FDI IN INDIA

WHAT IS FDI ?
Foreign direct investment (FDI) in its classic
form is defined as a company from one country
making a physical investment into building a
factory in another country.

Include investments made to acquire lasting

interest in enterprises operating outside of the
economy of the investor.

Generally speaking FDI refers to capital inflows

from abroad that invest in the production capacity
of the economy and are
Usually preferred over other forms of external
finance because they are
Non-debt creating, non-volatile and their returns
depend on the performance of the projects
financed by the investors.
FDI also facilitates international trade and transfer
of knowledge, skills and technology.

The FDI relationship consists of a parent

enterprise and a foreign affiliate which together
form a multinational corporation (MNC).

In order to qualify as FDI the investment must

afford the parent enterprise control over its foreign
affiliate.

The IMF defines control in this case as owning

10% or more of the ordinary shares or voting
power of an incorporated firm or its equivalent for
an unincorporated firm.

Foreign Direct Investment (FDI) is permitted as

under the following forms of investments Through financial collaborations.
Through joint ventures and technical
collaborations.
Through capital markets via Euro issues.
Through private placements or preferential
allotments.

ENTRY STRATEGIES FOR

FOREIGN INVESTOR

Foreign Company has the following options to set up

business operations in India :

By incorporating a company under the Companies Act,

1956

A wholly owned subsidiary

Joint venture company - existing company or new

company with domestic partner

As an unincorporated entity

Liaison Office

Project Office

Branch Office

LIAISON OFFICE

Liaison office not permitted to undertake any

commercial/trading/industrial activity

The role of the liaison office is limited to

Collecting information about possible market

opportunities and providing information about
the company and its products to prospective
Indian customers

Acting as a communication channel between

the parent company and Indian Companies.

It can promote export/import from/to India and

also facilitate technical/financial collaboration
between parent company/Group companies
and companies in India

Approval for establishing a liaison office in

India is granted by RBI

PROJECT OFFICE

General permission to foreign entities to

establish Project / Site Offices (temporary in
nature)

Such offices cannot undertake or carry on any

activity other than the activity relating and
incidental to execution of the project

General permission also for remitting surplus

funds after completion of project on production
of the following documents:

BRANCH OFFICE

Foreign companies engaged in manufacturing

and trading activities abroad are allowed to
set up Branch Offices in India for specified
purposes

Branch Offices are established with the

approval of RBI

Permitted to remit outside India profit of the

branch

FOREIGN INVESTMENTS
THROUGH GDRs (Euro Issues)

Foreign Investment through GDRs is treated

as Foreign Direct Investment

CLEARANCE FROM FIPB

There is no restriction on the number of Euro-issue to be
floated by a company or a group of companies in the
financial year .
A company engaged in the manufacture of items covered
under Annex-III of the New Industrial Policy whose direct
foreign investment after a proposed Euro issue is likely to
exceed 51%
or
Which is implementing a project not contained in Annex-III,
would need to obtain prior FIPB clearance before seeking
final approval from Ministry of Finance.

USE OF GDRs
The proceeds of the GDRs can be used for Financing capital goods imports,
Capital expenditure including domestic
purchase/installation of plant,
Equipment and building and
Investment in software development,
Prepayment or scheduled repayment of earlier
external borrowings, and
Equity investment in JV/WOSs in India.

WHY FDI ?
1. Gain a foothold in a new geographic market.
2. Increase a firms global competitiveness and
positioning.
3. Fill gaps in a companys product lines in a
global industry.
4. Reduce costs in areas such as R&D,
production, and distribution.

FACTORS REQUIRED TO
ATTRACT FDI
Low cost BUT Qualified, Educated/Skilled Labor
Pool.
Long-term Market Potential OR Yields greater than
can be achieved Domestically.
Access to Natural Resources.
Geography
Stability of the economic and Political
Environment.

FORBIDDEN TERRITORIES
FDI is not permitted in the following industrial
sectors:
Arms and ammunition.
Atomic Energy.
Railway Transport.
Coal and lignite.

 Mining of iron, manganese, chrome, gypsum,

sulphur, gold, diamonds, copper, zinc.
Lottery Business
Agricultural or plantation activities
Housing and Real Estate Business (except
development of townships, construction of
residential/commercial premises, roads or
bridges to the extent specified in Notification
No. FEMA 136/2005-RB dated July 19, 2005).

