TMI BlogCONSOLIDATED FDI POLICY.X X X X Extracts X X X X X X X X Extracts X X X X ..... India 3.2. Types of Instruments 3.3 Eligibility of FDI in Resident Entities 3.4 Conditions on Issue/Transfer of Shares 3.5 Issue of Instruments CHAPTER-4 CALCULATION, ENTRY ROUTE, CAPS, ENTRY CONDITIONS ETC. OF INVESTMENT 4.1 Calculation of Total Foreign Investment i.e. Direct and Indirect Foreign Investment in Indian Companies 4.2 Entry Routes for Investment 4.3 Caps on Investments 4.4 Entry conditions on Investment 4.5 Other conditions on Investment besides entry conditions 4.6 Downstream Investment by Indian Companies 4.7 Guidelines for consideration of FDI Proposals by FIPB 4.8 Constitution of FIPB 4.9 Approval Levels for cases under Government Route 4.10 Cases which do not require fresh Approval CHAPTER-5 POLICY ON ROUTE, CAPS AND ENTRY CONDITIONS 5.1 Prohibition on Investment In India AGRICULTURE 5.2 Agriculture Animal Husbandry 5.3 Tea plantation INDUSTRY MINING 5.4 Mining 37 MANUFACTURING 5.5 Manufacture of items reserved for production in Micro and Small Enterprises (MSEs) 5.6 Alcohol - Distillation Brewing 5.7 Cigars Cigarettes Manufacture 5.8 Coffee Rubber pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Your Customer (KYC) Form in respect of the non-resident investor Annex-7 Form FC-TRS Annex-8 Form DR Annex-9 Form DR - Quarterly CHAPTER 1: INTENT AND OBJECTIVE 1.1 INTENT AND OBJECTIVE 1.1.1 'Investment' is usually understood as financial contribution to the equity capital of an enterprise or purchase of shares in the enterprise. 'Foreign investment' is investment in an enterprise by a Non-Resident irrespective of whether this involves new equity capital or re-investment of earnings. Foreign investment is of two kinds - (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment. 2. 1.1.2 International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) define FDI similarly as a category of cross border investment made by a resident in one economy (the direct investor) with the objective of establishing a 'lasting interest' in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor. The motivation of the direct investor is a strategic long term relationship with the direct investment enterprise to ensure the significant degree of influence by the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Press Notes/Press Releases/ Clarifications issued by DIPP. 1.1.6 It has been decided that from now onwards a consolidated circular would be issued every six months to update the FDI policy. This consolidated circular will, therefore, be superseded by a circular to be issued on September 30, 2010. 1.1.7 All earlier Press Notes/Press Releases/Clarifications on FDI issued by DIPP which were in force and effective as on March 31, 2010 stand rescinded as on March 31, 2010. The present circular consolidates and subsumes all such/these Press Notes/Press Releases/Clarifications as on March 31, 2010. 1.1.8 Notwithstanding the rescission of earlier Press Notes/Press Releases/Clarifications, anything done or any action taken or purported to have been done or taken under the rescinded Press Notes/Press Releases/Clarifications prior to March 31, 2010 shall, in so far as it is not inconsistent with those Press Notes/Press Releases/Clarifications, be deemed to have been done or taken under the corresponding provisions of this circular and shall be valid and effective. 1.1.9 It is the intent and objective of the Government to promote foreign direct investment through a policy fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors in that company. 2.1.8 An entity is considered as 'Controlled' by 'non resident entities', if non-residents have the power to appoint a majority of its directors 2.1.9 'Depository Receipt' (DR) means a negotiable security issued outside India by a Depository bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded anywhere/elsewhere are known as Global Depository Receipts (GDRs). 2.1.10 'Erstwhile Overseas Corporate Body' (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by non-resident Indian and includes overseas trust in which not less than sixty percent beneficial interest is held by non-resident Indian directly or indirectly but irrevocably and which was in existence on the date of commencement of the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which are specified in the negative list by the SEBI, with approval of Central Government, by notification in the Official Gazette in this behalf. 2.1.21 'Investing Company' means an Indian Company holding only investments in another Indian company, directly or indirectly, other than for trading of such holdings/securities. 2.1.22 'Investment on repatriable basis' means investment, the sale proceeds of which, net of taxes, are eligible to be repatriated out of India and the expression 'investment on non-repatriable basis' shall be construed accordingly. 2.1.23 'Joint Venture' (JV) means an Indian entity incorporated in accordance with the laws and regulations in India in whose capital a foreign entity makes an investment. 2.1.24 'Non resident entity' means a 'person resident outside India' as defined under FEMA 2.1.25 'Non Resident Indian' (NRI) means an individual resident outside India who is a citizen of India or is an individual of Indian origin. 2.1.26 A company is considered as 'Owned' by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve Bank of India established under the Reserve Bank of India Act, 1934. 2.1.34 'Resident Entity' means 'Person resident in India' excluding an individual. 