other than NRI and OCB) may transfer by way of sale or gift shares or convertible debentures to any person resident outside India (including NRIs but excluding OCBs). and iv) CA Certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form d) where the FC-TRS to investee company is be in the filed financial with services the sector 8 AD provided bank.substantial acquisition/SEBI(SAST). CA certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached the Form Compliance with befiled with other guidelines as
Note: Transfer of shares from a Non Resident to Resident other than under SEBI regulations and where the FEMA pricing guidelines are not met would require the prior approval of the Reserve Bank of India. that:
i). open/ exit offer. b. c.I
a. c. exit. shares / convertible debentures (including transfer of subscriber's shares).B. 8. subject to the following along with pricing. delisting. The pricing complies with the relevant SEBI regulations (such as IPO. b. subject to the following The original and resultant investment comply with the extant FDI policy/ FEMA regulations. i) the requisite FIPB approval has been obtained. extant and relevant SEBI regulations(such as IPO.1999 are not met provided that: i) the resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps.3. b) where SEBI (SAST) guidelines are attracted subject to adherence with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.II Transfer of shares/convertible debentures from Resident to Person Resident outside India A person resident in India can transfer by way of sale. ii) The pricing for the transaction is compliant with specific/explicit . NRI to NRI (Sale / Gift): NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI. No Objection Certificates (NOCs) are obtained from the respective regulators/regulators of the investee
. (iii) Sale of shares/ convertible debentures on the Stock Exchange by person resident outside India: A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI. 3.reporting requirements. (ii) Sale under private arrangement : General permission is also available for transfer of shares / convertible debentures. to d.etc.. delisting. met. of an Indian company under private arrangement to a person resident outside India. c) where the pricing guidelines under FEMA. Note: Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.NRIs 8
for B. documentation. Book building. etc. a) where the transfer of shares requires the prior approval of the FIPB as per extant FDI policy provided that. block deals. AD in Annex and bank.). by way of sale under private arrangement by a person resident outside India to a person resident in India in case where transfer of shares are under SEBI regulations and where the FEMA pricing guidelines are not a. block deals. conditionalities (such as minimum capitalization. and ii) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.
has to obtain prior approval from the Reserve Bank9. However.
. (iii) Transfer of shares from NRI to NR requires the prior approval of the Reserve Bank of India. documentation etc. The current list is reproduced in Annex . Further. 2000. etc.5. It has also been decided to permit SEBI authorised Depository Participant.B. in case approval is granted for the transaction. as gift. by way of gift to a person resident outside India. reporting requirements. e) The value of security to be transferred together with any security already transferred by the transferor.
(ii) Transfer of shares resulting in foreign investments in the Indian company. the same should be reported in Form FC-TRS to the AD Category – I bank. as well as transfer of shares by a non-resident to an Indian company under buyback and / or capital reduction scheme of the company. without approval of the Reserve Bank. The Reserve Bank considers the following factors while processing such applications: a) The proposed transferee is eligible to hold such security under Schedules 1. towards payment of share purchase consideration and / or provide Escrow facilities for keeping securities to facilitate FDI transactions relating to transfer of shares. f) Such other conditions as stipulated by the Reserve Bank in public interest from time to time. engaged in an activity earlier covered under the Government Route but now falling under Automatic Route of the Reserve Bank. III Transfer of Shares by Resident which requires Government approval The following instances of transfer of shares from residents to non-residents by way of sale or otherwise requires (i) Transfer of shares of Government companies engaged in sector falling approval under the Government : Route. this general permission would not be available for the above transactions if they are not meeting the pricing guidelines or in case of transfer of shares / debentures by way of gift from a Resident to a Non-Resident / Non-Resident Indian. 8. 1956. While forwarding the application to the Reserve Bank for approval for transfer of shares by way of gift. c) The applicable sectoral cap limit in the Indian company is not breached. d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 6 of the Companies Act. and ii). 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3. 8. 8.4 should be enclosed. b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company / each series of debentures / each mutual fund scheme. Escrow account for securities as stated in para 9 (b).B.).company as well as the transferor and transferee entities and such NOCs are filed along with the Form FC-TRS with the AD bank. to open and maintain. the documents mentioned in Annex . are complied with. within 60 days from the date of receipt of the full and final amount of consideration. as amended from time to time. who intends to transfer any security. (ii) A person resident in India. IV Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security (i) Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration. breaching the sectoral cap applicable. to any person residing outside India does not exceed the rupee equivalent of USD 50..V Escrow account for transfer of shares AD Category – I banks have been given general permission to open and maintain non-interest bearing Escrow account in Indian Rupees in India on behalf of residents and non-residents.000 per financial year. conditionalities(such as minimum capitalization. as amended from time to time.B. The FDI policy and FEMA Regulations in terms of sectoral caps. Note: The above general permission also covers transfer by a resident to a non-resident of shares / convertible debentures of an Indian company.
