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FOREIGN DIRECT INVESTMENT
The role of Foreign Direct Investment (FDI) in the
upgradation of technology, skills and managerial capabilities
is now well accepted. Additional investments, over and
above the investments possible with the available domestic
resources, help in providing much needed employment
opportunities.
Foreign Direct Investment (FDI) inflows for the year 2011-12
Under the extant Foreign Direct Investment (FDI) policy, FDI upto 100 percent is allowed under the automatic route in most sectors/activities, except a few, where sectoral equity/entry route restrictions have been retained. FDI, under the automatic route, does not require any approval and only involves intimation to the Reserve Bank of India within 30 days of inward remittances and/or issue of shares to non-residents.
The FDI policy rationalization and liberalization measures taken by the Government have resulted in increased inflows of FDI over the years.FDI equity inflow in the month of November 2011, stood at US$ 2.54 billion. Amount of FDI inflows from April 2011 to November 2011 were recorded at US$ 22.83 billion. Cumulative amount of FDI (from April 2000 to November 2011) into India stood at US$ 152.55 billion.
Sector-wise distribution of equity inflows
During November 2011, services sector attracted 21 per cent of the total FDI equity inflow into India, while Telecommunications attracted second largest amount of FDI with 8 per cent share during the same period. Computer Software & Hardware was the third highest sector attracting FDI with 7 per cent of total inflows followed by housing and real estate and construction activities (includes roads & highways) which garnered 7 per cent shares each.
Country-wise distribution of For inflows
During November 2011, Mauritius was the top investing country for India with 41 per cent of the total inflows. Singapore was second with 10 per cent share, U.S.A stood third with 7 per cent share. U.K and Japan were on fourth and fifth places with 6 per cent and 5 per cent shares respectively.
Foreign Direct Investment Policy
India's foreign investment policy has been formulated
with a view to inviting and encouraging FDI into India.
The process of regulation and approval has been substantially
liberalised. FDI under automatic route is permitted
in most activities/sectors, except a few where prior
approval of the Government is required.
Government of India welcomes FDI in all sectors where
it is permitted, especially for development of infrastructure,
technological upgradation of Indian industry through
'greenfield' investments and in projects having the
potential of creating employment opportunities on a
large scale. Investment for setting up Special Economic
Zones (SEZs) and establishing manufacturing units are
also welcomed.
Entry Routes for Investment
Procedure under Automatic Route
FDI in sectors/activities permitted under automatic
route does not require any prior approval either by
the Government or RBI. The investors are only required
to notify the Regional office concerned of RBI within
30 days of receipt of inward remittances and file the
required documents with that office within 30 days of
issue of shares to foreign investors.
Procedure under Government
Approval
FDI in activities not covered under the automatic route
require prior Government approval. Such proposals are
considered by the Foreign Investment Promotion Board
(FIPB), a Government body that offers single window
clearance for proposals on foreign investment in the
country that are not allowed access through the automatic
route.
Government approval is required in the following cases:
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Where a foreign investor has an existing joint venture/technology transfer / trademark agreement in the same field, prior to January 12, 2005, the proposal for fresh investment / technology transfer / collaboration / trademark agreement in a new joint venture would have to be under the Government approval route through FIPB.
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In sectors with caps, including inter-alia defence
production, air transport services, ground handling
services, asset reconstruction companies, private
sector banking, broadcasting, commodity exchanges,
credit information companies, insurance, print media,
telecommunications and satellites, Government approval / FIPB
approval would be required in all cases where:
The control or ownership of an existing Indian
company, currently owned or controlled by resident
Indian citizens and Indian companies, which are
owned or controlled by resident Indian citizens,
is being transferred to a non-resident entity
as a consequence of transfer of shares and/or
fresh issue of shares.
These guidelines do not apply for sectors/activities
where there are no foreign investment caps, that is,
100% foreign investment is permitted under the automatic
route.
Investment by way of Share Acquisition
A foreign investing company is entitled to acquire
the shares of an Indian company without obtaining
any prior permission of the FIPB subject to prescribed
parameters/ guidelines.If the acquisition of shares
directly or indirectly results in the acquisition
of a company listed on the stock exchange, it
would require the approval of the Security Exchange
Board of India. New investment by an existing collaborator
in India
A foreign investor with an existing venture or collaboration
(technical and financial) with an Indian partner in
particular field proposes to invest in another area,
such type of additional investment is subject to a prior
approval from the FIPB, wherein both the parties are
required to participate to demonstrate that the new
venture does not prejudice the old one.
General Permission of RBI under
FEMA
Indian companies having foreign investment approval
through FIPB route do not require any further
clearance from RBI for receiving inward remittance
and issue of shares to the foreign investors.The
companies are required to notify the concerned
Regional office of the RBI of receipt of inward
remittances within 30 days of such receipt and
within 30 days of issue of shares to the foreign
investors or NRIs.
Participation by International
Financial Institutions
Equity participation by international financial institutions
such as ADB, IFC, CDC, DEG, etc., in domestic companies
is permitted through automatic route, subject to SEBI/RBI
regulations and sector specific cap on FDI.
Applications for all FDI cases, except Non-Resident
Indian (NRI) investments, Export Oriented Units (EOUs)
and for FDI in retail trading (single branded product)
should be submitted to the FIPB Unit, Department of
Economic Affairs (DEA), Ministry of Finance. The procedure
for filing FDI applications has been simplified through
e-filing facility launched by the DEA. For e-filing,
please see FIPB website at www.fipbindia.com.
Applications for NRI investment, EOU and for FDI in
single-brand retail trading should be submitted to Secretariat
for Industrial Assistance (SIA) in Department of Industrial
Policy & Promotion (DIPP).
Sectors Prohibited for
Foreign Direct Investment
FDI is prohibited in only the following activities:
(a) Retail Trading (except single brand product retailing)
(b) Atomic Energy
(c) Lottery Business including Government /private
lottery, online lotteries,etc.
(d)Gambling and Betting including casinos etc.
(e)Business of chit fund
(f) Nidhi company
(g)Trading in Transferable Development Rights
(TDRs)
(h)Real Estate Business or Construction of Farm
Houses
(i) Activities/sectors not opened to private sector
investment
(j) Manufacturing of Cigars, cheroots, cigarillos and
cigarettes, of tobacco or of tobacco substitutes.
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