2.1.35 'Resident Indian Citizen' shall be interpreted in line with the definition of 'person resident in India' as per FEMA, 1999 , read in conjunction with the Indian Citizenship Act, 1955. 2.1.36 'SEBI' means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992. 2.1.37 'SEZ' means a Special Economic Zone as defined in Special Economic Zone Act, 2005 . 2.1.38 'SIA' means Secretariat of Industrial Assistance in DIPP, Ministry of Commerce Industry, Government of India. 2.1.39 'Transferable Development Rights' (TDR) means certificates issued in respect of category of land acquired for public purposes either by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole. 2.1.40 'Venture Capital Fund' (VCF) means a Fund established in the form of a Trust, a company including a body corporate and registered under Securities and Exchange Board of India (V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations of FEMA 1999 , can invest/trade in capital of Indian Companies in the Indian Stock Exchanges directly i.e. through brokers like a Person Resident in India. 3.1.6 A Foreign Venture Capital Investor (FVCI) may contribute upto 100% of the capital of a Venture Capital Fund/Indian Venture Capital Undertaking and may also set up a domestic asset management company to manage the fund. All such investments are allowed under the automatic route subject to SEBI RBI regulations and FDI Policy. However FVCIs are also allowed to invest as non-resident entities in other companies subject to FDI Policy. 3.2 TYPES OF INSTRUMENTS. 3.2.1 Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations. The pricing of the capital instruments should be decided/determined upfront at the time of issue of the instruments. 3.2.2 Other types of Preference shares/Debentures i.e. non-convertible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing stipulated by Reserve Bank from time to time for the purpose; (b) Deposits with branch/es of Indian Authorized Dealers outside India; and (c) Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less. (iv) There are no end-use restrictions except for a ban on deployment / investment of such funds in real estate or the stock market. There is no monetary limit up to which an Indian company can raise ADRs / GDRs. (v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance. (vi) Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in the case of banking companies will continue to be in terms of the provisions of the Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time to time, as applicable to all shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided; (a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks. (b) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector. (c) Amount invested shall not be eligible for repatriation outside India. (ii) Investments with repatriation benefits: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation benefits. The application will be decided in consultation with the Government of India. (iii) Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India. (iv)Restrictions: An NRI or PIO is not allowed to invest in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs). (b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI. In both the above cases, the 'Existing Venture/tie-up condition' as defined in para 4.2.2 would apply. (c) A person resident outside India can transfer any security to a person resident in India by way of gift. (d) A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI. (e) A person resident in India can transfer by way of sale, shares/convertible debentures (including transfer of subscriber's shares), of an Indian company in sectors other than financial services sectors (i.e. Banks, NBFC, Insurance, ARCs, CICs, infrastructure companies in the securities market viz. Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.) under private arrangement to a person resident outside India, subject to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following instances of transfer of capital instruments from resident to non-residents by way of sale require prior approval of RBI: (a) Transfer of capital instruments of an Indian company engaged in financial services sector (i.e. Banks, NBFCs, Asset Reconstruction Companies, CICs, Insurance companies, infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.). (b) Transactions which attract the provisions of SEBI (Substantial Acquisition of Shares Takeovers) Regulations, 1997. (c) The activity of the Indian company whose capital instruments are being transferred falls outside the automatic route and the approval of the FIPB has been obtained for the said transfer. (d) The transfer is to take place at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time. (e) Transfer of capital instruments where the non-resident acquirer proposes deferment of payment of the amount of consideration, prior approval of the Reserve Bank would be required, as hitherto. Further, in case approval is granted for a transaction, the same should be reported in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for foreign equity in the company; (b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any; (c) Pricing of shares is as per SEBI regulations or erstwhile CCI guidelines in the case of listed or unlisted companies respectively; (d) Compliance with the requirements prescribed under any other statute and regulation in force; and (e) The conversion facility is available for ECBs availed under the Automatic or Government Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured loans availed from non-resident collaborators. (ii) General permission is also available for issue of shares/preference shares against lump sum technical know-how fee, royalty, under automatic route or SIA/FIPB route, subject to pricing guidelines of SEBI/CCI and compliance with applicable tax laws. 3.5 ISSUE OF INSTRUMENTS. 