Recent Developments On FDI in India: Barun Kumar
Recent Developments On FDI in India: Barun Kumar
Recent Developments On FDI in India: Barun Kumar
Barun kumar
PGDM 2011-13 .
Agenda
Foreign Investment in India- Schematic Representation FDI Policy & options for Foreign Entity/Person in India Prohibited Sectors Sector/Activity: % of FDI Cap/Equity: Automatic Route / Approval Route Recent Changes/Developments: FIIs & NRIs FVCI Qualified Foreign Investor (QFI) Limited Liability Partnerships (LLPs) Delegation of Compounding Powers Import of capital goods; Pre-operative/pre-incorporation expenses Credit of sale proceeds to NRE / FCNR(B) accounts FIIs in Commodity Exchanges Operating lease outside Non Banking Finance Companies (NBFC) Single Brand Retail Pharmaceutical Sector Liaison / Branch Office in India Transfer of capital instruments RBI approval not required Escrow Account Pledge of shares of company incorporated in India e-filing for FIPB approval
Automatic Route
Govt. Route/
FIPB/ CCEA
FIIs
NRIs, PIOs
FIIs/Q FIs
NRIs, PIO
NRIs, PIO
VCF, IVCUs
FEM (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2000: FEMA 20
Sch. 1 Foreign Direct Investment (FDI) Scheme; Issue of ADR, GDR and IDR. Registered FIIs under Portfolio Investment Scheme NRIs on Repatriation and/or Non- Repatriation Basis under Portfolio Investment Scheme NRIs non repatriation basis A non-resident Indian or a registered FII or a Foreign Central Bank may purchase securities, other than shares or convertible debentures of an Indian company. Qualified Foreign Investors (QFIs) A Foreign Venture Capital Investor in a Venture Capital Fund or an Indian Venture Capital Undertaking
Sch. 2
Sch. 3
Sch. 4
Sch. 5
Sch. 6
FDI Policy
FDI means investment by non-resident entity/person resident outside India in the capital of the Indian company under Schedule 1 of FEMA 20
Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India (DIPP) issues Circular on Consolidated FDI Policy which was last updated on April 10, 2012 Master Circular on Foreign Investments in India Dated July 01, 2011 Master Circular on Updated as on January 20, 2012 Compounding of Contraventions, & External Commercial Borrowings and Trade Credits In case of any conflict between FDI Circular and FEMA Regulations, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P.Dir. (Series) circulars
Subject to prior permission of RBI in consultation with the Government of India. Generally not permitted by FIPB Subject to prior approval of RBI in consultation with the Government of India. Generally not permitted by FIPB
Prohibited Sectors
FDI is prohibited in: (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 (other than Construction Development: Townships, Housing, Built-up infrastructure) (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) Agriculture sector other than Floriculture, Horticulture, Apiculture, Cultivation of vegetables & Mushrooms; Development & production of seeds & planting material; Services related to agro & allied sectors Plantation sector other than Tea sector including tea plantation. Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities
Manufacture of items reserved for production in Micro and Small Enterprises (MSEs as defined under Micro, Small And Medium Enterprises Development Act, 2006): Any industrial undertaking which is not a MSE, but manufactures items reserved for the MSE sector where foreign investment is more than 24% in the capital Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities: (100% - Government) Defence: (26% - Government) Pharmaceuticals: Existing companies: 100% - Government Terrestrial Broadcasting FM (FM Radio): (20% -FDI, NRI & PIO Investment and portfolio investment Government) Cable Network subject to Cable Television Network Rules, 1994: (49% - FDI, NRI & PIO investment and portfolio investment Government) Directto-Home: (49% - FDI, NRI & PIO investment and portfolio investment - Within this limit, FDI component not to exceed 20% - Government) Setting up hardware facilities such as up-linking, HUB etc. (1) Setting up of Up-linking HUB/ Teleports: (49% (FDI & FII) Government) (2) Up-linking a Non-News & Current Affairs TV Channel: (100% - Government) (3) Up-linking a News & Current Affairs TV Channel: (26% (FDI & FII) Government) Print Media: Publishing of Newspaper and periodicals dealing with news and current affairs: (26% (FDI and investment by NRIs/PIOs/FII) Government) Publication of Indian editions of foreign magazines dealing with news and current affairs: (26% (FDI and investment by NRIs/PIOs/FII) Government)
Sector/Activity: % of FDI Cap/Equity Approval Route Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals: (100% Government) Publication of facsimile edition of foreign newspapers: (100% - Government) Courier service: (100% - Government) Satellites Establishment and operation: (74% - Government) Private Security Agencies: (49% - Government) Test marketing: (100% - Government) Single Brand product trading: (51% to 100% - Government) Financial Services: Foreign investment in other financial services, other than specified activities, would require prior approval of the Government e.g. payment and authorization system for on-line payment related services (on line gateway system), Cash ATM Network, Primary Dealer in India Asset Reconstruction Company (ARC): (49% of paid-up capital of ARC Government) Commodity Exchanges: (49% (FDI & FII) [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26%] - Government only for FDI; FIIs under Automatic Route) Infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations: (49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital] - Government only for FDI; FIIs under Automatic Route) Credit Information Companies: (49% (FDI & FII) Government) Banking- Public Sector subject to Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks: (20% - FDI and Portfolio Investment Government)
