India’s foreign direct investment (FDI) rules have been substantially liberalised since the country first allowed foreign investment in the early 1990s. Most sectors are now open to 100% FDI .
Investments in India can be made by a foreign company under the Indian Laws and Regulations by the following means:
1. Liaison or representative office
2. Project office
3. Branch office
4. 100% subsidiary company
5. Joint venture company
Financial and technical approval has to be taken through the Reserve Bank of India in some cases and through the Government Authorities in other cases. In certain cases of foreign direct investments Automatic Approval is given by the Reserve Bank of India. In such cases of automatic approval, no prior approval is required, and the company has to report the foreign investment- equity or allotment of share within 30 days of receipt of the foreign investment.
In certain investments approval is required from the Government of India that is the ForeignInvestment Promotion Board (FIPB). In the cases of NRI investments permissions have to be taken from Secretariat for Industrial Assistance (SIA).
Any company that is set up with foreign direct investment has to be incorporated under Indian Companies’ Act 1956 and has to be registered with theRegistrar of Companies.
However, many foreign investors still prefer to set up a joint venture with an Indian partner company as this can, for instance, give them access to the Indian partner’s pre-established market and distribution channels, local management and know-how.
Under the Indian Laws there is anequity cap for foreign investments in India.The following table that has been taken from the Government of India, Ministry of Commerce and Industry, shows the cap on foreign direct investments made in the following sectors.
|S. No.||Sector||FDI cap (in %)||Activities|
|1||Telecom||49||basic, cellular, value-added services, global mobile personal communications by satellite|
|74||internet service providers with gateways, radio paging and end-to-end bandwidth|
|2||Coal & Lignite||49||public sector undertakings|
|50||other than public sector undertakings|
|74||for exploration & mining of coal or lignite for captive consumption|
|3||Mining||74||exploration and mining of diamonds and precious stones|
|4||Private Sector Banking||49||private banking sector|
|5||Insurance||26||insurance sector (subject to obtaining license from IRDA)|
|6||Domestic Airlines||40||no direct or indirect equity participation by foreign airlines|
|7||Petroleum||60||in unincorporated joint venture|
|(Other than refining)||51||in incorporated joint venture|
|51||petroleum products and pipelines sector|
|74||in infrastructure related marketing and marketing of petroleum products|
|Refining||for public sector undertakings|
|8||Investing companies in Infrastructure/Service sectors||49||investment through such vehicle is treated as resident equity|
|9||Atomic minerals||74||a. mining and mineral separation;|
|b. value addition;|
|c. integrated activities.|
|10||Defence industry sector||26||for arms and ammunfor arms and ammunition and allied items of defence equipment, defence aircraft and warships|
|Setting up hardware facilities, such as uplinking, HUB, etc.|
|49||Private companies incorporated in India with permissible FII/NRI/OCB/PIO equity within the limits (as in the case of telecom sector FDI limit up to 49% inclusive of both FDI and portfolio investment) to set up up linking hub (teleports) for leasing or hiring out their facilities to broadcasters|
|Footnote: As regards satellite broadcasting, all T.V. Channels irrespective of the ownership or management control to uplink from India provided they undertake to comply with the broadcast (programme and advertising) code|
|Foreign investment allowed up to 49% (inclusive of both FDI and portfolio investment) of paid up share capital. Companies with minimum 51% of paid up share capital held by Indian citizens are eligible under the Cable Television Network Rules (1994) to provide cable TV services.|
|Cable network||Companies with a maximum of foreign equity including FDI/NRI/OCB/FII of 49% would be eligible to obtain DTH License. Within the foreign equity, the FDI component not to exceed 20%.|
|49||The licensee shall be a company registered in India under the Companies Act. All share holding should be held by Indians except for the limited portfolio investment by FII/NRI/PIO/OCB subject to such ceiling as may be decided from time to time. Company shall have no direct investment by foreign entities, NRIs and OCBs. As of now, the foreign investment is permissible to the extent of 20% portfolio investment. No private operator is allowed in terrestrial TV transmission|
|Terrestrial Broadcasting FM|
|20 (portfolio investment)|
|12th=”133″>Small Scale Industries (SSI) sector||24||if FDI in an SSI unit exceeds 24% of the paid up capital, the company loses its SSI status. Further, if the item/s of manufacture is/are reserved for SSI sector, the company has to obtain an industrial license and undertake a minimum export obligation of 50% of annual production on such products|
|13||Satellites||74%||Establishment and operation of Satellites|
|14||Tea Sector||100%*||FDI permitted in Tea sector, including tea plantations requiring prior Government approval|
|* subject to compulsory divestment of 26% equity of the company in favour of an Indian partner/Indian public within a period of five years.|
|15||Print Media||74%**||In Indian entities publishing scientific/technical and speciality magazines/periodical/journals|
|26%**||In Indian entities publishing newspapers and periodicals|
|** subject to guidelines notified by Ministry of Information & Broadcasting from time to time|