Foreign Direct Investment (FDI)
FDI as the name
suggests, it is an investment directly made by a foreign company into business
in another country. Such investment could be either in the form of business
expansion in another country or could be a result of buyout of the company.
Direct Foreign
investments in India were introduced by the then Finance
Minister Dr. Manmohan Singh in 1991 under Foreign Exchange Management Act to
promote such investments thereby increasing supply of domestic capital &
increase the economic growth.
As per Foreign Exchange
Management Act, ‘FDI’ means investment by non-resident entity/person resident
outside India in the capital of an Indian company under Schedule 1 of Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations 2000.
In
India, foreign investments can be made through any of the following methods:
1. Incorporate
a wholly
owned subsidiary (WOS) or a company
2. Result
of merger or an acquisition of an unrelated enterprise
3. Acquire
shares in an associated enterprise
4. Participate
in an equity joint venture with another investor or enterprise
Who can invest in India?
1. A
Non-resident entity means a person resident outside India
2. Non
Resident Indian or Person of Indian Origin (PIO holder) or Overseas Citizen of
India (OCI holder)
3. A
body corporate means a company incorporated outside India
4. Foreign
Institutional Investor (FII) means an entity established or incorporated
outside India which proposes to make investment in India and which is
registered as a FII in accordance with the Securities and Exchange Board of
India (SEBI) (Foreign Institutional Investor) Regulations 1995.
5. Foreign
Venture Capital Investor (FVCI) means an investor incorporated and established
outside India, which is registered under the Securities and Exchange Board of
India (Foreign Venture Capital Investor) Regulations, 2000 {SEBI(FVCI)
Regulations} and proposes to make investment in accordance with these
Regulations
ENTRY ROUTES FOR INVESTMENTS
There are two
important routes specified by Government of India through which an investor can
apply for FDI. These are “Automatic route” and “Government approval route”.
“Automatic route” means Non Resident entities can
invest in the capital of resident entities without the prior approval of
Government i.e. Foreign Investment Promotion Board (FIPB), Department of
Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy
& Promotion, as the case may be. Some of the major sectors in which
Automatic route is permitted: Agriculture, mining, petroleum and natural gas,
manufacturing, information services, trading, e-commerce activities. The
investment percentage under Automatic route is permitted depending upon the
nature of business.
“Government approval route” means that investment
in the capital of resident entities by non-resident entities can be made only
with the prior approval of Government i.e. Foreign Investment Promotion
Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or
Department of Industrial Policy & Promotion, as the case may be. The
sectors which are not covered under automatic route shall require approval of
Government before any investment.
For more information on Taxes and Foreign Investment in
India (FDI) Please feel free to send query to us by visiting link Account outsourcing companies in India
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