CONSOLIDATED FOREIGN DIRECT INVESTMENT
POLICY -2013
By K P C Rao., LLB., FCMA., FCS
Practicing Company Secretary
kpcrao.india@gmail.com
INTRODUCTION
India’s conscious
shift in the early 1990s from an inward-looking development strategy to a
globalized market-based approach resulted in significant changes in its foreign
investment policy. Till the 1990s, the policy was heavily restrictive with
majority foreign equity permitted only in a handful export-oriented, high
technology industries. Outward-oriented reforms radically changed such
perceptions with foreign investment policy becoming progressively liberal
following steady withdrawal of external capital controls and simplification of
procedures.
India’s present
policy framework for inward FDI was introduced by the Industrial Policy
Statement of July 24, 1991. The framework has subsequently evolved and enlarged
in line with reforms and structural developments in the economy. The present
policy allows foreign investors to invest in resident entities through either
the automatic route or the government-administered route. Most sectors and
activities qualify for the automatic route. This route allows investors to
bring in funds without obtaining prior permission from the Government, RBI, or
any other regulatory agency.
Certain investment
intentions do not qualify under automatic route and require prior permission
from the government. There are also sectors/activities where despite being
eligible for automatic route, foreign investment is subject to other caveats. Though almost all of manufacturing is
fully open to foreign investment, limitations on extent of foreign ownership
(measured by proportion of equity capital belonging to non-resident entities)
prevail in several services. Most of India’s agriculture is closed to foreign
investment except[1] some
segments, while it is prohibited in atomic energy, lottery business, gambling
& betting and retail trading (except single-brand retailing).
The present policy
permits foreign investors to collaborate with local partners as well as
establish wholly owned subsidiaries (WOSs). Both joint ventures and WOSs can be
incorporated as resident enterprises under the Indian Companies Act (1956). India does not restrict repatriation
of investments, dividends and profits. Non-resident investors can dispose
equity shares without prior government permission. They are also allowed to
purchase immovable property in India after acquiring permission for doing
business as incorporated/unincorporated entities.
A major policy
revamp occurred in February 2000. The automatic route was significantly
expanded to make FDI in all items/activities eligible for the route except a
well-defined ‘negative list’. The latter included industries requiring licenses
under the Industries (Development and Regulation) Act of 1951 and in terms of
locational policy requirements of the Industrial Policy of 1991, proposals
involving FDI higher than 24 percent of equity in small-scale enterprises,
instances where foreign collaborator had previous venture/tie-up in India,
cases relating to acquisition of shares in resident Indian companies in favour
of foreign/NRI/OCB investors and all proposals falling outside notified
sectoral policy/caps relating to the automatic route, or in sectors where FDI
was not permitted. The ‘negative list’ proposals were to be examined by FIPB.
Liberalization of
FDI policies has been a part of reforms aiming to remove controls on industrial
output. A key reform in this regard has been reduction of the scope of the public
sector. India’s industrialization during the first four decades of its planned
development was led by the public sector. Public enterprises dominated the
basic and heavy segments of manufacturing (e.g. steel, cement and coal). While
consumer goods and intermediates had sizeable presence of small and medium
private enterprises, key services (e.g. electricity, telecommunication, road
transport, aviation, shipping, banking, insurance) were monopolized by state
agencies. Effective entry of foreign investors in the Indian economy was
inconceivable till the scope of the public sector was reduced and private
enterprise allowed to fill up the vacuum. The Industrial Policy of 1991 limited
public sector monopoly to only eight activities while freeing up the rest.
Subsequently state monopoly has been cramped to only sectors of strategic
importance such as atomic energy. Private initiative and foreign investment has
been allowed in most of the erstwhile domain of the public sector including
‘sensitive’ segments such as defense, insurance, petroleum & natural gas.
In a significant
move, 100 percent foreign ownership under automatic route was allowed in
electricity generation, transmission, and distribution in June 1998. However,
the projects were capped at a maximum of `15
billion. Within less than a year in January 1999, projects for construction and
maintenance of roads, highways, vehicular bridges, toll roads, vehicular
tunnels, ports and harbours were permitted 100 percent FDI under automatic
route subject to same limitations on size. Permission of full foreign ownership
underlined the urgency of inviting funds in India’s infrastructure. Since then,
almost all manufacturing activities and several services have been allowed to
access 100 percent FDI under automatic route.