3.5.1 Issue of Rights/Bonus Shares - FEMA provisions allow Indian companies to freely issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. However, such issue of bonus / rights shares has to be in accordance with other laws/statutes like the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to citizens of Bangladesh with the prior approval of FIPB. Shares under ESOPs can be issued directly or through a Trust subject to the condition that: (a) The scheme has been drawn in terms of relevant regulations issued by the SEBI, and (b) The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5 per cent of the paid-up capital of the issuing company. (ii) Unlisted companies have to follow the provisions of the Companies Act, 1956. The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior approval of the FIPB. (iii)The issuing company is required to report the details of such issues to the Regional Office concerned of the Reserve Bank, within 30 days from the date of issue of shares. CHAPTER 4: CALCULATION, ENTRY ROUTE, CAPS, ENTRY CONDITIONS, ETC. OF INVESTMENT 4.1 CALCULATION OF TOTAL FOREIGN INVESTMENT I.E. DIRECT AND IN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidy is owned by the holding company. Illustration To illustrate, if the indirect foreign investment is being calculated for Company X which has investment through an investing Company Y having foreign investment, the following would be the method of calculation: (A) where Company Y has foreign investment less than 50%- Company X would not be taken as having any indirect foreign investment through Company Y. (B) where Company Y has foreign investment of say 75% and: (I) invests 26% in Company X, the entire 26% investment by Company Y would be treated as indirect foreign investment in Company X; (II) Invests 80% in Company X, the indirect foreign investment in Company X would be taken as 80% (III) where Company X is a wholly owned subsidiary of Company Y (i.e. Company Y owns 100% shares of Company X), then only 75% would be treated as indirect foreign equity and the balance 25% would be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (II) In the case of an Indian company, (aa) The Indian company (bb) A group of Indian companies under the same management and ownership control. (B) For the purpose of this Clause, "Indian company" shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either singly or in combination holding at least 51% of the shares. (C) Provided that, in case of a combination of all or any of the entities mentioned in Sub-Clauses (i) and (ii) of clause 4.1.3(v)(d)(1) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company. (e) If a declaration is made by persons as per section 187C of the Indian Companies Act about a beneficial interest being held by a non resident entity, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment. 4.1.4 The above mentioned policy and the methodology would be applicable for determining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trademark agreement would have to be under the Government approval route through FIPB/ Project Approval Board. The onus to provide requisite justification that the new tie-up would not jeopardize the existing joint venture or technology transfer/ trademark partner, would lie equally on the foreign investor/ technology supplier and the Indian partner. 4.2.2.3 The following investments, however, will be exempt from the requirement of Government approval even though the foreign investor may be having a joint venture or technology transfer/ trademark agreement in the same filed: (a) Investments to be made by Venture Capital Fund registered with the Securities and Exchange Board of India (SEBI); or (b) Investments by Multinational Financial Institutions like Asian Development Bank(ADB), International Finance Corporation(IFC), Commonwealth Finance Corporation (CDC), Deutsche Entwicklungs Gescelschaft (DEG) etc.; or (c) where in the existing joint venture, investment by either of the parties is less than 3 per cent; or (d) where the existing joint venture / collaboration is defunct or sick; or (e) for issue of shares of an Indian company engaged in Information Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations . 4.3 CAPS ON INVESTMENTS 4.3.1 Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as provided/permitted in the FDI policy. Thus while investment are prohibited in some sectors/activities, there are restrictions/conditions/caps on the investment in certain other sector/activities. The caps in various sector(s)/activity are detailed out in Chapter 5 of this circular. 4.4 ENTRY CONDITIONS ON INVESTMENT 4.4.1 Investments can be permitted to be made by non-residents in the capital of a resident entity in certain sectors/activity with entry conditions. These entry conditions would be applicable for investment only by non-resident entities. Such conditions may include norms for minimum capitalization, lock-in period, etc. The entry conditions in various sectors/activities are detailed in Chapter 5 of this circular. 