F D I - APPROVAL
Foreign direct investments in India are
approved through three routes:

Automatic approval by RBI.

The FIPB Route.
CCFI Route

AUTOMATIC ROUTE
No need of Prior Approval From FIPB,RBI,GOI.
BUT
The investors are only required to notify the
Regional Office concerned of the Reserve Bank
of India within 30 days of receipt of inward
remittances.
AND
File the required documents along with form FCGPR with that Office within 30 days of issue of
shares to the non-resident investors.

AUTOMATIC ROUTE
The Reserve Bank of India accords automatic
approval within a period of two weeks (provided
certain parameters are met) to all proposals
involving:
foreign equity up to 50% in 3 categories relating
to mining activities .
foreign equity up to 51% in 48 specified
industries.
foreign equity up to 74% in 9 categories .

THE FIPB ROUTE

FDI in activities not covered under the
automatic route require prior government
approval.
Approvals of all such proposals including
composite
proposals
involving
foreign
investment/foreign technical collaboration is
granted on the recommendations of FIPB.

 Application for all FDI cases, except NRI

investments and 100% EOUs, should be
submitted to the FIPB Unit,DEA, Ministry of
Finance.
Application for NRI and 100% EOU cases should
be presented to SIA in Department of Industrial
Policy and Promotion (DIPP).
Application can be made in Form FC-IL. Plain
paper applications carrying all relevant details
are also accepted.

No fee is payable.

CCFI ROUTE
Investment proposals falling outside the
automatic route.
And
Having a project cost of Rs. 6,000 million or
more would require prior approval of Cabinet
Committee of Foreign Investment (CCFI).
Decision of CCFI usually conveyed in 8-10
weeks. Thereafter, filings have to be made by
the Indian company with the RBI.

MAJOR BODIES
CONSTITUTED FOR FDI
1991- Foreign Investment Promotion Board FIPB
1996- Foreign Investment Promotion Council
FIPC
1999- Foreign Investment Implementation
Authority FIIA
2004- Investment Commission
Secretariat for Industrial Assistance (SIA)

ADVANTAGES OF FDI
Increase in Domestic
unemployment

Employment/Drop

Investment in Needed Infrastructure.

Positive Influence on the Balance of Payments.
New Technology and Know How Transfer.
Increased Capital Investment.
Targeted Regional and Sectoral Development.

in

DISADVANTAGES OF FDI
Industrial Sector Dominance in the Domestic
Market.
Technological
Dependence
Technology Sources.

on

Foreign

Disturbance of Domestic Economic Plans in

Favor of FDI-Directed Activities.
Cultural Change Created by Ethnocentric
Staffing The Infusion of Foreign Culture , and
Foreign Business Practices

FDI
SECTORAL GUIDELINES

AIRPORTS
Foreign Investment up to 100% is allowed in
green field projects under automatic route
Foreign Direct Investment is allowed in
existing projects
- up to 74% under automatic route
- beyond 74% and up to 100% subject to
Government approval

TELECOM

FDI in basic and cellular, unified access

services, national/ international long distance ,
V-Sat, public mobile radio trunk services ,
global mobile personal communications
services
- Automatic up to 49%
- FIPB beyond 49% but up to 74%
Manufacture of telecom equipments Automatic up to 100%.

DOMESTIC AIRLINES

Up to 49% FDI is permitted in domestic

scheduled passenger airlines under the
automatic route.

100% investment by NRIs/OCBs

However, foreign airlines are not allowed to

have any direct or indirect equity participation

DRUGS & PHARMA

FDI up to 100% is permitted under the automatic
route for manufacture of drugs and
pharmaceuticals (The following is the current
position)
FDI up to 74% in the case of bulk drugs, their
intermediates Pharmaceuticals and formulations
would be covered under automatic route.
FDI above 74% for manufacture of bulk drugs will
be considered by the Government on case to case
basis

INSURANCE

FDI up to 26% allowed on the automatic route

However, license from the Insurance

Regulatory & Development Authority (IRDA)
has to be obtained

There is a proposal to increase this limit to

49%

MINING

Coal & Lignite mining for captive consumption

by power projects, and for iron & steel and
cement production - Automatic up to 100%

