SBS Hyderabad AN OVERVIEW ON FOREIGN DIRECT INVESTMENT (FDI) By Sunil Reddy Sama sunils@sbsandco.com Date: 16.09.2017
Objectives History of FDI in India Introduction Advantages Disadvantages Types of FDI Who can invest Where to invest Prohibited Sectors 2
History of FDI in India What is FDI How FDI came to India Do we require FDI 3
Advantages of FDI Augmenting of domestic capital Productivity Employment Technical Know-how Infrastructure Special Tax Privileges Economic Growth 4
Disadvantages of FDI Disappearance of cottage and small scale industries Contribution to the pollution Exchange crisis Cultural erosion Political corruption Currency convertibility Inflation in the Economy 5
Relevant Regulations and Notifications Regulated by Foreign Exchange Management(Transfer or Issue of security by a person resident outside India) Regulations,2000 Notification No.FEMA 20/2000-RB dated 3 rd May,2000 Latest FDI Policy announced by Government is effective from 12 th May,2015 6
Types 7
Types of FDI Horizontal FDI Vertical FDI Platform FDI 8
Methods of FDI Incorporating a wholly owned subsidiary or company anywhere Acquiring shares in an associated enterprise Merger or an acquisition of an unrelated enterprise Participating in an equity joint venture with another investor or enterprise 9
FDI Routes FDI Route Automatic Route Government Route 10
Who can invest in India A Non-resident entity Overseas Corporate Bodies (OCB s) w.e.f. 16th September,2003 Type of holding Individual holding Aggregate holding Limits FII/FPI- 10% of the capital of the company FII/FPI/QFI 24% of the capital of the company A SEBI registered Foreign Venture Capital Investor (FVCI) Qualified Foreign Investors (QFI s) investment in equity shares Citizen or entity of Bangladesh - only government route Citizen or entity of Pakistan - only government route other than defence,space,atomic energy and sectors prohibited NRI of Nepal and Bhutan - on repatriation basis 11
Entities into which FDI can be made(1/3) FDI in an Indian Company Micro and Small Enterprises An Industrial Undertaking - 24% of it s paid-up share capital with prior approval of Foreign Investment Promotion Board (FIPB)* of Government of India Size of the enterprise Goods Services Micro Enterprises Up to Rs.25 lakh Up to Rs.10 lakh Small Enterprises Rs.25 lakh to Rs.5 crore Rs.10 lakh to Rs.2 crore * As per Finance Budget-2016,FIPB 12
Entities into which FDI can be made(2/3) FDI in Partnership Firm/Proprietary Concern NRI or PIO resident outside India on non-repatriation basis Inward Remittance or out of NRE/FCNR(B)/NRO account Not eligible for repatriation outside India Investment restricted in some sectors Investments with repatriation option Investments by non-residents other than NRIs/PIO 13
Entities into which FDI can be made(3/3) FDI in Limited Liability Partnership (LLP) - From 20 th May,2011 FDI is allowed in LLP registered and formed under the LLP Act,2008 FDI in Venture Capital Fund (VCF) Nature of VCF VCF as Trust VCF as Company Person resident outside India (NR Entity/Individual including an NRI) Can invest in such domestic VCF subject to approval of FIPB Can invest in such domestic VCF through automatic route of FDI scheme FDI in Trusts - other than VCF not permitted FDI in other entities - not permitted 14
FDI in Other Financial Services* 100 % investment allowed Automatic Route NBFC s engaged in 18 activities listed *Other Financial Services-RBI,SEBI,IRDAI,PFRDAI,NHB or any other as specified by Government of India in this regard. 15
Types of Instruments Instruments Capital Debt Equity (Fully paid/ Partly paid) CCPS ADR/GDR CCD FCCB 16
FDI-Prohibited Sectors(1/2) Real Estate and construction of farm houses Lottery Gambling and Betting including casinos etc. Nidhi Company Chit Funds Activities / Sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems) Trading in Transferable Development Rights (TDR s) 17
FDI-Prohibited Sectors(2/2) Manufacturing of cigars, cheroots, cigarillos and tobacco products Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms etc., Plantations (other than Tea, coffee, rubber, cardamom, palm oil tree and olive oil tree plantations) Foreign Technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business, Gambling and Betting Activities 18
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