The gradual ease of
entry enabled to foreign investors through the automatic route marks another
key reform in India’s foreign investment policy. The automatic route is a
simpler route than the government-administered (FIPB) process. Since the latter
involves acquiring prior permission before the investor can bring in funds,
there are more procedures involved entailing greater transaction costs. For
almost a decade, however, the scope of the automatic route remained relatively
restricted.
THE CONSOLIDATED
FDI POLICY-2012
The consolidated
FDI policy document is a single reference point for investors and regulators.
The first such consolidation was released the Department of Industrial Policy
and Promotion (DIPP) in March, 2010 after which it has been updated every six
months. This ‘Circular 1 of 2012’-is the fifth edition of the consolidated
policy document and applicable with effect from 10 April 2012. DIPP has
also clarified that in the light of significant rationalisation of
FDI norms, the FDI policy would henceforth be reviewed on yearly basis.
Prohibited
Sectors
FDI is prohibited
in:
a) Retail Trading (except single brand
product retailing)
b) Lottery Business including Government
/private lottery, online lotteries, etc.
c) Gambling and Betting including casinos
etc.
d) Chit funds
e) Nidhi company
f) Trading in Transferable Development Rights
(TDRs)
g) Real Estate Business or Construction of
Farm Houses
h) Manufacturing of Cigars, cheroots,
cigarillos and cigarettes, of tobacco or of tobacco substitutes
i) Activities / sectors not open to private
sector investment e.g. Atomic Energy and Railway Transport (other than Mass
Rapid Transport Systems).
Foreign technology
collaboration in any form including licensing for franchise, trademark, brand
name, management contract is also prohibited for Lottery Business and Gambling
and Betting activities.
Permitted
Sectors
In certain
sectors/activities, FDI up to the limit indicated against each sector/activity
is allowed, subject to applicable laws/ regulations; security and other
conditionalities. (See the Table given below) In sectors/activities FDI is
permitted upto 100% on the automatic route, subject to applicable laws/
regulations; security and other conditionalities.
Wherever there is a
requirement of minimum capitalization, it shall include share premium received
along with the face value of the share, only when it is received by the company
upon issue of the shares to the non-resident investor. Amount paid by the
transferee during post-issue transfer of shares beyond the issue price of the
share, cannot be taken into account while calculating minimum capitalization
requirement.
The highlights the
key changes introduced in the Department of Industrial Policy and Promotion
(DIPP) Circular are:
Key
amendments/Clarification
1) Import of capital goods/
machinery/ equipment
At present,
conversion to equity is permitted for import of capital goods/ machinery/
equipment (including second-hand machinery). It has been represented before
Government that the Indian capital goods sector, including the machine tools
industry, construction machinery and textile machinery, has been suffering
because of import of cheaper second hand machinery, which is often
sub-standard. With a view to incentivising machinery embodying state-of-the-art
technology, compliant with international standards, in terms of being green,
clean and energy efficient, secondhand machinery has now been excluded from the
purview of this provision.
2) Non-Banking Finance Companies
(NBFC) – clarification
The Circular
clarifies that the activity of leasing and finance covered within the
ambit of 18 permissible NBFC activities eligible for FDI under
automatic route covers only ‘Financial leases’ and not ‘Operating
Leases’. This provision intends to clarify the coverage of the term ‘leasing
and finance’, insofar as the NBFC sector is concerned.
3) FDI in Commodity Exchanges
At present, foreign
investment, within a composite (FDI & FII) cap of 49%, under the Government
approval route-i.e. through the Foreign Investment Promotion Board (FIPB)-is
permitted in commodity exchanges. Within this overall limit of 49%, investment
by Registered FIIs, under the Portfolio Investment Scheme (PIS) is limited to
23% and investment under the FDI Scheme is limited to 26%. It has now been
decided to liberalise the policy and to mandate the requirement of Government
approval only for FDI component of the investment. Such investment by FIIs, in
commodity exchanges, will, therefore, no longer require Government approval. This
change aligns the policy for foreign investment in commodity exchanges, with
that of other infrastructure companies in the securities markets, such as stock
exchanges, depositories and clearing corporations.
4) Clarification on investment
by FIIs
The existing
exchange control regulations permits a FII to invest in the capital of an
Indian Company under the PIS with overall ceiling of 10 percent of the Capital
for individual FII and aggregate ceiling of 24 percent for FII investment. This
aggregate ceiling may further be increased upto sectoral cap/
statutory ceiling, as applicable to the Indian Company by passing a Board
Resolution followed by Special Resolution at its Annual General Meeting. It has
now been clarified that this would also be subject to prior intimation to
Reserve Bank of India (RBI).
