|
|
Investment (FDI) is permitted as under the following forms of
investments.
|
| |
Through financial collaborations.
|
| |
Through joint ventures and technical collaborations.
|
| |
Through capital markets via Euro issues.
|
| |
Through private placements or preferential allotments.
|
| |
Forbidden Territories:
|
| |
FDI is not permitted in the following industrial sectors:
|
| |
Arms and ammunition.
|
| |
Railway Transport.
|
| |
Coal and lignite.
|
| |
Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper,
zinc.
|
| |
Foreign Investment through GDRs (Euro Issues)
|
| |
Foreign Investment through GDRs is treated as Foreign Direct Investment
|
| |
Indian companies are allowed to raise equity capital in the
international market through the issue of Global Depository Receipt (GDRs).
GDRs are designated in dollars and are not subject to any ceilings on
investment. An applicant company seeking Government's approval in this regard
should have consistent track record for good performance (financial or
otherwise) for a minimum period of 3 years. This condition would be relaxed for
infrastructure projects such as power generation, telecommunication, petroleum
exploration and refining, ports, airports and roads.
|
| |
Clearance from FIPB |
| |
There is no restriction on the number of Euro-issue to be
floated by a company or a group of companies in the financial year . A company
engaged in the manufacture of items covered under Annex-III of the New
Industrial Policy whose direct foreign investment after a proposed Euro issue
is likely to exceed 51% or which is implementing a project not contained in
Annex-III, would need to obtain prior FIPB clearance before seeking final
approval from Ministry of Finance.
|
| |
Use of GDRs |
| |
The proceeds of the GDRs can be used for financing capital
goods imports, capital expenditure including domestic purchase/installation of
plant, equipment and building and investment in software development,
prepayment or scheduled repayment of earlier external borrowings, and equity
investment in JV/WOSs in India.
|
| |
Restrictions |
| |
However, investment in stock markets and real estate will not
be permitted. Companies may retain the proceeds abroad or may remit funds into
India in anticiption of the use of funds for approved end uses. Any investment
from a foreign firm into India requires the prior approval of the Government of
India.
|
| |
Investment in India - Foreign Direct Investment - Approval
Foreign direct investments in India are approved through two routes:
Automatic approval by RBI:
|
| |
The Reserve Bank of India accords automatic approval within a
period of two weeks (provided certain parameters are met) to all proposals
involving:
|
| |
foreign equity up to 50% in 3 categories relating to mining
activities (List 2).
|
| |
foreign equity up to 51% in 48 specified industries (List 3).
|
| |
where List 4 includes items also listed in List 3, 74% participation shall
apply.
|
| |
The lists are comprehensive and cover most industries of
interest to foreign companies. Investments in high-priority industries or for
trading companies primarily engaged in exporting are given almost automatic
approval by the RBI.
|
| |
Opening an office in India |
| |
Opening an office in India for the aforesaid incorporates
assessing the commercial opportunity for self, planning business, obtaining
legal, financial, official, environmental, and tax advice as needed, choosing
legal and capital structure, selecting a location, obtaining personnel,
developing a product marketing strategy and more.
|
| |
The FIPB Route: |
| |
Processing of non-automatic approval cases |
| |
FIPB stands for Foreign Investment Promotion Board which
approves all other cases where the parameters of automatic approval are not
met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all
sectors and all types of proposals, and rejections are few. It is not necessary
for foreign investors to have a local partner, even when the foreign investor
wishes to hold less than the entire equity of the company. The portion of the
equity not proposed to be held by the foreign investor can be offered to the
public.
|
| |
Total foreign investment and FDI |
| |
Total foreign investment in IFY 1997-98 was estimated at dols
4.8 billion in 1997-98, compared to dols 6 billion in 1996-97. Foreign Direct
Investment (FDI) in 1997-98 was an estimated dols 3.1 billion, up from dols 2.7
billion in1996-97. The government is likely to double FDI inflows within two
years. Foreign portfolio investment by foreign institutional investors was
significantly lower at dols 752 million for fiscal 1997-98, down compared to
dols 1.9 billion in1996-97, partly reflecting the effect of the recent crisis
in Asia.
|
| |
Foreign institutional investors |
| |
Foreign institutional investors (FIIs) were net sellers from
November 1997 through January 1998. The outflow, prompted by the economic and
currency crisis in Asia and some volatility in the Indian rupee, was modest
compared to the roughly dols 9 billion which has been invested in India by FIIs
since 1992.
|
| |
FII investments |
| |
FII net investment declined to dols 1.5 billion for IFY
1997-98, compared to dols 2.2 billion in 1996-97. The trend reversed itself in
February and March 1998, reflecting the renewed stability of the rupee and
relatively attractive valuations on Indian stock markets.
|
| |
Large outflows of capital |
| |
Large outflows began again in May 1998, following India's
nuclear tests and volatility in the rupee/dollar exchange rate. In an effort to
avoid further heavy outflows, the RBI announced in June that FIIs would be
allowed to hedge their incremental investments in Indian markets after June11,
1998.
|