made by a resident in India. royalty. 8. etc. The foreign equity after conversion of ECB into equity is within the sectoral cap. Regulations 2009. under automatic route or SIA / FIPB route. as well as secured / unsecured loans availed from non-resident collaborators. c. subject to the compliance with the following conditions: (a) The import of capital goods.C. etc. 2003. Compliance with the requirements prescribed under any other statute and regulation in force. machineries. is in accordance with the
. Issue of shares under Employees Stock Option Scheme (ESOPs) An Indian Company may issue shares under ESOPs to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India. The face value of the shares to be allotted under the scheme to the non-resident employees should not exceed 5 per cent of the paid-up capital of the issuing company. 8.8. bonus shares can be issued to erstwhile OCBs without prior approval of the Reserve Bank. E. if any. entitlement of rights share is not automatically available to OCBs. companies desiring to issue rights share to such erstwhile OCBs will have to take specific prior permission from the Reserve Bank10.VI 8. (iii) Units in Special Economic Zones (SEZs) are permitted to issue equity shares to non-residents against import of capital goods subject to the valuation done by a Committee consisting of Development Commissioner and the appropriate Customs officials. subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the company does not exceed the sectoral cap. However. Therefore. other than to the citizens of Pakistan. D. shares
An Indian company may issue Rights / Bonus shares to existing non-resident shareholders. As such. (iv) Issue of equity shares against Import of capital goods / machinery / equipment. Pricing of shares is determined as per SEBI regulations for listed company or DCF method for unlisted company. Conversion of ECB / Lumpsum Fee / Royalty / Import of capital goods by SEZs in to Equity/ Import payables / Pre incorporation expenses (i) Indian companies have been granted general permission for conversion of External Commercial Borrowings (ECB) into shares / convertible debentures. subject to adherence to sectoral cap. reporting requirements. d.
Circular. subject to the following conditions and reporting requirements:
a.B. etc. provided that the OCB is not in the adverse list of RBI. such issue of bonus / rights shares have to be in accordance with other laws / statutes like the Companies Act. e. 1956. SEBI (Issue of Capital and Disclosure Requirements). • Additional allocation of rights share by residents to non-residents : Existing non-resident shareholders are allowed to apply for issue of additional shares / convertible debentures / preference shares over and above their rights share entitlements. The conversion facility is available for ECBs availed under the Automatic or Approval Route and is applicable to ECBs. subject to pricing guidelines of RBI/SEBI and compliance with applicable tax laws. The investee company can allot the additional rights shares out of unsubscribed portion. The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government's approval for foreign equity in the company. due for payment or not. Citizens of Bangladesh can invest with the prior approval of the FIPB.. Further. is allowed under the Government route.
(ii) General permission is also available for issue of shares / preference shares against lump-sum technical know-how fee. Shares under ESOPs can be issued directly or through a Trust subject to the condition that the scheme has been drawn in terms of the relevant regulations issued by the SEBI. b. • Issue of Right shares to OCBs: OCBs have been de-recognised as a class of investors with effect from September 16.
e. on behalf of an Indian company. However. which have not yet accessed the ADR/GDR route for raising capital in the international market. ii) A company can issue ADRs / GDRs. DRs are treated as FDI. which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs. can be done with the approval of FIPB. 1999 relating to imports issued by the Reserve Bank. (vii) 8. (b) There is an independent valuation of the capital goods /machineries / equipments by a third party entity. iii) Unlisted companies. an Indian listed company. (vi) Issue of shares to a non-resident against shares swap 11i. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). The proceeds so raised have to be kept abroad till actually required in India.) is allowed under the Government route. c) Payments being made directly by the foreign investor to the company. which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. would require prior or simultaneous listing in the domestic market. i) Indian companies can raise foreign currency resources abroad through the issue of ADRs/GDRs. ADR/GDR shares Indian Companies under
Depository Receipts (DRs) are negotiable securities issued outside India by a Depository bank. Pending repatriation or utilisation of the proceeds. The F. complete in all respects. which have already issued ADRs/GDRs in the international market. Payments made through third parties citing the absence of a bank account or similar such reasons will not be allowed. in lieu for the consideration which has to be paid for shares acquired in the overseas company. etc. d) The applications.. preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports. DRs are traded on Stock Exchanges in the US. for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods. for capitalisation being made within the period of 180 days from the date of incorporation of the company. if it is eligible to issue shares to person resident outside India under the FDI Scheme. and (d) Applications complete in all respects. Luxembourg. 1993 and guidelines issued by the Government of India thereunder from time to time. Singapore. (v) Issue of equity shares against Pre-operative / pre – incorporation expenses (including payment of rent etc. b) Verification and certification of the pre-incorporation / pre-operative expenses by the statutory auditor. London. reporting Issue guidelines of are given by in Section V of the Master Circular. ADRs / GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. subject to compliance with the following conditions : a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred. while seeking to issue such overseas instruments. have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs. Unlisted companies. the Indian company can invest the funds in:a. In the Indian context. in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme. whichever is earlier. Deposits with or Certificate of Deposit or other instruments offered by banks who have been rated by
.Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA). (c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity.