5) Investment by Foreign Venture
Capital Investors (FVCIs)
Government has
permitted FVCIs to invest in the eligible securities (equity, equity linked
instruments, debt, debt instruments, debentures of an IVCU or VCF, units of
schemes / funds set up by a VCF) by way of private arrangement / purchase from
a third party also, subject to stipulated terms and conditions. SEBI registered
FVCIs have also been permitted to invest in securities on a recognized stock
exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000. These
provisions have now been reflected under the FDI policy as well.
6) Investment by ‘Qualified
Financial Investors (QFIs)’
Government has
permitted QFIs to invest (DPs), in equity shares of listed Indian companies as
well as in equity shares of Indian companies which are offered to public in
India in terms of the relevant and applicable SEBI guidelines/regulations. QFls
have also been permitted to acquire equity shares by way of right shares, bonus
shares or equity shares, on account of stock split/consolidation or equity
shares on account of amalgamation, demerger or such corporate actions, subject
to the prescribed investment limits. These provisions have now been reflected
under the FDI policy as well.
7) General permission for
transfer of shares and convertible debentures
The liberalised
policy on transfer of shares/ convertible debentures of companies engaged in
the financial services sector has now been reflected under FDI policy.
8) Changes in FDI policy in
single-brand retail trading and pharmaceuticals sector
The policy
regarding Single Brand retail trading has been liberalized and now FDI, up to
100%, is permitted, under the Government route, subject to specified
conditions, as per Press Note 1(2012) issued on 10.1.2012. Accordingly, the
revised provisions have been incorporated in the Circular. The provisions of
Press Note 3 of 2011, dated 8.11.2011, have also been incorporated in the Circular.
9) Liberalised policy on transfer of
shares
Liberalised policy
on transfer of shares between Non-resident and Resident in case of nonadherence
to pricing norms, transfer requiring prior Government Approval and companies
engaged in financial services sector.
CHANGES IN THE REVISED FDI POLICY OF
2013
The Department of Industrial Policy and Promotion, Government of
India (“DIPP”), has released 6th issue of Consolidated FDI Policy (Circular 1
of 2013) effective from 5th April 2013 (“FDI Policy 2013”). The FDI Policy 2013
supersedes, inter alia, the erstwhile version of the Consolidated FDI Policy
(Circular 1 of 2012) dated 9th April 2012 (“Erstwhile FDI Policy”) and other
press notes issued since then. The key changes in the policy 2013 are:
Investment from Pakistan
It has been specified in the FDI Policy 2013 that a citizen of
Pakistan or an entity incorporated in Pakistan can invest subject to Government
Approval, in sectors/activities other than defence, space and atomic energy
sectors/activities prohibited for foreign investment.
FDI against import of capital goods/machinery/equipments
Under the FDI Policy 2013, the erstwhile requirement for an
independent valuation of the capital goods/machinery/equipment (including
second-hand machinery) by a third party entity, (preferably by an independent
valuer from the country of import along
with production of copies of documents/certificates issued by the customs
authorities towards assessment of the fair-value of such imports) has been removed.
Downstream investment by Banking Companies in certain case
A note has been inserted in the FDI Policy 2013, wherein it has been
prescribed that downstream investments by a banking company incorporated in
India, which is owned and/or controlled by non-residents/non-resident
entity(ies), under corporate debt restructuring or other loan restructuring
mechanism or in trading books or for acquisition of shares due to default in
loans, shall not be counted towards indirect foreign investment. It has been
prescribed further that the strategic downstream investments, however, shall be
counted towards indirect foreign investment.
Foreign Investment in Multi Brand Retail Trading
After prolonged discussions and debate, foreign investment in
multi brand retail trading, was permitted by DIPP vide issuance of the Press
Note No. 5 (2012 Series) dated 20th September 2012. Accordingly, the list of ‘Prohibited Sectors’
under para 6.1 of the FDI Policy 2013 has been modified to omit the words
“Retail Trading (except single brand product retailing)”. Further, the FDI
Policy 2013 has been amended to give include detailed framework dealing with
foreign investments in multi brand retail trading.
