FOREIGN DIRECT INVESTMENT IN INDIA

A Seminar report submitted in Partial fulfillment of the requirement for

the degree
Of

MASTERS OF BUSINESS ADMINISTRATION

(2019-2021)

SUBMITTED TO: SUBMITTED BY:

Dr. Shavina Goyal Devesh Bhatt

M.B.A- 1st Year(A)

Roll No- 19421021

SCHOOL OF MANAGEMENT STUDIES

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 CONTENTS-

TOPICS PAGE NO.

Introduction To FDI In India 3

Types Of FDI 4

Methods of FDI 5

History of FDI In India 7

FDI Policy In India 10

FDI Policy In Permitted Sector 11-24

Recent Trends In FDI In India 24-29

Advantages Of FDI 30

FPI In India 32-40

Refrence 41

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 FOREIGN DIRECT INVESTMENT IN INDIA

INTRODUCTION TO FDI-

Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an entity
that is not a resident of the host country. Typically, the investment is over a long duration of time
and the idea is to make an initial investment and then subsequently keep investing to leverage the
host country’s advantages which could be in the form of access to better (and cheaper) resources,
access to a consumer market or access to talent specific to the host country - which results in the
enhancement of efficiency. This long-term relationship benefits both the investor as well as the
host country. The investor benefits in getting higher returns for his investment than he would
have gotten for the same investment in his country and the host country can benefit by the
increased know how or technology transfer to its workers, increased pressure on its domestic
industry to compete with the foreign entity thus making the industry improve as a whole or by
having a demonstration effect on other entities thinking about investing in the host country.

Types of FDI’s:-

By direction

Outward FDI:

An outward-bound FDI is backed by the subject government against all types of associated risks.
This form of FDI is to tax incentives as well as disincentives of various forms. Risk coverage
provided to the domestic industries and subsidies granted to the local firms stand in the way of
outward FDIs, which are also known as 'direct investments abroad.

Inward FDI:

Different economic factors encourage inward FDIs. These include interest loans, tax breaks,
subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of
FDIs include necessities of differential performance and limitations related with ownership
patterns.

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Horizontal FDI- Investment in the same industry abroad as a firm operates in at home.

Vertical FDI-

 Backward Vertical FDI: Where an industry abroad provides inputs for a firm's domestic
production process.
 Forward Vertical FDI: Where an industry abroad sells the outputs of a firm's domestic
production.

BY TARGET

Greenfield investment: - Direct investment in new facilities or the expansion of existing

facilities. Greenfield investments are the primary target of a host nation’s promotional efforts
because they create new production capacity and jobs, transfer technology and know-how, and
can lead to linkages to the global marketplace. The Organization for International Investment
cites the benefits of Greenfield investment (or in sourcing) for regional and national economies
to include increased employment (often at higher wages than domestic firms); investments in
research and development; and additional capital investments. Disadvantage of Greenfield
investments include the loss of market share for competing domestic firms. Another criticism of
Greenfield investment is that profits are perceived to bypass local economies, and instead flow
back entirely to the multinational's home economy. Critics contrast this to local industries whose

profits are seen to flow back entirely into the domestic economy.

Mergers and Acquisitions

Transfers of existing assets from local firms to foreign firm takes place; the primary type of FDI.
Cross-border mergers occur when the assets and operation of firms from different countries are
combined to establish a new legal entity. Cross-border acquisitions occur when the control of
assets and operations is transferred from a local to a foreign company, with the local company
becoming an affiliate of the foreign company. Nevertheless, mergers and acquisitions are a
significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the
United States. Mergers are the most common way for multinationals to do FDI.

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BY MOTIVE

FDI can also be categorized based on the motive behind the investment from the perspective of
the investing firm:

•Resource-Seeking

Investments which seek to acquire factors of production those are more efficient than those
obtainable in the home economy of the firm. In some cases, these resources may not be available
in the home economy at all. For example seeking natural resources in the Middle East and
Africa, or cheap labour in Southeast Asia and Eastern Europe.

•Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing ones.FDI of
this kind may also be employed as defensive strategy; it is argued that businesses are more likely
to be pushed towards this type of investment out of fear of losing a market rather than
discovering a new one. This type of FDI can be characterized by the foreign Mergers and
Acquisitions in the 1980’s Accounting, Advertising and Law firms.