4.5 OTHER CONDITIONS ON INVESTMENT BESIDES ENTRY CONDITIONS 4.5.1 Besides the entry conditions on foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and caps with regard to the sectors in which such companies are operating. (iii) Operating-cum-investing companies: Foreign investment into such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating. Further, the subject Indian companies into which downstream investments are made by such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps in regard of the sector in which the subject Indian companies are operating. (iv) Investing companies: Foreign Investment in Investing Companies will require the prior Government/FIPB approval, regardless of the amount or extent of foreign investment. The Indian companies into which downstream investments are made by such investing companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps in regard of the sector in which the subject Indian companies are operating. 4.6.5 For infusion of foreign investment into such companies which do not have any operations and also do not have any downstream investments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.6 FIPB would consider each proposal in its totality 4.7.7 The Board should examine the following while considering proposals submitted to it for consideration. (i) whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into; (ii) whether the proposal involves any export projection and if so the items of export and the projected destinations. (iii)Whether the proposal has any strategic or defence related considerations. 4.7.8 While considering proposals the following may be prioritised. (i) Items falling in infrastructure sector. (ii) Items which have an export potential. (iii) Items which have large scale employment potential and especially for rural people. (iv) Items which have a direct or backward linkage with agro business/farm sector. (v) Items which have greater social relevance such as hospitals, human resource development, life saving drugs and equipment. (vi) Proposals which result in induction of technology or infusion of capital. 4.7.9 The following should be especially considered during the scrutiny and consideration of proposals. (i) The extent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erce Industry (iii) Secretary to Government, Department of Commerce, Ministry of Commerce Industry (iv) Secretary to Government, Economic Relations, Ministry of External Affairs (v) Secretary to Government, Ministry of Overseas Indian Affairs. 4.8.2 The Board would be able to co-opt other Secretaries to the Central Government and top officials of financial institutions, banks and professional experts of Industry and Commerce, as and when necessary. 4.9 APPROVAL LEVELS FOR CASES UNDER GOVERNMENT ROUTE 4.9.1 The following approval levels shall operate for proposals involving FDI under the Government route i.e. requiring prior Government approval: (i) The Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs.1200 crore. (ii) The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 1200 crore would be placed for consideration of CCEA. The FIPB Secretariat in DEA will process the recommendations of FIPB to obtain the approval of Minister of Finance and CCEA. (iii) The CCEA would also consider the proposals which may be referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables Mushrooms under controlled conditions and services related to agro and allied sectors. Note: Besides the above, FDI is not allowed in any other agricultural sector/activity. 5.2.2 For companies dealing with development of transgenic seeds/vegetables, the following conditions apply: (i) When dealing with genetically modified seeds or planting material the company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically modified organisms. (ii) Any import of genetically modified materials if required shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) Act, 1992 . (iii) The company shall comply with any other Law, Regulation or Policy governing genetically modified material in force from time to time. (iv) Undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the receipt of approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon). (iii) Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of "prescribed substances" under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/concentrates including Zircon, were removed from the list of "prescribed substances". (iv) FDI up to 100% is allowed under Government route in mining and mineral separation of titanium bearing minerals ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957). (v) FDI for separation of titanium bearing minerals ores will be subject to the following additional conditions viz.: (A) value addition facilities are set up within India along with transfer of technology; (B) disposal of tailings during the mineral separation shall be carried out in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) The management of the applicant company / partnership should be in Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians. (v) Full particulars of the Directors and the Chief Executives should be furnished along with the applications. (vi) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and having an established R D base. (vii) There would be no minimum capitalization for the FDI. A proper assessment, however, needs to be done by the management of the applicant company depending upon the product and the technology. The licensing authority would satisfy itself about the adequacy of the net worth of the foreign investor taking into account the category of weapons and equipment that are proposed to be manufactured. (viii) There would be a three-year lock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence. (xvi) Government decision on applications to FIPB for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement. 