Business in India
Foreign Direct Investment (FDI) is permited as under the following forms
- Through financial collaborations.
- Through joint ventures and technical collaborations.
- Through capital markets via Euro issues.
- Through private placements or preferential allotments.
FDI is not permitted in the following industrial sectors:
Investment through GDRs (Euro Issues)
- Arms and ammunition.
- Atomic Energy.
- Railway Transport.
- Coal and lignite.
- Mining of iron, manganese, chrome, gypsum, sulphur,
gold, diamonds, copper, zinc.
Foreign Investment through GDRs is treated as Foreign Direct Investment
Indian companies are allowed to raise equity capital in the international
market through the issue of Global Depository Receipt (GDRs). GDRs are designated
in dollars and are not subject to any ceilings on investment. An applicant
company seeking Government's approval in this regard should have consistent
track record for good performance (financial or otherwise) for a minimum period
of 3 years. This condition would be relaxed for infrastructure projects such
as power generation, telecommunication, petroleum exploration and refining,
ports, airports and roads.
Clearance from FIPB
There is no restriction on the number of Euro-issue to be floated by a
company or a group of companies in the financial year . A company engaged
in the manufacture of items covered under Annex-III of the New Industrial
Policy whose direct foreign investment after a proposed Euro issue is likely
to exceed 51% or which is implementing a project not contained in Annex-III,
would need to obtain prior FIPB clearance before seeking final approval from
Ministry of Finance.
The proceeds of the GDRs can be used for financing capital goods imports,
capital expenditure including domestic purchase/installation of plant, equipment
and building and investment in software development, prepayment or scheduled
repayment of earlier external borrowings, and equity investment in JV/WOSs
However, investment in stock markets and real estate will not be permitted.
Companies may retain the proceeds abroad or may remit funds into India in
anticiption of the use of funds for approved end uses. Any investment from
a foreign firm into India requires the prior approval of the Government of
Investment in India - Foreign Direct Investment -
Foreign direct investments in India are approved through two routes:
Automatic approval by RBI:
The Reserve Bank of India accords automatic approval within a period of
two weeks (provided certain parameters are met) to all proposals involving:
- foreign equity up to 50% in 3 categories relating to
mining activities (List 2).
- foreign equity up to 51% in 48 specified industries
- foreign equity up to 74% in 9 categories (List 4).
- where List 4 includes items also listed in List 3,
74% participation shall apply.
are comprehensive and cover most industries of interest to foreign companies.
Investments in high-priority industries or for trading companies primarily
engaged in exporting are given almost automatic approval by the RBI.
an office in India
Opening an office in India for the aforesaid incorporates assessing the
commercial opportunity for self, planning business, obtaining legal, financial,
official, environmental, and tax advice as needed, choosing legal and capital
structure, selecting a location, obtaining personnel, developing a product
marketing strategy and more.
The FIPB Route:
Processing of non-automatic approval cases
FIPB stands for Foreign Investment Promotion Board which approves all
other cases where the parameters of automatic approval are not met. Normal
processing time is 4 to 6 weeks. Its approach is liberal for all sectors and
all types of proposals, and rejections are few. It is not necessary for foreign
investors to have a local partner, even when the foreign investor wishes to
hold less than the entire equity of the company. The portion of the equity
not proposed to be held by the foreign investor can be offered to the public.
foreign investment and FDI
Total foreign investment in IFY 1997-98 was estimated at dols 4.8 billion
in 1997-98, compared to dols 6 billion in 1996-97. Foreign Direct Investment
(FDI) in 1997-98 was an estimated dols 3.1 billion, up from dols 2.7 billion
in1996-97. The government is likely to double FDI inflows within two years.
Foreign portfolio investment by foreign institutional investors was significantly
lower at dols 752 million for fiscal 1997-98, down compared to dols 1.9 billion
in1996-97, partly reflecting the effect of the recent crisis in Asia.
Foreign institutional investors (FIIs) were net sellers from November
1997 through January 1998. The outflow, prompted by the economic and currency
crisis in Asia and some volatility in the Indian rupee, was modest compared
to the roughly dols 9 billion which has been invested in India by FIIs since
FII net investment declined to dols 1.5 billion for IFY 1997-98, compared
to dols 2.2 billion in 1996-97. The trend reversed itself in February and
March 1998, reflecting the renewed stability of the rupee and relatively attractive
valuations on Indian stock markets.
outflows of capital
Large outflows began again in May 1998, following India's nuclear tests
and volatility in the rupee/dollar exchange rate. In an effort to avoid further
heavy outflows, the RBI announced in June that FIIs would be allowed to hedge
their incremental investments in Indian markets after June11, 1998.