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Foreign Direct Investment

F

oreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company.

What is ‘Foreign Direct Investment’ (FDI)

‘Foreign Direct Investment’ (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company, or (b) in 10percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

Foreign Investment in India

  • Advice on Foreign Direct Investment in India
  • Setting up of a business unit in India like a Wholly Owned Subsidiary, Branch Office, Liaison Office
  • Preparation of business plan/project report
  • Tax planning with respect to setting up a business in India
  • Advisory services on pre and post set up compliance with the regulatory and legal framework

An Indian company received foreign investment in following two ways:

Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India

Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the GovernmentProhibited sectors/ persons

Investment by a person resident outside India is prohibited in the following sectors:

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

(2) Gambling and betting including casinos.

(3) Chit funds (except for investment made by NRIs and OCIs on a non – repatriation basis).

(4) Nidhi Company.

(5) Trading in Transferable Development Rights (TDRs).

(6) Real Estate Business*or Construction of Farm Houses.

(7) Manufacturing of Cigars, cheroots, cigarillos, and cigarettes, of tobacco or tobacco substitutes. The prohibition is on manufacturing of the products mentioned and foreign investment in other activities relating to these products including wholesale cash and carries, retail trading, etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).

(8) Activities/ sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations

(9) 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.

 

*Here ‘Real estate business‘ is dealing in land and immovable property with a view to earning profit therefrom and does not include the development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, township Earning of rent income on lease of the property, not amounting to transfer, will not amount to real estate business. Real estate broking services are excluded from the definition of “real estate business” and 100% foreign investment is allowed in real-estate broking services under the automatic route.

 

Therefore, Person resident outside India can do FDI in development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships subject to the terms and Conditions as applicable.

 

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