•Efficiency-Seeking

Investments which firms hope will increase their efficiency by exploiting the benefits of
economies of scale and scope, and also those of common ownership. It is suggested that this type
of FDI comes after either resource or market seeking investments have been realized, with the
expectation that it further increases the profitability of the firm.

Methods of Foreign Direct Investments

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an
economy through any of the following methods:

•By incorporating a wholly owned subsidiary or company

• By acquiring shares in an associated enterprise

•Through a merger or an acquisition of an unrelated enterprise

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•Participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

 Low corporate tax and income tax rates

 Tax holidays
 Preferential tariffs
 Special economic zones
 Investment financial subsidies
 Soft loan or loan guarantees
 Free land or land subsidies
 Relocation & expatriation subsidies
 Job training & employment subsidies
 Infrastructure subsidies
 R&D support

HISTORY OF FDI IN INDIA

India intent to open its markets to foreign investment can be traced back to the economic reforms
adopted during two prime periods- pre- independence and post independence.

Pre- independence, India was the supplier of foodstuff and raw materials to the industrialised
economies of the world and was the exporter of finished products- the economy lacked the skill
and means to convert raw materials to finished products. Post independence with the advent of
economic planning and reforms in 1951, the traditional role played changes and there was
remarkable economic growth and development. International trade grew with the establishment
of the WTO. India is now a part of the global economy. Every sector of the Indian economy is
now linked with the world outside either through direct involvement in international trade or
through direct linkages with export and import.

Development pattern during the 1950-1980 periods was characterised by strong centralised
planning, government ownership of basic and key industries, excessive regulation and control of

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private enterprise, trade protectionism through tariff and non-tariff barriers and a cautious and
selective approach towards foreign capital. It was a quota, permit, licence regime which was
guided and controlled by a bureaucracy trained in colonial style. This inward thinking, import
substitution strategy of economic development and growth was widely questioned in the 1980’s.
India’s economic policy makers started realising the drawbacks of this strategy which inhibited
competitiveness and efficiency and produced a much lower growth rate that was expected.

Consequently economic reforms were introduced

initially on a moderate scale and controls on industries were substantially reduced by 1985
industrial policy. This set the trend for more innovative economic reforms and they got a boost
with the announcement of the landmark economic reforms in 1991. After nearly five decades of
insulation from world markets, state controls and slow growth, India in 1991 embarked on an
accelerated process of liberalization. The 1991 reforms ensured that the way for India to progress
will be through globalization, privatisation, and liberalisation. In this new regime, the
government is now assuming the role of a promoter, facilitator and catalyst agent instead of the
regulator and

India has a number of advantages which make it an attractive market for foreign capital namely,
political stability in democratic polity, steady and sustained economic growth and development,
significantly huge domestic market, access to skilled and technical manpower at competitive
rates, fairly well developed infrastructure. FDI has attained the status of being of global
importance because of its beneficial use as an instrument for global economic integration.

Pre-Independence Reforms:
Under the British colonial rule, the Indian economy suffered a major set-back. An economy with
rich natural resources was left plundered and exploited to the hilt under the English regime. India
is originally an agrarian economy. India’s cottage industries and trade were abused and exploited
as means to pave the way for European manufactured goods. Under the British rule the economy
stagnated and on the eve of independence India was left with a poor economy and the textile
industry as the only life support of the industrial economy.

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Post-Independence Reforms:
India’s struggle post independence has been an excruciating financial battle with a slow
economic growth and development which were largely due to the political climate and impact of
the economic reforms. The country began it transformation from a native agrarian to industrial to
commercial and open economy in the post independence era. India in the post independence era
followed what can be best called as a ‘trial and error’ path. During the post independence era, the
Indian Economy geared up in favour of central planning and resource allocation. The
government tailored policies that focussed a great deal on achieving overall economic self-
reliance in each state and at the same time exploit its natural resource. In order to augment trade
and investments, the government sought to play the role of custodian and trustee by intervening
in the practice of crucial sectors such as aviation, telecommunication, banking, energy mainly
electricity, petrol and gas.