can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors.Standard and Poor. 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank. and such rating not being less than the rating stipulated by the Reserve Bank from time to time for the purpose. the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares. Voting rights in the case of banking companies will continue to be in terms of the provisions of the Banking Regulation Act. b) AD Category – I banks have been given general permission to open and maintain non-interest bearing Escrow account in Indian Rupees in India on behalf of residents and non-residents. The proceeds of the ADR / GDR issue is remitted back to India and distributed among the resident investors who had offered their Rupee denominated shares for conversion. FDI – through issue/transfer of participating interest/right in oil fields to a non resident Foreign investment by way of issue / transfer of „participating interest/right‟ in oil fields by Indian companies to a non resident is treated as an FDI under the extant FDI policy and the FEMA regulations. vii) Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act. Deposits with branch/es of Indian Authorised Dealers outside India.Transfer of „participating interest/ rights‟ will be reported as „other‟ category under Para 7 of revised Form FC-TRS and issuance of „participating interest/ rights‟ will be reported 9. There is no monetary limit up to which an Indian company can raise ADRs / GDRs. registered with SEBI. a stock broker in India. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs / GDRs. and c. xii) The reporting guidelines for ADR /GDR are given in Section V of the Master Circular. ix) The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme. as „other‟ Foreign category of Currency instruments Account under Para and 4 of Form Escrow FC-GPR Account
a) Indian companies which are eligible to issue shares to persons resident outside India under the FDI Scheme will be allowed to retain the share subscription amount in a Foreign Currency Account for bonafide business purpose only with the prior approval of the Reserve Bank. b. viii) Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy / sell or deal in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies. v) There are no end-use restrictions except for a ban on deployment / investment of such funds in real estate or the stock market. Re-issuance of ADRs / GDRs would be permitted to the extent of ADRs / GDRs xi) which have been redeemed Sponsored into underlying shares and sold in the Indian market. from time to time. vi) The ADR / GDR proceeds can be utilised for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance. Accordingly. 8G. towards payment of share
. 1949 and the instructions issued by the Reserve Bank12 from time to time. etc. Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less. Under this mechanism. ADRs / GDRs can be issued abroad. Fitch or Moody's. 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. these transactions have to be reported as FDI transactions. as applicable to all shareholders exercising voting rights. x) Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in place by the Government of India for ADRs / GDRs. issue ADR/GDR
An Indian company can also sponsor an issue of ADR / GDR. Under this Scheme.
It has also been decided to permit SEBI authorised Depository Participant. iv. The Escrow account would also be subject to the terms and conditions as stipulated in A. Remittance proceeds
AD Category – I bank can allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India. without approval of the Reserve Bank. No objection or Tax clearance certificate from Income Tax Department for the remittance. ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities.purchase consideration and / or provide Escrow facilities for keeping securities to facilitate FDI transactions. 58 dated May 2. an auditor's certificate to the effect that there is no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance. provided that a no objection for the same is obtained from a bank which is an authorised dealer. issue of fresh shares to the non-residents as well as transfer of shares to the non-residents as well as transfer of shares from / to the non-residents. 12. may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company. resident outside India. Further. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in India. subject to the conditions that : the percentage of shareholding of persons resident outside India in the transferee or new company does
not exceed the sectoral cap.P.
13. In case of winding up otherwise than by a court. shall issue the no objection for such a pledge after having satisfied itself that the external commercial borrowing is in line with the extant FEMA regulations for ECBs and that : i) the loan agreement has been signed by both the lender and the borrower. 1956. under the FDI policy of (refer sale para 7(c) ). subject to payment of applicable taxes. provided the security has been held on repatriation basis. Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act. which has raised external commercial borrowings. Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act. iii. (DIR Series) Circular No. the transferor company or the transferee or the new company is not engaged in activities which are prohibited 11. the sale of security has been made in accordance with the prescribed guidelines and NOC / tax clearance certificate from the Income Tax Department has been produced. to open and maintain. Escrow account for securities. 2011. AD Category – I banks shall allow the remittance provided the applicant submits: i. The authorized dealer. Pledge of Shares a) A person being a promoter of a company registered in India (borrowing company). and ii. the transferee company or new company is allowed to issue shares to the shareholders of the transferor company i. which are under liquidation. and
. Remittance on winding up/liquidation of Companies AD Category – I banks have been allowed to remit winding up proceeds of companies in India. 10. Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for. Acquisition of shares under Scheme of Merger / Amalgamation Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/amalgamation. the Escrow account would be maintained with AD Category I bank or SEBI Authorised Depository Participant (in case of securities account). These facilities will be applicable to both. 1956.
