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Foreign direct investment, or FDI, is a type

of investment that involves the injection of
foreign funds into an enterprise that operates in
a different country of origin from the investor.

In a simple term FDI is “investment by a

company in a country other than that in which
the company is based”.

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FDI is permitted as under the following forms of
investments:

1. Through financial collaboration.

2. Through joint ventures and technical
collaborations.
3. Through capital markets via Euro issues.
4. Through private placement and preferential
allotments.

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 Person Resident outside India except of Pakistan.

 Entity incorporated outside except Pakistan &

Bangladesh.

 Person Resident of Bangladesh & entities

incorporated there can make investment in India
in form of shares and conv. Debentures with prior
approval of RBI.

SEBI registered Foreign Venture Capital Investor

(FVCI).
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 NRI citizen as well as citizen of Nepal and Bhutan on
repatriation basis.

 Erstwhile OBCs as incorporated non-resident entities.

SEBI registered FIIs or NRIs through a registered broker on

recognised Indian Stock Exchange.

An FII under the Portfolio Investment Scheme.

(An FII may invest under the Portfolio Investment Scheme

which limits the individual holding of an FII to 10% of the
capital of the company and the aggregate limit for FII to 24%
of the capital of the company.)

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FDI is not permitted under the following sectors:
 Arms & Ammunition.
 Atomic Energy.
 Railway Transport.
 Coal & lignite.
 Mining of
Iron, Manganese, chrome, gypsum, sulphur, gold
, diamonds, copper, zinc.
 Lottery Business.
 Gambling & Betting.
 Chit Fund & Nidhi Company.
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 Retail Trading (except single brand retailing).
 Trading in Transferable Development Rights.
 Activity /sector not opened for private sector
investment.
 Agriculture except few prescribed
 Plantation except tea plantation
 Real Estate Business except few prescribed
 Manufacture of Cigars, cigarettes etc.

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  Petroleum Sector
 Investing Companies in Infrastructure and
Service Sector
 Defense & Strategic Industries
 Atomic Minerals
 Print Media
 Broadcasting
 Postal Services
 Courier Services
 Establishment & operation of Satellite
 Development of Integrated Township
 Tea Sector
 Asset Reconstruction Company
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An Indian Company can arrange fund by issue of following
type of instruments:

 Equity Shares.
 Preference Shares ( Fully, Compulsory & Mandatory
Convertible).
 Debentures ( Fully, Compulsory & Mandatory
Convertible).
 Issue of Foreign Currency Convertible Bonds(FCCBs).
 Depository Receipts (DRs) ( American Depository
Receipts (ADRs) & Global Depository Receipts (GDRs)).
 Foreign Currency Exchangeable Bond (FCEBs).

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 Automatic Route Automatic Route

No Prior Regulatory Approval but only Foreign Investment Promotion Board

Post Facto Filings to RBI, through AD (FIPB)

 Allowed for Most sectors  Only for cases other than Automatic
Route and those mentioned in sectoral
 Limits : Sectoral caps/ stipulated sector policy
specific guidelines
 Inward remittances through proper  Applies to cases with existing venture/ tie
banking channels up in „same filed‟
 Pricing valuations prescribed
 Post facto filing with 30 days of fund  Applies to investment over 24% in SSI
receipt reserved items
 Filings within 30 days of share allotment
 Includes Technical Collaboration/ Brand
Name/ Royalty

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 Advantages  Disadvantages

 Inflow of equipment and  Crowding of local industry.

technology.
 Competitive advantage &  Conflicts of laws
innovation.  Loss of control.
 Financial resources for  Effect on natural
expansion. environment.
 Employment generation.
 Effect on local culture.
 Contribution to exports
growth.
 Improved consumer welfare
through reduced cost , wider
choice and improved quality.

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 The Penalty could be up to thrice the sum involved
where amount is quantifiable

If the Amount is not quantifiable , penalty up to Rs 2

lacs can be imposed

If contravention is of continuing nature, further

penalty up to Rs 5000 per day during which the
contravention continues can be imposed.

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