The policy of central planning adopted by the government sought to ensure that the government
laid down marked goals to be achieved by the economy thereby establishing a regime of checks
and balances. The government also encouraged self sufficiency with the intent to encourage the
domestic industries and enterprises, thereby reducing the dependence on foreign trade. Although,
initially these policies were extremely successful as the economy did have a steady economic
growth and development, they weren’t sustained. In the early, 1970’s, India had achieved self
sufficiency in food production. During the 1970’s, the government still continued to retain and
wield a significant spectre of control over key

In the Early 1980’s-Macro-Economic Policies were conservative. Government control of

industries continued. There was marginal economic growth & development courtesy of the
development projects funded by foreign loans. The financial crisis of 1991 compelled drafting
and implementation of economic reforms. The government approached the World Bank and the
IMF for funding. In keeping with their policies there was expectation of devaluation of the rupee.
This lead to a lack of confidence in the investors and foreign exchange reserves declined. There
was a withdrawal of loans by Non Resident Indians.

Economic reforms of 1991:

India has been having a robust economic growth since 1991 when the government of India
decided to reverse its socially inspired policy of a retaining a larger public sector with

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comprehensive controls on the private sector and eventually treaded on the path of liberalization,
privatisation and globalisation.

During early 1991, the government realised that the sole path to India enjoying any status on the
global map was by only reducing the intensity of government control and progressively
retreating from any sort of intervention in the economy – thereby promoting free market and a
capitalist regime which will ensure the entry of foreign players in the market leading to
progressive encouragement of competition and efficiency in the private sector. In this process,
the government reduced its control and stake in nationalized and state owned industries and
enterprises, while simultaneously lowered and deescalated the import tariffs. All of the reforms
addressed macroeconomic policies and affected balance of payments. There was fiscal
consolidation of the central and state governments which lead to the country viewing its finances
as a whole. There were limited tax reforms which favoured industrial growth. There was a
removal of controls on industrial investments and imports, reduction in import tariffs. All of this
created a favourable environment for foreign capital investment. As a result of economic reforms
of 1991, trade increased by leaps and bounds. India has become an attractive destination for
foreign direct and portfolio investment.

Government Approvals for Foreign Companies Doing Business in India

Government Approvals for Foreign Companies Doing Business in India or Investment Routes
for Investing in India, Entry Strategies for Foreign Investors India's foreign trade policy has been
formulated with a view to invite and encourage FDI in India. The Reserve Bank of India has
prescribed the administrative and compliance aspects of FDI. A foreign company planning to set
up business operations in India has the following options:

1. Automatic approval by RBI:

The Reserve Bank of India accords automatic approval within a period of two weeks (subject to
compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74%
and 100% is allowed depending on the category of industries and the sectoral caps applicable.
The lists are comprehensive and cover most industries of interest to foreign companies.
Investments in high-priority industries or for trading companies primarily engaged in exporting
are given almost automatic approval by the RBI.

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2. The FIPB Route – Processing of non-automatic approval cases:
FIPB stands for Foreign Investment Promotion Board which approves all other cases where the
parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its
approach is liberal for all sectors and all types of proposals, and rejections are few. It is not
necessary for foreign investors to have a local partner, even when the foreign investor wishes to
hold less than the entire equity of the company. The portion of the equity not proposed to be held
by the foreign investor can be offered to the public.

FOREIGN DIRECT INVESTMENT POLICY IN INDIA

FDI is prohibited in sectors like

(a) Retail Trading (except single brand product retailing)

(b) Lottery Business including Government /private lottery, online lotteries, etc.

(c) Gambling and Betting including casinos etc.

(d) 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, cheroots, cigarillos and cigarettes, of tobacco or of tobacco

substitutes

(i) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway
Transport (other than Mass Rapid Transport Systems).

Foreign technology collaboration in any form including licensing for franchise, trademark, brand
name, management contract is also prohibited for Lottery Business and Gambling and Betting
activities.

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PERMITTED SECTORS
In the following sectors/activities, FDI up to the limit indicated against each sector/activity is
allowed, subject to applicable laws/ regulations; security and other conditionalities. In
sectors/activities not listed below, FDI is permitted upto 100% on the automatic route, subject to
applicable laws/ regulations; security and other conditionalities.