HISTORY OF FDI IN INDIA. transfer shall be in accordance with the extant FDI Policy and directions issued by the Reserve Bank. in case of invocation of pledge. in case of invocation of pledge. Because of this attitude expressed in the 1948 resolution. c. This was natural on account of the previous exploitative role played by it in ‗draining away‘ resources from this country. iii) the Statutory Auditor has certified that the borrowing company will utilized / has utilized the proceeds of the ECB for the permitted end use/s only. though recognizing the role of private foreign investment in the country. At the time of independence. the Indian company has to follow the relevant SEBI disclosure norms. the attitude towards foreign capital was one of fear and suspicion. ii) in case of invocation of pledge. the prime minister had to give following assurances to the foreign
. and d. As a result. foreign capitalists got dissatisfied and as a result. loan is availed of only in result from an overseas bank. transfer should be in accordance with the FDI policy in vogue at the time of pledge. c) Non-resident holding shares of an Indian company. pledge of shares in favour of the lender (bank) would be subject to Section 19 of the Banking Regulation Act. submission of a declaration/ annual certificate from the statutory auditor of the investee company that the loan proceeds will be / have been utilized for the declared purpose. 1949. emphasized that its regulation was necessary in the national interest. loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly c. e. overseas creation investment should of not in any capital inflow into
d. The suspicion and hostility found expression in the Industrial Policy of 1948 which. and b. transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge.iii) and
borrower the said
Registration be subject
i) the period of such pledge shall be co-terminus with the maturity of the underlying ECB. the flow of imports of ca[ital goods got obstructed. b) Non-resident holding shares of an Indian company. India. subject to the following : a. submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be / have been utilized for the declared purpose. can pledge these shares in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor / non-resident promoter of the Indian company or its overseas group company. b. subject to the following conditions: a. can pledge these shares in favour of the AD bank in India to secure credit facilities being extended to the resident investee company for bonafide business purpose. India.
The government relaxed its policy concerning majority ownership in several cases and granted several tax concessions for foreign personnel. had opened up immense fields to foreign participation. he gave assurance that there would be ―no hard and fast rule in this matter. Only such restrictions would be imposed which also apply to the Indian enterprises. It was also stated that foreign capital should help in promoting experts or substituting imports.capitalists in 1949: 1. lipstick etc. 1950. toothpaste. 2. the government assured the foreign capitalists that they can remit the he foreign investments made by them in the country after January 1. were allowed by the government.
. The atmosphere of suspicion had not changed substantially. the trends towards liberalization grew slowly and gradually more strong and the role of foreign investment grew more and more important. in addition. Though the Prime Minister stated that the major interest in ownership and effective control of an undertaking should be in Indian hands. this provision was frequently violated as a number of foreign collaborations even in respect of cosmetics. The declared policy of the government was to discourage foreign capital in certain inessential‗ consumer goods and service industries. Gurantee of compensation.‖ By a declaration issued on June 2. Full opportunities to earn profits. The implication was that the government would not place any restrictions or impose any conditions on foreign enterprise which were not applicable to similar Indian enterprises. In addition. Substantial liberalization was announced in the New Industrial Policy declared by the government on 24th July 1991 and doors of several industries have been opened up for foreign investment. No discrimination between foreign and Indian capital.
Prior to this policy. The government o India will not differentiate between the foreign and Indian capital. Despite the above assurances. foreign capital was generally permitted only in the those industries where Indian capital was scarce and was not normally permitted in those industries which had received government protection or which are of basic and/or strategic importance to the country. they were also allowed to remit whatever investment of profit and taken place. foreign capital in the requisite quantity did now flow into India during the period of the First plan. If and when foreign enterprises are compulsorily acquired. 3. the policy statement of the Prime Minister issued in 1949 and continued practically unchanged in the 1956 Industrial Policy Resolution.
However. compensation will be paid on a fair and equitable basis as already announced in government‘s statement of policy. 1950. The foreign interests operating in India would be permitted to earn profits without subjecting them to undue controls.
.The government also laid down that in al those industries where foreign capital investment is allowed. the major interest in ownership and effective control should always be in Indian hands (this condition was also often relaxed).
The foreign capital investments and technical collaborations were required to be so regulated as to fit into the overall framework of the plans. vital importance was to be accorded to the training and employment of Indians in the quickest possible manner. In those industries where foreign technicians and managers were allowed to operate as Indians with requisite skills and experience were not available.