DIVISION ONE GUIDE TO FDI POLICY

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1 CONTENTS u Chapter-heads I-5 u FDI Policy at a Glance Issued on I-15 DIVISION ONE GUIDE TO FDI POLICY 1 BACKGROUND OF FOREIGN INVESTMENT IN INDIA 1.1 Introduction Consolidated Circular on FDI Foreign Exchange Policy Control over Industry and Commerce SEBI Ministry of Corporate Affairs FOREIGN DIRECT INVESTMENT (FDI) 2.1 Modes of Foreign Investment in India Policy of FDI Who can make FDI Calculation of Total Foreign Investment Meaning of minimum capitalisation Downstream investment by Indian companies owned and controlled by non-resident entities Share Swap Meaning of capital Acquisition of Indian company by non-resident entity where there is sectoral cap 1.12 I-7

2 I-8 CONTENTS 3 INDUSTRIAL POLICY TOWARDS FOREIGN INVESTMENT IN INDIA 3.1 Industrial Policy towards foreign investment in India Items reserved exclusively for public sector Products requiring licensing Procedure for industrial license No locational restrictions Fresh tie-up or collaboration with different partner even if there was earlier collaboration with another partner Procedure for Large and Medium Industries Application for licensing Filing of IEM Classification of products Monthly production return Procedure regarding foreign investment Foreign Investment in MSE (Micro and Small Enterprises) (earlier termed as Small scale industries) Items reserved for MSE (Micro and Small Enterprises) (earlier termed as Small scale industries) Foreign investment in existing companies SECTORAL INVESTMENT CAP FOR FDI 4.1 Sectoral Investment Cap for FDI Prohibited sectors No limit for FDI in any other Sector/Activity PROCEDURE FOR APPROVAL FOR FDI IN INDIA 5.1 Procedure for approval for FDI in India Automatic Route of RBI for Issue of shares by an Indian company Activities where automatic route is not available 1.26

3 CONTENTS I FIPB approval where automatic route not available Guidelines for applications ISSUE OF SHARES UNDER FDI 6.1 Issue of shares under FDI Subscription money and issue of shares Reporting to RBI on receipt of consideration of shares/ debentures Only compulsorily convertible preference shares and/or debentures under FDI Bonus shares/rights issues Transfer of security invested in FDI INVESTMENT SCHEMES FOR NRI 7.1 Special schemes for NRI FDI by NRI Portfolio Investment scheme for NRI Separate PIS sub-account by NRI Purchase and sale of shares/convertible debentures by NRI on non-repatriation basis NRIs resident of Nepal and Bhutan and citizens of Nepal and Bhutan Purchase by NRI of other securities on repatriation/nonrepatriation basis NRI cannot open PF account or post office account but can continue earlier account till maturity Derivative contracts by NRI NRI Investment in foreign exchange fully repatriable Investment by NRI/PIO in partnership/proprietary concern NRI can hold and retain property and security acquired when he has resident of India Transmission by inheritance without permission Rupee Loans to NRI/PIO 1.41

4 I-10 CONTENTS Loans/gifts/medical assistance from resident individual to NRI who is close relative Income and sale proceeds of assets held abroad by NRI when he returns to India can be retained abroad INVESTMENT BY FII, QFI, FPI AND VENTURE CAPITALIST 8.1 Investment by Foreign Institutional Investors [FII] Investments by FII FII investment in debt instruments Investment in tier I and II instruments issued by Banks in India FII investment in units in mutual funds Portfolio investment of FII in India Derivative contracts by FII/NRI Bank Account by FII Buy back of shares by company Monitoring of FII investment limit Custodians of FIIs SEBI Regulations in respect of FII Write off of securities by FIIs Mauritius Route for foreign investment by FII Foreign Venture Capital SEBI Regulations in respect of Venture Capital Fund Qualified Foreign Investors (QFI) Foreign Portfolio Investor GDR/ADR/FCCB/FCEB 9.1 Background of GDR/ADR Government Policy Relevant definitions Issue of shares by International offering through ADR and/or GDR Conversion of existing shares into ADR/GDR 1.55