Wherever there is a requirement of minimum capitalization, it shall include share premium

received along with the face value of the share, only when it is received by the company upon
issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue
transfer of shares beyond the issue price of the share, cannot be taken into account while
calculating minimum capitalization requirement;

FDI policies in permitted sectors in India

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 % of FDI
S.No Sector/Activity Cap/Equity Entry Route

AGRICULTURE

1 Agriculture & Animal 100% Automatic

Husbandry

a) Floriculture, Horticulture,
Apiculture and Cultivation of
Vegetables & Mushrooms under
controlled conditions.

b) Development and production of

Seeds and planting material.

c) Animal Husbandry,
Pisciculture, Aquaculture under
controlled conditions and

d) services related to agro and

allied sectors
Note- Besides the above, FDI is
not allowed in any other
agricultural sector/activity

2 Tea Plantation    

Tea sector including tea 100% Government

plantations.
Note- Besides the above, FDI is
not allowed in any other
  plantation sector/activity

Other conditions: 1) Compulsory divestment of 26% equity of the

company in favour of an Indian partner/Indian public within a period of
  5 years

3 Mining 100% Automatic

a) Mining and Exploration of

metal and non metal ores
including diamond, gold, silver
but excluding titanium bearing 12
minerals and its ores; subject to
Mines and Minerals
RECENT TRENDS IN FDI IN INDIA:-

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ADVANTAGES OF FDI IN INDIA
1. Increased Employment and Economic Growth
Creation of jobs is the most obvious advantage of FDI. It is also one of the most important
reasons why a nation, especially a developing one, looks to attract FDI. Increased FDI boosts the
manufacturing as well as the services sector. This in turn creates jobs, and helps reduce
unemployment among the educated youth - as well as skilled and unskilled labour - in the
country. Increased employment translates to increased incomes, and equips the population with
enhanced buying power. This boosts the economy of the country.

2. Human Resource Development

This is one of the less obvious advantages of FDI. Hence, it is often understated. Human Capital
refers to the knowledge and competence of the workforce. Skills gained and enhanced through
training and experience boost the education and human capital quotient of the country. Once
developed, human capital is mobile. It can train human resources in other companies, thereby
creating a ripple effect.  

3. Development of Backward Areas

This is one of the most crucial benefits of FDI for a developing country. FDI enables the
transformation of backward areas in a country into industrial centres. This in turn provides a
boost to the social economy of the area. The Hyundai unit at Sriperumbudur, Tamil Nadu in
India exemplifies this process. 

4. Provision of Finance & Technology

Recipient businesses get access to latest financing tools, technologies and operational practices
from across the world. Over time, the introduction of newer, enhanced technologies and
processes results in their diffusion into the local economy, resulting in enhanced efficiency and
effectiveness of the industry.

5. Increase in Exports

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Not all goods produced through FDI are meant for domestic consumption. Many of these
products have global markets. The creation of 100% Export Oriented Units and Economic Zones
have further assisted FDI investors in boosting their exports from other countries.

6. Exchange Rate Stability

The constant flow of FDI into a country translates into a continuous flow of foreign exchange.
This helps the country’s Central Bank maintain a comfortable reserve of foreign exchange. This
in turn ensures stable exchange rates.

7. Stimulation of Economic Development

This is another very important advantage of FDI. FDI is a source of external capital and higher
revenues for a country. When factories are constructed, at least some local labour, materials and
equipment are utilised. Once the construction is complete, the factory will employ some local
employees and further use local materials and services. The people who are employed by such
factories thus have more money to spend. This creates more jobs. 
These factories will also create additional tax revenue for the Government, that can be infused
into creating and improving physical and financial infrastructure. 

8. Improved Capital Flow

Inflow of capital is particularly beneficial for countries with limited domestic resources, as well
as for nations with restricted opportunities to raise funds in global capital markets.

9. Creation of a Competitive Market

By facilitating the entry of foreign organisations into the domestic marketplace, FDI helps create
a competitive environment, as well as break domestic monopolies. A healthy competitive
environment pushes firms to continuously enhance their processes and product offerings, thereby
fostering innovation. Consumers also gain access to a wider range of competitively priced
products.

