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FDI Policy Measures

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India FDI Policy Measures

India FDI Policy Measures

India has already made a mark in the world’s economy as one of the fastest growing economies of the world. India has been ranked among the top 3 investment destinations. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor friendly destination.

Foreign Direct Investment during January-September 2015 stood at $26.5 billion, compared to $22.4 billion in the year-ago period, shooting up 18 percent over the previous year.

FDI into India through the Foreign Investment Promotion Board (FIPB) route shot up by 26 per cent to US$ 31.9 billion in the year FY2015 as against US$ 25.3 billion in the previous year, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.

FDI to India doubled to US$ 4.48 billion in January 2015, the highest inflow in last 29 months, from US$ 2.18 billion in January 2014.

The foreign inflows have grown to touch US$ 16.63 billion during the April-September 2015, up 13 per cent year-on-year (y-o-y), from US$ 14.69 billion in the corresponding period last fiscal, according to Department of Industrial Policy and Promotion (DIPP) data. The top 10 sectors receiving FDI include computer software & hardware which received the maximum FDI worth US$ 3.06 billion in the 6 month period, followed by trading (US$ 2.73 billion), services (US$ 1.46 billion), automobile (US$ 1.46 billion) and telecommunications sector (US$ 0.66 billion).

India received maximum FDI from Singapore at US$ 6.69 billion, followed by Mauritius (US$ 3.67 billion), the Netherlands (US$ 1.10 billion), USA (US$ 0.85 billion) and the Japan (US$ 0.82 billion) during April-September 2015-16 period. Healthy inflow of foreign investments into the country helped India’s balance of payments (BoP) situation.

Features of FDI policy

  •   Domestic companies are permitted to issue equity shares, compulsorily and mandatorily convertible preference\ shares (CCPS) and debentures that are fully, compulsorily and mandatorily convertible (CCDs) to non-residents, subject to prescribed pricing guidelines and valuation norms.
  •   Issue of warrants, partly paid shares, etc., requires the prior approval of the FIPB. Issue of non-convertible, optionally convertible or partially convertible preference shares and debentures needs to comply with the RBI’s ECB guidelines.
  •   FDI is calculated on the basis of ownership and control of the parent Indian company to measure foreign investment in a step-down subsidiary[01].
  •   No government approval is required for FDI in virtually all the sectors or activities, except for a negative list formulated by the GOI. The FIPB considers proposals for foreign participation that do not qualify for automatic approval, and decisions on foreign investment proposals are usually taken within four to six weeks of applications being submitted.
  •   Free repatriation of capital investment is permitted, provided the original investment (on a repatriable basis) was made in convertible foreign exchange and is subject to payment of taxes and other specified conditions.
  •   All royalty payments, lump-sum fees for the transfer of technology and use of trademarks or brand name are permitted under the automatic route without any monetary or duration limits.
  •   Use of foreign brand names or trademarks is permitted to sell goods in India.
  •   “Single-window” clearance facilities and “investor escort services” are available in various states to simplify the approval process of new ventures.
  •   The GOI has recently liberalized FDI in single and multi-brand retail, as well as in the civil aviation sector.

 

Recent Policy Measures

  •   100% FDI in medical devices.
  •   FDI cap increased in insurances & sub activities from 26% to 46%.
  •   100 % in telecom sector.
  •   100% FDI in single-brand retail
  •   FDI in commodity exchange, stock exchange & depositories, power exchanges, petroleum refining by PSUs, courier services under the government route has now been brought under the automatic route.
  •   Removal of restriction in tea plantation sector.
  •   FDI limit raised to 74% in credit information & 100% in asset reconstruction companies.
  •   FDI limit of 26% in defence sector raised to 49% under Government approval route. Foreign Portfolio Investment up to 24% permitted under automatic route. FDI beyond 49% is also allowed on a case to case basis with the approval of Cabinet Committee on Security.
  •   Construction, operation and maintenance of specified activities of Railway sector opened to 100% foreign direct investment under automatic route.

 

Step-down Subsidiary [01] “The step-down subsidiary is an immediate overseas subsidiary of the Indian company, which is directly controlled by the Indian parent company through any of the modes of control recognised under the Indian Accounting Standards. In addition, the Indian parent company must directly hold a minimum 51% of shareholding in step-down subsidiary. As per the Indian Accounting Standards, control has been defined as (a) the ownership, directly or indirectly, through subsidiary (ies), of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.”

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