5.10 Drugs Pharmaceuticals including those involving use of recombinant technology -100% FDI is allowed under the automatic route 5.11 Hazardous chemicals viz. hydrocyanic acid and its derivatives; phosgene and its derivatives; and isocyanates and di-isocyanates of hydrocarbo n - 100% FDI is allowed under the automatic route and subject to the obtaining of Industrial licence under the Industries (Development Regulation) Act 1951. 5.12 Industrial Explosives - 100% FDI is allowed under the automatic route and subject to the obtaining of Industrial licence under the Industries (Development Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carriage by air of passengers or cargo for hire or reward. (v) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment; (vi)"Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis; (vii) "Scheduled air transport service", means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public. (viii) "Non-Scheduled Air Transport service" means any service which is not a scheduled air transport service and will include Chartered and Cargo airlines. (ix)"Chartered" and "Cargo" airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation. (x) "Seaplane" means an aeroplane capable normally of taking off from and alight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Sector would be subject to the Aircraft Rules, 1934 as amended from time to time, Civil Aviation Requirements, and Aeronautical Information Circulars as notified by the Ministry of Civil Aviation. 5.16. Asset Reconstruction Companies: 5.16.1 'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 5.16.2 Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the equity capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Automatic Route is not available for such investment. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs and FDI is restricted to 49 per cent of the paid-up capital of the ARC. 5.16.3 However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest upto 49 per cent of each tranche of scheme of SRs, subject to the condition that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for foreign direct investment (FDI route) in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached. (d) Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and FIPB as per para 4.2(iii) above. (e) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, D/o Company Affairs and IRDA on these matters will continue to apply. (f) RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to foreign investors as well. (ii) Setting up of a subsidiary by foreign banks (a) Foreign banks will be permitted to either have branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory authority in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Cable Networks under Government route subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting. 5.19.3 Direct-to-Home: Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Direct to Home under Government route. Within the limit of 49%, FDI will not exceed 20%. This will be subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting. 5.19.4 Headend-In-The-Sky (HITS) Broadcasting Service: (i) Headend-in-the-Sky (HITS) Broadcasting Service refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (Hub/teleport) and again uplinked to a satellite after encryption of channel. At the cable headend these encrypted pay channels are downlinked using a single satellite antenna, transmodulated and sent to the subscribers by using a land based transmission system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities. (ii) "recognized association" means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward Contracts (Regulation) Act, 1952 (iii) "Association" means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative. (iv) "Forward contract" means a contract for the delivery of goods and which is not a ready delivery contract. (v) "Commodity derivative" means- * a contract for delivery of goods, which is not a ready delivery contract; or * a contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified in consultation with the Forward Markets Commission by the Central Government, but does not include securities. 5.21.3 Policy for foreign investment in Commodity Exchanges (i) There is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction-development projects. 5.23.1 FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) is allowed subject to the following guidelines: Minimum area to be developed under each project would be as under: (i) In case of development of serviced housing plots, a minimum land area of 10 hectares (ii) In case of construction-development projects, a minimum built-up area of 50,000 sq.mts (iii)In case of a combination project, any one of the above two conditions would suffice. 5.23.2 The investment would further be subject to the following conditions: (j) Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. (ii) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Post Office Act, 1898. 5.24.1 100% FDI is allowed under the Government route. 5.24.2 This will be subject to existing Law i.e Indian Post Office Act 1898 and exclusion of activity relating to the distribution of letters. 