For a multinational corporation, It means to access new consumption and production markets,
and thereby expand its influence and business operations. It can gain access not only to limited

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resources such as fossil fuels and precious metals, but also skilled and unskilled labour,
management expertise and technologies. FDI also enables an organisation to lower its cost of
production- by accessing cheaper resources, or going directly to the source of raw materials
rather than buying them from third parties. Often, there are various tax advantages that accrue to
a company undertaking FDI.

FOREIGN PORTFOLIO INVESTMENTS IN INDIA

INTRODUCTION
In economics, foreign portfolio investment is the entry of funds into a country where foreigners
deposit money in a country's bank or make purchases in the country’s stock and bond markets,
sometimes for speculation.

For example: Purchase of stocks by Ram (Indian) in Barcelona.

FPI does not provide the investor with direct ownership of financial assets, and thus no direct
management of a company.

It is relatively liquid, depending on the volatility of the market invested in.

It involves short-term positions in financial assets of international markets, and is similar to

investing in domestic securities.

Thus, in short, FPI allows investors to take part in the profitability of firms operating abroad
without having to directly manage their operations. This is a similar concept to trading
domestically: most investors do not have the capital or expertise required to personally run the
firms that they invest in.

EMERGENCE OF FPI IN INDIA

 In 1992, India opened up its economy and allowed foreign portfolio investment in its
domestic stock market
 Since then ,FPI has emerged as a major source of private capital inflow in this country

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  India is more dependent upon FPI than FDI as a source of foreign investment.
 During 1992 -2005 more than 50% of foreign investment in India came from FPI.

FOREIGN PORTFOLIO INVESTMENTS

Foreign
Portfolio
Investment

FII GDRs/ADRs Offshore Funds

FII: Investments made by foreign institutions like pension funds, foreign mutual funds etc. in the
financial markets.

GDRs and ADRs: They are instruments which signify the purchase of share of Indian
companies by foreign investors or American investors respectively

Off-shore funds: The schemes of mutual funds that are launched in the foreign country

FOREIGN PORTFOLIO INVESTMENTS RULES AND

REGULATIONS (IN INDIA)

In order to harmonize the various available routes for foreign portfolio investment in India, the
Indian securities market regulator i.e. Securities Exchange Board of India ("SEBI") has
introduced a new class of foreign investors in India known as the Foreign Portfolio Investors
("FPIs"). This class has been formed by merging the existing classes of investors through which
portfolio investments were previously made in India namely

1. Foreign Institutional Investors ("FIIs"),

THE ELIGIBILITY CRITERIA FOR APPLICANT SEEKING FII REGISTRATION

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  Applicant should have track record, professional competence, financial soundness,
experience, general reputation of fairness and integrity;

 The applicant should be regulated by an appropriate foreign regulatory authority in the

same capacity/category where registration is sought from SEBI.

 Registration with authorities, which are responsible for incorporation, is not adequate to
qualify as Foreign Institutional Investor.

 The applicant is required to have the permission under the provisions of the Foreign
Exchange Management Act, 1999 from the Reserve Bank of India.

 Applicant must be legally permitted to invest in securities outside the country or its in-
corporation / establishment.

 The applicant must be a "fit and proper" person.

 The applicant has to appoint a local custodian and enter into an agreement with the
custodian. Besides it also has to appoint a designated bank to route its transactions.

 Payment of registration fee of US $ 5,000.001

REGULATIONS REGARDING PORTFOLIO INVESTMENTS BY FII’S

(Acc. To Notification No. FEMA 20 /2000-RB dated 3rd May 2000 )

 RBI has granted permission to SEBI registered (FIIs) invest in India under Portfolio
investment scheme.

 Investment by individual FIIs cannot exceed 10% of paid up capital of the total paid-up
equity capital or 10% (ten per cent) of the paid-up value of each series of convertible
debentures issued by an Indian company.

