TMI BlogForeign Investments in IndiaX X X X Extracts X X X X X X X X Extracts X X X X ..... foreign investment is given in the Annexure for guidance. 4. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned. 5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign exchange Management Act, 1999 (42 of 1999). Yours faithfully, Grace Koshie Chief General Manager Annexure Foreign Investments in India 1. Statutory Provisions Foreign Investments in India are governed by the provisions of Section 6 of the Foreign Exchange Management Act (FEMA) 1999 and are subject to the Regulations issued by the Reserve Bank of India under FEMA 1999. The Regulations have been notified vide Notification No.FEMA 20/2000-RB dated May 3, 2000. An Indian entity cannot issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person save as otherwise provided in the Act or the Rules or Regulations framed thereunder or with the specific permission of the Reserve Bank. 2. Foreign Direct Investment Policy 2.1 Foreign Investments in India are not permissible in the following cases i. in the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RB dated May 3, 2000 for the non-convertible portion. Companies can issue NCDs only to NRIs and that too by means of a public Issue. The coupon rate on partly convertible preference shares/partly convertible debentures should not exceed State Bank of India's prime lending rate plus 300 basis points. 2.5.2 Trading is permitted under Automatic Route with FDI upto 51 % provided it is primarily towards export activities, and the undertaking is an export house/trading house/super trading house/star trading house. The Government also permits certain trading activities under FIPB route. 2.5.3 A company which is a small scale industrial unit and not engaged in any activity or in manufacture of items included in Annexure A to Notification No.20 may issue shares or convertible debentures to a non-resident , to the extent of 24% of its paid-up capital if, It has given up its small scale status; It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector; and It complies with the ceilings specified in Annexure B to Notification No.20. 3. Issue of Shares 3.1 Issue of Rights/Bonus Shares General permission is also available to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, directly or through a Trust subject to the conditions that the scheme has been drawn in terms of regulations issued under the Securities Exchange Board of India Act, 1992, and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company. The Trust and the issuing company should ensure that value of shares held by persons resident outside India under the scheme does not exceed the limit specified in clause (b) of sub-regulation (1) thereof. 3.4 Issue of shares by Indian companies under ADR/GDR 3.4.1 An Indian company may issue its rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts(GDRs) and/ or American Depository Receipts(ADRs). The company issuing these shares should ensure that it has: approval from the Ministry of Finance, Government of India to issue such ADRs and /or GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and is not otherwise ineligible to issue shares to persons resident outside India in terms of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 3 rd May 2000 within 30 days from the date of closing of the issue .The company should also furnish a quarterly return in the form specified in Annexure D to the Reserve Bank within 15 days of the close of the calendar quarter. 3.6 General Permissions to the Indian companies Indian companies receiving subscription from non-residents for issue of shares have also got the general permission for the following:- Refund of funds received towards allotment of shares under Regulation 5(1) of the Reserve Bank's Notification No.FEMA 20/2000-RB dated 3 rd May 2000; Remittance of surplus funds received for purchase of shares offered on rights basis; Remittance on account of surplus funds received for purchase of shares or on account of cancellation of trade, under two-way fungibility of ADRs/GDRs. 4.1 Transfer of Shares and convertible debentures General permission has been granted to non-residents/NRIs for transfer of shares and convertible debentures of an Indian company as under:- A person resident outside India (other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India ( including NRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of issue of shares, The report should contain the following details, A certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that All the requirements of the Companies Act, 1956 have been complied with; Terms and conditions of the Government approval, if any, have been complied with; The company is eligible to issue shares under these Regulations, and The company has all original certificates issued by Authorised Dealers in India evidencing receipt of amount of consideration. A certificate from Statutory Auditors or a Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. 6. Permission for retaining share subscription money received from persons resident outside India in a foreign currency account. The Reserve Bank may permit an Indian company issuing shares to persons resident outside India under this Schedule to retain the subscription amount in a foreign currency account, subject to such terms and conditions as it may stipulate. 