5 CONTENTS I Sponsored ADR/GDR issue Issue of ADR/GDR by unlisted companies End use restrictions on proceeds of ADR/GDR GDR and ADR American Depository Receipts (ADRs) FCCB and FCEB Foreign Currency Exchangeable Bonds (FCEB) Government Directives for issue of GDR/FCCB/FCEB Other instructions for issue of ADR/GDR Procedure for issue of Euro Bonds Other aspects of GDR/ADR Sale of shares underlying GDR/ADR and re-conversion Two way fungibility of GDR/ADR Difficulties in Euro Issues Taxation Aspects of GDR/ADR Control over GDR/ADR is of RBI and Central Government, not of SEBI OTHER INVESTMENT IN INDIA 10.1 Investment in firm or proprietary concern in India Investment by NRI/PIO on non-repatriation basis Return of capital invested by NRI Investment in India by Offshore Funds Foreign Direct Investment in LLP in India No FDI in other entities Investment by Foreign Central Bank Investment in units of Domestic Mutual Funds by nonresident investors Foreign investment in Infrastructure Debt Funds Credit enhanced bonds EXTERNAL COMMERCIAL BORROWING (ECB) 11.1 ECB as per guidelines 1.75

6 I-12 CONTENTS 11.2 Policy of external commercial borrowings Recognised lenders - Sources of ECB All-in-cost ceiling on interest, expenses etc. of ECB Maturity of ECB Security for ECB Guarantee by Bank/FI only under approval route End use restrictions on ECB Restrictions on end-use when ECB is under approval route Parking of funds abroad or in India till actually required ECB can be used for investment in overseas JV/ WOS Change in end use of ECB proceeds Meaning of infrastructure sector for ECB Automatic route of ECB Approval route of ECB Loan Registration Number (LRN) Conversion of ECB and secured/unsecured loan into equity shares Prepayment of ECB ECB by SEZ units and developer Approval of AD/RBI changes in terms and conditions of ECB Change in the lender ISSUE OF SECURITIES OF INDIAN ENTITY 12.1 Issue of security to non-resident Definitions of certain terms Investment by certain persons resident outside India Acquisition of right shares issued by Indian company Issue of bonus shares Issue and acquisition of shares after merger or demerger or amalgamation of Indian companies 1.96

7 CONTENTS I Issue of shares under Employees Stock Options Scheme to persons resident outside India ADR/GDR based ESOP to employees in knowledge based sector Government dated securities by Multilateral Development Bank Repatriation of funds received for purchase of shares Shares/debentures must be issued within 180 days TRANSFER OF SHARES AND CONVERTIBLE DEBENTURES OF AN INDIAN COMPANY 13.1 Background General permission for transfer of shares and convertible debentures in certain cases Procedure for receipt of sale consideration from outside India Permission of RBI in certain cases for transfer of securities Transmission by inheritance without permission Transfer of participating interest/rights in oil fields Remittance of sale proceeds of security Pledge of securities of company incorporated in India by non-resident investors ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA 14.1 Background Acquisition and Transfer of Property in India by an Indian Citizen resident outside India Acquisition and Transfer of Property in India by PIO Acquisition by others only through inheritance Sale of immovable property by NRI/PIO Immovable property for carrying on business Sale/purchase by foreign embassies/diplomats Encashment of security of immovable assets created for purpose of ECB 1.110

8 I-14 CONTENTS 15 ESTABLISHMENT OF BRANCH OR OFFICE IN INDIA 15.1 Background Branch office or liaison office in India only with approval of RBI Liaison offices in India by foreign insurance companies Project office in India without permission of RBI in certain cases Branch office in SEZ Account by branch/project office of person resident out of India Remittance of profit or surplus by branches Submission of Annual Activity Certificate to AD and Income Tax Authorities Closure of liaison office or branch Permitted activities by branch in India Compliances under Company Law on branches of foreign companies DIVISION TWO CONSOLIDATED FDI POLICY u Consolidated FDI Policy Issued on DIVISION THREE A.P. (DIR SERIES) CIRCULAR 2014 u A.P. (DIR Series) ( ) Circular No. 123, dated u A.P. (DIR Series) ( ) Circular No. 124, dated

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