Sector/Activity: % of FDI Cap/Equity Automatic + Approval Route FDI limit in Headend-in-the-Sky (HITS) Broadcasting Service: (74% - total direct and indirect
foreign investment including portfolio and FDI - Automatic up to 49%; Government route beyond 49% and up to 74%) Airports: Existing projects: (100% - Automatic up to 74%; Government route beyond 74%) Air Transport Services: Non-Scheduled Air Transport Service: (74% FDI; 100% for NRIs Automatic up to 49%; Government route beyond 49% and upto 74%) Ground Handling Services subject to sectoral regulations and security clearance: (74% FDI; 100% for NRIs - Automatic up to 49%; Government route beyond 49% and up to 74%) Telecom services: (74% - Automatic up to 49%; Government route beyond 49% and up to 74%) ISP with gateways; (b) ISPs not providing gateways i.e. without gate-ways (both for satellite and marine cables); (c) Radio paging; and (d) End-to-End bandwidth: (74% - Automatic up to 49%; Government route beyond 49% and up to 74%) (a) Infrastructure provider providing dark fibre, right of way, duct space, tower (IP Category I); (b)Electronic Mail; (c)Voice Mail; (100% - Automatic up to 49%; Government route beyond 49%) Banking Private sector: (74 % including investment by FIIs - Automatic up to 49%; Government route beyond 49% and up to 74%)
Recent Changes/Developments
Individual holding: aggregate limit for FIIs 24% Aggregate limit: 24% can be increased to the sectoral cap/statutory ceiling by Special Resolution of Shareholders and prior intimation to RBI along with Certificate from the Company Secretary stating compliance of FEMA, and FDI Policy Aggregate under FDI and Portfolio Investment Scheme should be within the above caps Permitted through IPOs and private placement NRIs NRIs Through designated Ads up to 5 % of the paid- up capital Aggregate: Up to 10 % which can be raised to 24 per cent by Special Resolution of Shareholders and prior intimation to RBI along with Certificate from the Company Secretary stating compliance of FEMA, and FDI Policy Shares purchased under Portfolio Investment Scheme cannot be transferred by way of sale under private arrangement (except NRIs can transfer shares acquired under PIS to close relatives)
FVCI
SEBI registered FVCIs are allowed to: Invest upto 100% by way of private arrangement or purchase from a third party in eligible securities of: Indian Venture Capital Undertaking (IVCU) and may also set up a domestic asset management company to manage the fund Domestic Venture Capital Fund registered under the SEBI (Venture Capital Fund) Regulations, 1996 Invest in securities on a recognised exchange subject to provisions of SEBI Regulations, 2000 stock (FVCI)
Invest under the FDI Scheme subject to FDI Policy & FEMA Regulations
equity shares on account of stock split / consolidation / amalgamation / demerger / such corporate actions subject to the prescribed investment limits
Time period
FIRC/s not later evidencing than 30 receipt of days from remittance the date of KYC report on receipt non-resident investor
Action by Regional Office Non-compliance concerned Allotment of Contravention Unique under FEMA Identification Number (UIN) for Attract penal the amount provisions reported
Reporting of Issue of Fresh Shares /Bonus /Right Shares /ESOP/ Convertible Debentures / Convertible Preference Shares /Conversion of ECB / Royalty / Lumpsum Technical Know-how Fee / Import of Capital Goods by SEZs /Preoperative/Pre-incorporation Expenses
Form Supporting Time period not later than 30 days from the date of receipt Action by Regional Office Non-compliance concerned Taking on Contravention record the under FEMA shareholding pattern Attract penal provisions
Form FC- A certificate from GPR duly Company Secretary of filled up and the company signed by A certificate from MD/Director SEBI registered /Secretary of Merchant Banker or Company Chartered Accountant
days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account Else refunded to non-resident investor
Transfer of Shares (From Resident to a Non-
File
form FC-TRS with RBI through authorised dealer within 60 days of receipt of consideration
Annual return on Foreign Liabilities and Assets along with audited balance sheet
Discontinuation of the Part B of Form FC-GPR Capture the statistics relating to Foreign Direct Investment (FDI), both inward and outward Submitted by July 15 of every year to the Director, Balance of Payment Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Mumbai To be submitted by all Indian companies which have received FDI and/or made FDI abroad in the previous year(s) including the current year If Balance sheet not audited: Submit information based on un-audited figures. The balance sheet may be forwarded in due course The Annex II to A.P. (DIR Series) Circular No.45 dated 15th March, 2011 gives the concepts and definitions useful in filling the Annual Return on Foreign Liabilities and Assets.