7. Portfolio Investment Scheme (PIS) 7.1 Foreign Institutional Investors registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report these figures separately under item 4(b) of the FC-GPR return so that the details could be suitably reconciled for statistical / monitoring purposes. The FII shall restrict allocation of its total investment between equities and debt including dated Government Securities and Treasury Bills in the Indian Capital Market in the ratio of 70:30 The FII can form a 100% Debt Fund and get registered with SEBI for investment in debt investments (Schedule 5). Investments by NRIs 7.3 In the case of NRIs it is to be ensured that the paid-up value of shares/ convertible debentures purchased by an NRI both on repatriation and non-repatriation basis does not exceed 5% of the paid-up capital / paid-up value of each series of debentures. The aggregate paid-up value of shares/ convertible debentures purchased by all NRIs should not exceed 10% of the paid-up capital of the company/paid-up value of series of debentures of the company provided that the NRI shall not purchase shares or convertible debentures of an Indian company which is engaged in Print Media. The aggregate ceiling of 10% can be raised to 24%, if the General Body of the Indian company concerned passes a special resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FCNR/NRO account maintained with the AD. In the case of NRIs resident in Nepal and Bhutan the amount of consideration for such purchase shall be paid only by way of inward remittance in foreign exchange through normal banking channels. The sale proceeds shall be credited to NRO account. The amount invested under the scheme and the capital appreciation thereon shall not be allowed to be repatriated abroad. 9. Investments in other securities on non-repatriation basis NRI can also, without any limit, purchase on non-repatriation basis dated Government securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds or National Plan / Savings certificates. 10. Investments by Venture Capital Funds (Schedule 6) A SEBI registered Foreign Venture Capital Investor (FVCI) with general permission from RBI under FEMA regulations can invest in Indian Venture Capital Undertaking (IVCU) or in a Venture Capital Fund( VCF) or in a Scheme floated by such VCFs. They can purchase equity/equity linked instruments/debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement or in units of schemes/ funds set up by a VCF. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought in upfront ii) If the FDI is above 51 % and upto 75 %, US $ 5 million to be brought upfront iii) If the FDI is above75 % and upto 100 %, US $ 50 million out of which $ 7.5 million to be brought in upfront and the balance in 24 months c) Minimum Capitalisation norms for non-fund based activities. Minimum Capitalisation norm of US$0.5 million is applicable in respect of non-fund based NBFCs with foreign investment. d) Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US $ 50 million as at b) (iii) above ( without any restriction on number of operating subsidiaries without bringing in additional capital) e) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities , subject to the subsidiaries also complying with the applicable minimum capital inflow i.e, (b)(I) and (b)(ii) above. f) FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is also opened to FDI as an NBFC 7. Coal Lignite i) Private Indian companies setting up or operating power projects as well as coal and lignite mines for captive consumption are allowed FDI upto 100%. ii) 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing. iii) FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption. iv) In all the above cases, FDI is allowed upto 50% under the automatic route subject to the condition that such investment shall not exceed 49%of the equity of a PSU. 8. Venture Capital Fund (VCF) and Venture Capital Company(VCC) Offshore Venture Capital Funds/ companies are allowed to invest in domestic venture capital undertaking as well as other companies through the automatic route, subject only to SEBI regulations and sector specific caps on FDI. 9. Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pharmaceuticals provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology and specific cell/tissue targeted formulations. FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology and specific cell/tissue targeted formulations will require prior Govt. approval. 12. Road and highways, Ports and harbours 100% In projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours. 13. Hotel Tourism 100 % The term hotels include restaurants, beach resorts and other tourist complexes providing accommodation and/ or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports and health units for tourists and Convention/Seminar units and organisations. For foreign technology agreements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) We (Name of the Company)-------------------------- Declare that, being eligible to issue shares to non-residents under the permission granted under Notification No.FEMA 20/2000-RB dated 3 rd May 2000, furnish the following information in connection with shares issued. 1. Name and address (Registered office) Of the Indian company issuing shares to non-residents 2. Whether existing company or new company recently formed 3. Activities of the company NIC Code Description (In case no NIC code has been allotted to the activity, the company may classify in the nearest broad category. In case it is not at all possible to classify the activity under the NIC Code, only description may be given). 4. Particulars of shares/convertible debentures issued Name and country of the foreign investor Category of investor (Foreign National/NRI/OCB/FII/Foreign Company, Foreign Venture Capital Fund, Foreign Venture Capital Company etc.) Whether the shares are issued under Automatic Route/Government Approval or on rights/bonus basis (Please quote SIA/FIPB approval number where applicable) Details of shares/convertible debentures issued (Please furnish details for equity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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