Mining covering exploration and mining of

diamonds and precious stones, gold, silver
and minerals - Automatic up to 100%

PETROLEUM

Petroleum and natural gas sector, other than

refining and including market study and
formulation; setting up infrastructure for
marketing - Automatic up to 100%

For petroleum refining activity 100% FDI is

permitted in Indian Private Companies under
automatic route and up to 26% FDI is
permitted in Public Sector Undertakings with
Government approval

PRIVATE SECTOR BANKING

Foreign Investment up to 74% is permitted from
all sources under the automatic route subject to
guidelines for setting up of branches/subsidiaries
of foreign banks issued by RBI from time to time.

RETAIL TRADING

Wholesale / cash & carry trading - Automatic

upto 100%

Trading for exports - Automatic upto 100%

Trading of items sourced from small scale

sector - 100% with Government approval

Single Brand product retailing - 51% with

Government approval

PRINT MEDIA

FDI upto 100% in publishing/printing scientific

& technical magazines, periodicals & journals

FDI upto 26% in publishing news papers and

periodicals dealing in news and current affairs.

All investments are subject to the guidelines

issued by the Ministry of Information and
Broadcasting

BROADCASTING

FDI permitted for setting up hardware facilities

such as up-linking, HUB, etc up to 49% under
Government approval route

FDI permitted in Cable Network up to 49%

under Government approval route

Foreign Investment (FDI/FII) up to 49% allowed

under Government approval route in Direct to
Home Service Providers. FDI limited to 20%

FDI permitted in FM radio up to 20% under

Government approval route

INFRASTRUCTURE

100% FDI is permitted for the following activities:

Electricity Generation (except Atomic energy)

Electricity Transmission
Electricity Distribution
Mass Rapid Transport System
Roads & Highways
Toll Roads
Vehicular Bridges
Ports & Harbors
Hotel & Tourism

SPECIAL INVESTMENT
AVENUES

ELECTRONIC HARDWARE AND

SOFTWARE TECHNOLOGY
PARKS
100 percent foreign investment under
automatic route is allowed in electronics and
software industries set up exclusively for
exports.
Eligible to purchase, free of customs duty/
excise duty, their entire requirement of capital
goods, raw materials and components, spares
and consumables, office equipments etc.

EXPORT ORIENTED UNITS

100% foreign equity (is permitted through
Automatic Route similar to SEZ units) in Export
Oriented Units (EOUs) even if it is
manufacturing an item reserved for the small
scale sector
EOUs enjoy several privileges like duty
exemption on import and domestic procurement
and also Income tax exemption till

Project with minimum investment of Rs.10

million and above in building, plant and
machinery qualify to be considered under EOU
scheme.

Not applicable in case of certain industries

like
agriculture,
floriculture,
information
technology, services, hand made jewellery, etc.

Exemption of Industrial Licensing for

manufacture of items reserved for SSI sectors.

SPECIAL ECONOMIC ZONE

Special Economic Zone (SEZ) is deemed to

be foreign territory for the purposes of trade
operations and duties and tariffs

No cap on Foreign investment

for
manufacturing items reserved for SSI as well
as exemption from industrial licensing

An SEZ unit can be set up to undertake trading

activities in addition to manufacturing of goods
and rendering of services

ILLUSTRATIVE LIST OF
SECTORS UNDER
AUTOMATIC ROUTE FOR
FDI UPTO 100%

Most manufacturing activities

Drugs and pharmaceuticals
Food processing
Electronic hardware
Software development
Film industry
Advertising
Hospitals
Pollution control and management
Management consultancy
Computer related Services
Research and Development Services
Construction and related Engineering Services
Pollution Control and Management Services
Health related & Social Services
Travel related services

ADVANTAGES OF INDIA

Stable democratic environment over 60 years of

independence

Large and growing market

World class scientific, technical and managerial

manpower

Cost-effective and highly skilled labor

Abundance of natural resources

Well-established legal system with independent

judiciary.

Developed banking system and vibrant capital

market .

India among the top three investment hot spots

and one of the fastest growing economies in the
world.

Large English speaking population

THANK YOU