Reporting of issue/transfer of participating interest/right in oil fields to a non-resident as an FDI transaction Issue/transfer of participating interest/rights
in oil fields to a non-resident shall be treated as Foreign Direct Investment (FDI) transaction under the extant FDI policy & FEMA Regulations
Transfer of participating interest/rights will be reported as other category under Para 7 of revised Form FC-TRS Issuance of participating interest/rights will be reported as other category of instruments under Para 4 of Form FC-GPR
Conditions to be fulfilled
activity covered under Automatic Route
or obtained FIPB approval post conversion equity within the sectoral cap pricing of shares adhered to
subject to entry route, sectoral cap & General permission pricing guidelines compliance with applicable tax laws
Share Swap
FIPB approval
Irrespective of the amount, valuation of shares to be made by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with appropriate regulatory authority in the host country FIPB approval for Indian leg of FDI
Pre-operative/pre-incorporation expenses (including payments of rent etc.): FIRC for remittance for expenditure incurred Verification and certification by statutory auditor Payments made directly to company. Payments made through third parties citing the absence of a bank account or similar such reasons not allowed Capitalization within 180 days
Under the Government/FIPB route, Special resolution of the company; and subject to pricing guidelines and appropriate tax clearance.
Credit of sale proceeds of Foreign Direct Investments in India to NRE / FCNR(B) accounts Sale proceeds of Foreign Investments in India were treated as eligible credit to NRE / FCNR(B) accounts, where purchase consideration was paid by NRIs/PIOs out of inward remittance or funds held in their NRE/FCNR(B) accounts.
Credit of sale proceeds of
23%
26%
X
BEFORE
Operating leases
Construction development
At least 50% of each such project must be developed within a period of five years from the date of obtaining all statutory clearances.
It has been clarified that the condition of 50% development of a project, within a period of 5 years, is applicable to each project; in line with Minimum area to be developed under each project.
Application to Secretariat for Industrial Assistance (SIA), DIPP, Ministry of Industry Specifically indicate the product/ product categories
Any addition to the product/ product categories would require a fresh approval of the Government
Greenfield
Existing companies (brown field investments)
100%
Automatic
100%
Government
Prior approval of RBI is not required anymore for transfer of capital instruments
Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that : Pricing is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back) Transfer of shares from Resident to Non Resident: i) where the transfer of shares requires the prior approval of the FIPB which has been obtained; and adheres to pricing guidelines. ii) where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time. iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:Pricing is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST) iv) where the investee company is in the financial sector provided that : NOCs are obtained from respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS
Escrow Account
AD Category I banks can open Escrow account and Special account of non-resident corporate for open offers / exit offers and delisting of shares. Permitted to open and maintain, without prior approval of RBI, noninterest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions. No fund or non-fund based facilities would be permitted. SEBI authorised Depository Participants to open and maintain, without approval of RBI, Escrow accounts for securities. Applicable for both issue of fresh shares to the non-residents as well as transfer of shares from/to the non-residents. The Escrow account shall remain operational for a maximum period of six months. The terms of the Escrow account shall be laid down strictly in the Escrow agreement, Share purchase agreement, conditions of issue of shares.
Shares of an Indian company held by the non-resident investor can be pledged in favour of an Indian bank in India to secure the credit facilities being extended to the resident investee company for bona fide business purposes
Shares of the Indian company held by the non-resident investor can be pledged 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
2. 3.
4. 5.
6.
Any query pertaining to application filed or in the process of being filed, may be asked through the link "Clarification/Query". 7. In case an applicant wishes to make a change in the recently submitted application, that has not been processed, he/she may click on the link "Updation/Additional Information Form". Additional details being sought by the FIPB may also be submitted through the same link. 8. It is mandatory to file complete details of the Directors in applications seeking FIPB approval in Telecom, Defense and Private Security Services sectors to enable capturing the inputs in the first instance for expeditious processing from the security angle. This requirement is also mandatory in case the foreign collaborator has Bangladesh, Chinese/ Hong Kong registration/links. 9. After e-filing the application, one hard copy (alternative 1+15; 18 copies in case of Defence, and Telecommunication proposals) bearing the Unique FC Registration No. generated after submitting the Mandatory Preliminary Application, in original, with all annexure should immediately be sent by post at FIPB Facilitation Center, North Block, New Delhi-110001. 10. Only the applications that are complete in all respect, filed three weeks prior to the scheduled date of the FIPB meeting, only, shall be taken up for consideration in that meeting.