 All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid
up equity capital or paid up value of each series of convertible debentures.2

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PORTFOLIO INVESTMENT SCHEMES

 Non Resident Indians being Indian citizens as also Foreign citizens of Indian origin [ PIO
] can purchase shares and /or debentures of Indian companies listed on a recognised
stock-exchange through a member thereof under the "Portfolio Investment Scheme". This
facility is available both on repatriation as also on non-repatriation basis.
 By virtue of these Regulations, only individual NRIs are permitted to invest in shares and
/ or convertible debentures of Indian company carrying on almost any kind of business in
India barring a few cases.
 Earlier, an Overseas Corporate Body (OCB) was also permitted to make portfolio
investments but the Reserve Bank of India has, since , prohibited OCBs to make any
further investments under the said Scheme. 

 Eligible investor: An NRI Individual

2. Qualified Foreign Investors ("QFIs")

QFIs shall include individuals, groups or associations, Resident in a country that is a member of
Financial Action Task Force (FATF) or a country that is a member of a group which is a member
of FATF and resident in a country that is a signatory to IOSCO’s MMOU (Appendix A
Signatories) or a signatory of a bilateral MOU with Securities and Exchange Board of India
(SEBI). QFIs do not include FIIs/Sub accounts/ Foreign Venture Capital Investor3

3. Sub-accounts of the FIIs.

Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or
portfolios established or incorporated outside India on whose behalf investments are proposed to
be made in India by a FII.4

Previously portfolio investment was governed under different laws i.e. the SEBI (Foreign
Institutional Investors) Regulations, 1995 for FIIs and their sub-accounts and SEBI circulars

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dated August 09, 2011 and January 13, 2012 governing QFIs, which are now repealed under the
SEBI (Foreign Portfolio Investors) Regulations ("FPI Regulations") that govern FPIs.

SEBI has, thus, intended to simplify the overall operation of making foreign portfolio
investments in India. To govern FPIs, SEBI introduced the FPI Regulations by a notification
dated January 7, 2014.

FOREIGN PORTFOLIO INVESTORS

REGISTRATION BASED ON CLASSIFICATION

Under FPI Regulation 5 the following three categories of FPIs have been created on the basis of
associated risks -

(a). Category I - Includes foreign investors related with the government such as central banks,
government agencies, sovereign wealth funds.

(b). Category II - Includes regulated entities like banks, assets management companies,
investment managers etc. and broad-based funds, which may be regulated such as mutual funds,
investment trusts etc. or non-regulated.

(c). Category III - Includes investors, which are not covered under categories I and II.

 The registration requirements are progressively difficult depending on the category under
which the investor falls with easiest formalities for category I investors.

 Unlike the previous situation wherein the QFIs, FIIs and their sub-accounts were required
to register with SEBI for 1-5 years initially to operate, FPIs registration is carried out by
SEBI designated depository participants ("DDPs") on permanent basis unless suspended
or cancelled.

REGISTERED FOREIGN PORTFOLIO INVESTOR (“RFPIs”)

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  A Registered Foreign Portfolio Investor (RFPI) means a person registered in
accordance with the provisions of Securities Exchange Board of India (SEBI)
(Foreign Portfolio Investors) Regulations, 2014, as amended from time to time.

 A registered Foreign Portfolio Investor (RFPI) may purchase shares or convertible

debentures of an Indian company under the Foreign Portfolio Investment (FPI)
Scheme subject to the terms and conditions specified in Schedule 2A and the limits
and margin requirements prescribed by RBI/ SEBI as well as the stipulations
regarding collateral securities as specified by the Reserve Bank from time to time.

 RFPI may sell shares or convertible debentures so acquired

 in open offer  in accordance with the SEBI Regulations, 2011 (Substantial
Acquisition of Shares and Takeovers); or
 in an open offer in accordance with the SEBI Regulations, 2009 (Delisting of
Equity shares); or
 through buyback of shares by a listed Indian company in accordance with the
SEBI Regulations, 1998 (Buy-back of securities)5

 RFPI may also acquire shares or convertible debentures

in any bid for, or acquisition of, securities in response to an offer for disinvestment of
shares made by the Central Government or any State Government;
or
in any transaction in securities pursuant to an agreement entered into with merchant
banker in the process of market making or subscribing to unsubscribed portion of the
issue in accordance with Securities and Exchange Board of India Regulations, 2009
(Issue of Capital and Disclosure Requirements).

