Foreign direct investment

DEFINITION:
FDI means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000.

INTENT AND OBJECTIVE

The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on Notified by the Reserve Bank of India as amendments to the Foreign Exchange Management DI through Press Notes/ Press Releases which are

WHO CAN INVEST IN INDIA?

3.1.1 A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) 3.1.2 NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis. 3.1.3 OCBs have been derecognized as a class of investors in India with effect from September 3.1.4 (i) An FII may invest in the capital of an Indian Company 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 investment to 24% of the capital of the company. (ii) The Indian company which has issued shares to FIIs under the FDI Policy for which the payment has been received directly into companys account should report these figures separately under item no. 5 of Form FC-GPR (Annex-1).

Types
Horizontal FDI Arises when a firm duplicates its home countrybased activities at the same value chain stage in a host country through FDI. Vertical FDI Takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.

SECTOR SPECIFIC CONDITIONS ON FDI

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 (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).

PERMITTED SECTORS
AGRICULTURE
Agriculture and Animal Husbandry Tea Plantation Mining and Petroleum and Petroleum Natural Gas MANUFACTURING Manufacture of items reserved for production in Micro and Small Enterprises (MSEs) Defence SERVICES SECTOR Broadcasting Print Media Civil Aviation Courier Services Construction Development Townships, Housing, Built-up infrastructure Industrial Parks new and existing Satellites Establishment and operation Private Security Agencies Telecom Sector Trading FINANCIAL SERVICES Asset Reconstruction Companies Banking Private sector Banking- Public Sector Commodity Exchanges Credit Information Companies (CIC) Infrastructure Company in the Securities Market

CALCULATION OF FOREIGN INVESTMENT

TOTAL FOREIGN INVESTMENT i.e. DIRECT AND INDIRECT FOREIGN INVESTMENT IN INDIAN COMPNAIES. Foreign Investment in Indian company shall include all types of foreign investments i.e. FDI; investment by NRIs; ADRs; GDRs. Foreign Currency Convertible Bonds (FCCB): fully, compulsorily and mandatorily convertible preference shares and fully,compulsorily and mandatorily convertible Debentures regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEM (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000.

(i) Counting the Direct Foreign Investment All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment.

(ii) Counting of indirect foreign Investment The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are owned and controlled by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens .