AN OVERVIEW ON FOREIGN DIRECT INVESTMENT (FDI)

Sunil Reddy Sama sunils@sbsandco.com

Date: 16.09.2017

By

SBS Hyderabad

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History of FDI in India

Introduction

Advantages

Disadvantages

Types of FDI

Who can invest

Where to invest

Prohibited Sectors

Objectives

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History of FDI in India

• What is FDI

• How FDI came to India

• Do we require FDI

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Augmenting of domestic capital

Productivity

Employment

Technical Know-how

Infrastructure

Special Tax Privileges

Economic Growth

Advantages of FDI

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Disappearance of cottage and small scale industries

Contribution to the pollution

Exchange crisis

Cultural erosion

Political corruption

Currency convertibility

Inflation in the Economy

Disadvantages of FDI

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Regulated by Foreign Exchange Management(Transfer or Issue of security by a person resident outside India) Regulations,2000

Notification No.FEMA 20/2000-RB dated 3rd May,2000

Latest FDI Policy announced by Government is effective from 12th May,2015

Relevant Regulations and Notifications

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Types…

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Horizontal FDI

Vertical FDI

Platform FDI

Types of FDI

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Incorporating a wholly owned subsidiary or company anywhere

Acquiring shares in an associated enterprise

Merger or an acquisition of an unrelated enterprise

Participating in an equity joint venture with another investor or

enterprise

Methods of FDI

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FDI Route

Automatic Route

Government Route

FDI Routes

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A Non-resident entity

Overseas Corporate Bodies (OCB’s) – w.e.f. 16th September,2003

A SEBI registered Foreign Venture Capital Investor (FVCI)

Qualified Foreign Investors (QFI’s) investment in equity shares

Citizen or entity of Bangladesh - only government route

Citizen or entity of Pakistan - only government route other than defence,space,atomic energy and sectors prohibited

NRI of Nepal and Bhutan - on repatriation basis

Who can invest in India

Type of holding Individual holding Aggregate holding

Limits FII/FPI- 10% of the capital of the company

FII/FPI/QFI – 24% of the capital of the company

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FDI in an Indian Company

Micro and Small Enterprises

An Industrial Undertaking - 24% of it’s paid-up share capital with prior approval of Foreign Investment Promotion Board (FIPB)* of Government of India

* As per Finance Budget-2016,FIPB

Entities into which FDI can be made(1/3)

Size of the enterprise Goods Services

Micro Enterprises Up to Rs.25 lakh Up to Rs.10 lakh

Small Enterprises Rs.25 lakh to Rs.5 crore Rs.10 lakh to Rs.2 crore

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FDI in Partnership Firm/Proprietary Concern

NRI or PIO resident outside India on non-repatriation basis Inward Remittance or out of NRE/FCNR(B)/NRO account

Not eligible for repatriation outside India

Investment restricted in some sectors

Investments with repatriation option

Investments by non-residents other than NRIs/PIO

Entities into which FDI can be made(2/3)

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FDI in Limited Liability Partnership (LLP) - From 20th May,2011 FDI is allowed in LLP registered and formed under the LLP Act,2008

FDI in Venture Capital Fund (VCF)

FDI in Trusts - other than VCF not permitted

FDI in other entities - not permitted

Entities into which FDI can be made(3/3)

Nature of VCF VCF as Trust VCF as Company

Person resident outside India (NR Entity/Individual including an NRI)

Can invest in such domestic VCF subject to approval of FIPB

Can invest in such domestic VCF through automatic route of FDI scheme

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100 % investment allowed

Automatic Route

NBFC’s engaged in 18 activities listed

*Other Financial Services-RBI,SEBI,IRDAI,PFRDAI,NHB or any other as specified by Government of India in

this regard.

FDI in Other Financial Services*

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Instruments

Capital

Equity (Fully paid/ Partly

paid) CCPS ADR/GDR

Debt

CCD FCCB

Types of Instruments

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Real Estate and construction of farm houses

Lottery

Gambling and Betting including casinos etc.

Nidhi Company

Chit Funds

Activities / Sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems)

Trading in Transferable Development Rights (TDR’s)

FDI-Prohibited Sectors(1/2)

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Manufacturing of cigars, cheroots, cigarillos and tobacco products

Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms etc.,

Plantations (other than Tea, coffee, rubber, cardamom, palm oil tree and olive oil tree plantations)

Foreign Technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business, Gambling and Betting Activities

FDI-Prohibited Sectors(2/2)

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+91-40-40183366 / +91-40-64584494 / +91-9246883366

Thank you!!!

S. Sunil Reddy PH: +91 9010612252 sunils@sbsandco.com

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