5.25. Credit Information Companies (CIC) 5.25.1 Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005. 5.25.2 Foreign investment consisting of FDI and FII upto 49% is permitted under the Government route, subject to regulatory clearance from RBI. 5.25.3 Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment. 5.25.4 Such FII investment would be permitted subject to the conditions that: (a) No single entity should directly or indirectly hold more than 10% equity. (b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and (c) FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding. 5.26 Health and Medical Services: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available for allocation to the units, excluding the area for common facilities. (b) in the case of built up space- the floor area and built up space utilized for providing common facilities. (c) in the case of a combination of developed land and built-up space- the net site and floor area available for allocation to the units excluding the site area and built up space utilized for providing common facilities. (v) "Industrial Activity" means manufacturing, electricity, gas and water supply, post and telecommunications, software publishing, consultancy and supply, data processing, database activities and distribution of electronic content, other computer related activities, Research and experimental development on natural sciences and engineering, Business and management consultancy activities and Architectural, engineering and other technical activities. 5.28.4 FDI up to 100% under the automatic route is allowed both in setting up new and in established industrial parks and would not be subject to the conditionalities applicable for construction development projects etc. spelt out in Para 5.23 above provided the Industrial Parks meet with the under-mentioned conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of operating subsidiaries and without bringing in additional capital. (v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below. (vi) Non- Fund based activities : US $0.5 million for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition: It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company. Note: The following activities would be classified as Non-Fund Based activities: (a) Investment Advisory Services (b) Financial Consultancy (c) Forex Broking (d) Money Changing Business (e) Credit Rating Agencies (vii) This will be subject to compliance with the guidelines of RBI. 5.31.3 Credit Card business includes issuance, sales, marketing design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut on non-daily basis, containing public news or comments on public news. (iii) Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information Broadcasting on 4.12.2008. 5.33.3 Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals: 100% FDI is permitted under the Government route. (i) This will also be subject to compliance with the legal framework as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting. 5.33.4 Publication of facsimile edition of foreign newspapers: (i) FDI up to 100% is permitted under Government route in publication of facsimile edition of foreign newspapers provided the FDI is by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India. (ii) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, 1956. (iii) Publication of facsimile edition of foreign news ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the `Indian' shareholding will not be less than 26 percent. (iii) FDI up to 49 percent is on the automatic route and beyond that on the Government route. FDI in the licensee company/Indian promoters/investment companies including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 percent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities. (iv) The investment approval by FIPB shall envisage the conditionality that Company would adhere to licence Agreement. (v) FDI shall be subject to laws of India and not the laws of the foreign country/countries. 5.38.2 Security Conditions: (i) The Chief Officer In-charge of technical network operations and the Chief Security Officer should be a resident Indian citizen. (ii) Details of infrastructure/network diagram (technical details of the network) coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Agencies (IB). (xii) Under no circumstances, should any RA to the suppliers/manufacturers and affiliate(s) be enabled to access Lawful Interception System(LIS), Lawful Interception Monitoring(LIM), Call contents of the traffic and any such sensitive sector/data, which the licensor may notify from time to time. (xiii) The licensee company is not allowed to use remote access facility for monitoring of content. (xiv) Suitable technical device should be made available at Indian end to the designated security agency/licensor in which a mirror image of the remote access information is available on line for monitoring purposes. (xv) Complete audit trail of the remote access activities pertaining to the network operated in India should be maintained for a period of six months and provided on request to the licensor or any other agency authorised by the licensor. (xvi) The telecom service providers should ensure that necessary provision (hardware/software) is available in their equipment for doing the Lawful interception and monitoring from a centralized location. (xvii) The telecom service providers should familiarize/train Vigilance Technical Monitoring (VTM)/security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The investment upto 49% is under the automatic route and beyond 49% under the Government route. (iii) This will be subject to the condition that such companies will divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. (iv) This will be subject to licensing and security requirements notified by the Department of Telecommunications. 