Foreign Investment in teleports, Direct to Home and Mobile TV
The DIPP increased foreign investment limits in teleports and
Direct to Home from 49% to 74% (wherein any investment beyond 49% to 74% would
be subject to government route). Further, the said press note also permitted
foreign investment in Mobile TVs up to 74% (wherein any investment beyond 49%
to 74% would be subject to government route). Accordingly, a new para has been
inserted (in modified form) in the FDI Policy 2013 to capture above policy
amendments.
Foreign Investment in Air Transport Services
The investment by foreign airlines in scheduled and
non-scheduled air transport services was permitted by DIPP in the year 2012 and
such investment is subject to Government Approval. Accordingly, the relavant para
of the FDI Policy 2013 has been amended to include foregoing policy
announcements.
Single brand product retail trading
With effect from 20th September 2012, amendments were announced
in the erstwhile policy governing foreign investments in ‘Single brand product
retail trading’. Accordingly, it was announced that only one non-resident
entities, whether owner of the brand or otherwise, be permitted to undertake
single brand product retail trading in the country, for the specific brand,
through a legally tenable agreement, with the brand owner for undertaking single
brand product retail trading in respect of the specific brand for which
approval is being sought. Further, it was also announced that the onus for
ensuring compliance with the foregoing condition shall rest with the Indian
entity carrying out single brand product retail trading in India and the
investing entity shall provide evidence to this effect at the time of seeking
approval, including a copy of the licensing/franchise/sub-licence agreement,
specifically indicating compliance with the said conditions. It was also
prescribed that in respect of proposals involving Foreign Direct Investment
(“FDI”) beyond 51%, sourcing of 30% of the value of goods purchased, will be
done from India, preferably from micro, small and medium enterprises (MSMEs),
village and cottage industries, artisans and craftsmen, in all sectors and the
quantum of domestic sourcing will be self-certified by the company, to be
subsequently checked, by statutory auditors, from the duly certified accounts
which the company will be required to maintain. The said procurement
requirement would have to be met, in the first instance, as an average of five
years' total value of the goods purchased, beginning 1st April of the year
during which the first tranche of FDI is received. Thereafter, it would have to
be met on an annual basis. For the purpose of ascertaining the sourcing
requirement, the relevant entity would be the company, incorporated in India,
which is the recipient of FDI for the purpose of carrying out single-brand
product retail trading. Accordingly, the relavant para of the FDI Policy 2013
has been amended to include the above policy changes related to investment in
single brand product retail trading.
Foreign Investment in Asset Reconstruction Companies
Few changes have been included to include policy announcements
by Ministry of Finance in December 2012. It has been mentioned that Foreign
Institutional Investors (“FIIs”) have been permitted to invest in Asset
Reconstruction Companies upto 10% of the total paid-up capital. Further, FIIs
limits for investing in Security Receipts have been enhanced to 74% of each
tranche of scheme of such Security Receipts. It is also prescribed that such
investments should be within the FII limit on corporate bonds prescribed from
time to time, and sectoral caps under extant FDI regulations should also be
complied with.
Downstream Investments by foreign owned Non Banking Finance
Companies
The DIPP in the year 2012, announced policy revisions to permit
Non Banking Finance Companies (“NBFCs”) (i) having foreign investment above 75%
and below 100% and (ii) with a minimum capitalisation of US$ 50 million, to set
up step down subsidiaries for specific NBFC activities, without any restriction
on the number of operating subsidiaries and without bringing in additional
capital. The foregoing revisions have been included in the FDI Policy 2013.
Foreign Investment in Power Exchanges
Till 20th September 2012, there was no clarity as regards the
foreign investment in power exchanges and hence, the investee
companies/investors used to seek clarifications on the matter. Considering the
same, on 20th September 2012, the DIPP vide its Press Note No. 8 (2012 Series)
announced a framework governing foreign investments in power exchanges. By
virtue of the same, foreign investment upto 49% was permitted in power
exchanges (inclusive of limits of 26% and 23% on FDI and FII investments
respectively) to put power exchanges at par with commodity exchanges. Further,
it was specified that the FII investments shall be restricted to secondary
markets only and no non-resident investor (including persons acting in concert)
shall hold more than 5% of the equity in power exchanges. A new para has been added
in the FDI Policy 2013 to reflect above policy announcements.
Further, specific provisions dealing with conversion of
companies with FDI into LLPs have also been included in the FDI Policy 2013.