 The individual and aggregate investment limits for the RFPIs shall be below 10% (per
cent) or 24% (per cent) respectively of the total paid-up equity capital or 10% (per
cent) or 24% (per cent) respectively of the paid-up value of each series of convertible
debentures issued by an Indian company.
5

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  RFPI shall be eligible to open a Special Non-Resident Rupee (SNRR) account and a
foreign currency account with Authorized Dealer bank and to transfer sums from
foreign currency account to SNRR account at the prevailing market rate for making
genuine investments in securities. The Authorized Dealer bank may transfer
repatriable proceeds (after payment of applicable taxes) from SNRR account to
foreign currency account ;

PROCEDURE TO BE FOLLOWED BY INVESTORS WHILE INVESTING

 REGISTERATION PROCESS

1. Apply to a DDP (designated depository participant) for FPI registration under one
of the 3 categories

2. Documents to be submitted with FPI application:

a. Duly filled and signed Form-A

b. SEBI registration fee & conversion fee (if applicable)

c. Declarations and undertakings of updated material changes, non opaque

structure etc.

d. Obtaining registration certificate, formation certificate etc.

e. The bank applicant has to forward the details to SEBI. DDP communicates
the approval/rejection of application within 30 days to the applicant and to
SEBI.

 APPOINTING A COMPLIANCE OFFICER: the same needs to be appointed to comply

with the FPI regulations

 APPOINT A CPA: a CPA needs to be appointed in India so as to meet the PAN card and
tax related obligations

 Foreign Portfolio Investors have to be given the same tax status as that of an FII

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INSTRUMENTS AVAILABLE FOR INVESTMENT AND PRESCRIBED LIMIT

 FPIs can invest in instruments-

 Listed or to be listed shares,

 Government securities,
 Units of mutual funds or collective investment schemes,
 Treasury bills,
 Corporate debts.
 Indian depository receipts.

 For foreign corporates and foreign individuals, the investment limit now stands increased
from 5 to 10% of a company's total issued capital. Also, investment in equity shares
which was previously permissible up to 10% of a company's total issued capital is now
restricted to below 10%.

 FPI Regulation 22 has brought a major change relating to issuance of Offshore Derivative
Instruments ("ODIs"). ODIs are significant because they allow foreign investors, such as
high net worth individuals and hedge funds based overseas, to invest in the Indian market
without being registered with the SEBI. Now, only FPIs, which are regulated and also fall
under Category I or II can issue ODIs.

 With the ease in registration requirements and clarity on taxation being brought in for
FPIs, the new FPI regime is likely to boost portfolio investments in India by foreign
investors. Granting of permanent registrations to FPIs shall not require them to approach
the DDPs time and again for the same, thus, providing them a more supportive
environment for investment in India. Meanwhile, with the delegation of work to DDPs,
SEBI can now focus on more important issues at hand requiring its attention and perform
its regulatory role more effectively.

GDR/ADR

 Stands for American Depository Receipts/Global Depository Receipts

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  ADR/GDR provides a path for Indian companies to get listed in foreign stock exchanges
indirectly.

 If an Indian company wants to get listed in foreign stock exchange indirectly then it have
to deposit its shares and securities in a bank of foreign country whose stock exchange the
company wants to list in.

 The receipts are issued by the bank against these securities which are then sold to the
residents of that country.

 The receipts are also listed in the stock exchange of that country which are available for
buy and sell on the stock exchange like other instruments.

 The prices of these receipts are also determined by supply and demands in the market.

 The receipts traded in American market are termed as American Depository Receipts and
the receipts traded in any other country (except America) are called as Global Depository
Receipts.

OFFSHORE FUNDS

• An offshore fund refers to a mutual fund that invests its assets abroad and not in
domicile country.

• Offshore funds offer investors access to international markets and major

exchanges.

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 REFRENCES

1-) Suneja Kiritika (2019). FDI Rate in india. Retrieved From

http://www.Economictimes.com

2-) Sankar Shib (2019). FDI and Economic Growth Retrieved From
http://journals.sagepub.com

3-) Bhasin Niti (2012). FDI In india:Policies,Conditions (3rd ed.) . INDIA.

4-) Press Trust of India.(2017). FPI in india Retrieved from http://ibef.org

5-) Press Release.(2019). Data Retrieved from http://rbi.org.in

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