5.39 Trading: 5.39.1 100% FDI is permitted under the automatic route for trading companies for the following activities: 5.39.1.1 Cash Carry trading Wholesale Trading/ Wholesale Trading. 5.39.1.1 (i) Definition: Cash Carry Wholesale trading/Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. Wholesale trading would, accordingly, be sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly. 5.39.1.2 Trading for exports. 5.39.1.3 E-commerce activities: E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well. 5.39.2 100% FDI is permitted under the Government route for trading companies for the following activities: (i) Trading of items sourced from small scale sector. (ii) Test marketing of such items for which a company has approval for manufacture, provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facility commences simultaneously with test marketing. 5.39.3 Single Brand product trading: FDI up to 51%, under the Government route is allowed in retail trade of 'Single Brand' products. This is, inter alia, aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds of shares and securities and their remittance is 'remittance of asset' governed by The Foreign Exchange Management (Remittance of Assets) Regulations 2000 under FEMA. (ii) AD Category - I bank can allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India, provided the security has been held on repatriation basis, the sale of security has been made in accordance with the prescribed guidelines and NOC / tax clearance certificate from the Income Tax Department has been produced. (iii) Remittance on winding up/liquidation of Companies AD Category - I banks have been allowed to remit winding up proceeds of companies in India, which are under liquidation, subject to payment of applicable taxes. Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, 1956. AD Category - I banks shall allow the remittance provided the applicant submits: a. No objection or Tax clearance certificate from Income Tax Department for the remittance. b. Auditor's certificate confirming that all lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily compulsorily convertible preference shares, the Indian company has to file Form FC-GPR , enclosed in Annex-1, not later than 30 days from the date of issue of shares. (ii) Part A of Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorized Dealer of the company, who will forward it to the Reserve Bank. The following documents have to be submitted along with Part A: (a) A certificate from the Company Secretary of the company certifying that: (A) all the requirements of the Companies Act, 1956 have been complied with; (B) terms and conditions of the Government's approval, if any, have been complied with; (C) the company is eligible to issue shares under these Regulations; and (D) the company has all original certificates issued by authorized dealers in India evidencing receipt of amount of consideration. Note: For companies with paid up capital with less than Rs.5 crore, the above mentioned certificate can be given by a practicing company secretary . (b) A certificate from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai - 400 051, within seven working days from the close of month to which it relates. The words "ECB wholly converted to equity" shall be clearly indicated on top of the Form ECB-2 . Once reported, filing of Form ECB-2 in the subsequent months is not necessary. (ii) In case of partial conversion of ECB, the company shall report the converted portion in Form FC-GPR to the Regional Office concerned as well as in Form ECB-2 clearly differentiating the converted portion from the non-converted portion. The words "ECB partially converted to equity" shall be indicated on top of the Form ECB-2 . In the subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to DSIM. 6.2.5 Reporting of FCCB/ADR/GDR Issues The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the Form enclosed as Annex-8, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government. 6.3.2 Adjudication and Appeals (i) For the purpose of adjudication of any contravention of FEMA, the Ministry of Finance as per the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 appoints officers of the Central Government as the Adjudicating Authorities for holding an enquiry in the manner prescribed. A reasonable opportunity has to be given to the person alleged to have committed contraventions against whom a complaint has been made for being heard before imposing any penalty. (ii) The Central Government may appoint as per the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 , an Appealing Authority/ Appellate Tribunal to hear appeals against the orders of the adjudicating authority. 6.3.3 Compounding Proceedings Under the Foreign Exchange (Compounding Proceedings) Rules 2000 , the Central Government may appoint 'Compounding Authority' an officer either from Enforcement Directorate or Reserve Bank of India for any person contravening any provisions of the FEMA. The Compounding Authorities are authorized to compound the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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