Any investment that is made in India with the source of funding that is from outside of India is a foreign investment.
The investments that are made by Foreign Corporates, Foreign Nationals, as well as Non-Resident Indians would be treated as Foreign Investment.
Foreign corporate can make investment in India by acquiring shares of existing Indian company or by way of Opening an Indian subsidiary and acquiring its shares. Normally, foreign companies prefer formation of wholly owned subsidiary in India and acquiring its shares.
Eligible Entities in India for FIs:
- Indian Companies (either Wholly owned subsidiary in India by foreign company or Joint Venture Company)
- Partnership firms
FIs are permitted in LLPs. With some conditions & restrictions:
- 100% FDI is allowed in sectors where FDI is allowed in automatic route.
- FIs not permitted in LLPs where LLPs are engaged in agricultural, plantation activity, real estate business or print media sector.
- LLPs having FIs not allowed to invest in any other entity
- Foreign Investment is allowed through inward remittance or debit to NRE or FCNR account in India.
- Liaison office in India /Branch office/Project Office
Instruments by which FDI can be raised in India:
- Equity shares
- Convertible Preference Shares
- Share Warrants
- Convertible Debenture
Routes of Investment:
There are two routes of investment:
- Automatic Route– Some of the sectors in India are those where FDI is allowed without any approval from government.
- Approval Route– Where FDI is not allowed through automatic route, then approval is required from Government.
- Non Residents
- NRIs & PIOs are allowed to invest as per FDI policy in India.
- Pakistani & Bangladeshi NRis are permitted to invest under approval route only.
- Foreign Institutional Investors (FIIs)
- Foreign venture capital investors
- Qualified Foreign Investors(QFIs)
FIs from Nepal or Bhutan
- Residents and Citizens of Nepal and Bhutan are permitted to invest in capital of Indian Companies on repatriation basis like other FIs.
- However repatriation basis is permitted where FIs were paid by way of inward remittance in free foreign exchange through normal banking Channel only.
Issue of Capital Instruments against FIs
- Capital Instruments shall be issued within 60 days from date of receipt of fund in India through normal banking channels or debit to NRE or FCNR (B) account in India.
- Fund shall be remitted outward or credit to NRE or FCNR (B) account shall be done if capital instruments are not issued within said 60 days with the permission of RBI.
Guidelines for Reporting of FIs
- Reporting of Inflow of fund
- Indian companies are required to submit specified Form within 30 days from date of receipt of FIs in India along with FIRC & KYC report on nonresident investors from overseas bank remitting the funds into India.
- To obtain an UIN from RBI by Indian Company
- Reporting of Issue of Shares
- Indian Company is required to submit Form FC‐GPR within 30 days from date of issue of shares
- Form FC‐GPR be signed by Managing Director, Director or Company Secretary and also be Submitted to RBI through authorized dealer bank.
- Form FC‐GPR be submitted along with certificate as issued by company secretary
- That requirements of Companies Act, 2013 have been complied
- That terms & conditions of Govt. approval, if any have been complied before submitting to RBI that company is eligible to issue the shares under these Regulations
- Annual Return of Foreign liabilities & Assets (FLA)
- Indian Company is required to submit annual return relating to FIs & ODIs
- Annual return be submitted up to July 15 of every year to RBI