CONCLUSION
While India has an
overall market-friendly and liberal policy towards foreign investment, foreign
capital still does not enjoy equally porous access in all parts of the economy.
Fairly unhindered access to manufacturing is accompanied by conspicuous lack of
access in certain services and agriculture. India’s future foreign investment
policy faces the critical challenge of increasing access of foreign capital to
these segments for enhancing inward FDI.
The existing
pattern of inward FDI into India does point to the possibility of substantive
increase in investment following further liberalization. FDI inflows in India
have been concentrating mostly in services. Financial and non-financial
services, computer software, telecommunications, housing and construction have
been the top drawers of FDI during April 2000 – March 2009. The services
orientation of inward FDI vindicates arguments for greater liberalization of
foreign investment policies in services. Despite being relatively more
restricted than manufacturing, India’s services are drawing significant FDI due
to undisputed virtues of large domestic market and skilled human resources.
Manufacturing is unable to do so in spite of more liberal entry rules primarily
on account of persistence of high transaction costs arising from poor
infrastructure, inflexible labour policies in the formal sector and opaque land
markets.
Structural changes
within the economy also point to a larger role of foreign investment in some
sectors. Insurance is a key area in this respect. Rising life expectancy and
greater healthcare costs have increased demand for a variety of life and
non-life, equity market linked insurance products. Global insurance majors with
a diverse product portfolio can make a major difference in this regard. India’s
aviation industry, particularly the low-cost segment, can benefit from foreign
funds and managerial expertise at a time when it is struggling to recover from
financial difficulties. India’s agriculture, on the other hand, is in dire need
of investments for enhancing productivity and improving infrastructure,
particularly in storage, conservation and transmission of farm produce. Foreign
investment again can play a critically important role in augmenting capacities.
India has been able
to provide an enabling environment to foreign investors in several respects.
Deep reforms in capital markets aided by an efficient regulatory architecture
have facilitated portfolio investments. Transfer and acquisition of shares are
taking place according to investor-friendly guidelines. Foreign exchange regulations
have been aligned to global standards courtesy FEMA. But these facilitations
need to be matched by a more open foreign investment policy for increasing FDI
inflows to a level higher than their current share of only 3 percent of India’s
GDP. A more open policy calls for committed political consensus on foreign
investment. Such an accord has proved elusive so far. However, given that
India’s reforms have been irreversible notwithstanding political discord, hopes
of further reforms in foreign investment are not entirely farfetched.
________________________________________________________________________
CONSOLIDATED FDI POLICY
(EFFECTIVE FROM APRIL 5, 2013)
Government of India Ministry
of Commerce & Industry Department of Industrial Policy
& Promotion
(FC
Section)
CIRCULAR 1 OF 2013
SUBJECT: CONSOLIDATED
FDI
POLICY.
The “Consolidated FDI Policy” is
attached.
2. This
circular will take effect from April 5, 2013.
(Anjali Prasad) Joint Secretary to
the
Government of India
D/o IPP F.
No. 5(1)/2013-FC.I Dated the
05.04.2013
INDEX
|
DESCRIPTION
|
PAGE
NUMBER
|
|
CHAPTER-1 INTENT AND OBJECTIVE
|
5
|
|
1.1 Intent And Objective
|
5
|
|
CHAPTER-2 DEFINITIONS
|
7
|
|
2.1 Definitions
|
7
|
|
CHAPTER-3 GENERAL CONDITIONS ON
FDI
|
13
|
|
3.1 Who can invest in India?
|
13
|
|
3.2. Entities
into which
FDI can be made
|
15
|
|
3.3 Types of Instruments
|
17
|
|
3.4 Issue/Transfer of Shares
|
20
|
|
3.5 Specific conditions in certain cases
|
26
|
|
3.6 Entry routes for Investment
|
29
|
|
3.7 Caps on Investments
|
30
|
|
3.8 Entry conditions
on investment
|
30
|
|
3.9 Other conditions on Investment besides entry conditions
|
31
|
|
3.10 Foreign
Investment into/Downstream Investment by Indian Companies
|
31
|
|
CHAPTER-4 CALCULATION OF FOREIGN
INVESTMENT
|
33
|
|
4.1 Total Foreign Investment i.e. Direct and
Indirect Foreign
Investment in
Indian Companies
|
33
|
|
CHAPTER-5 FOREIGN INVESTMENT PROMOTION
BOARD (FIPB)
|
37
|
|
5.1 Constitution of FIPB
|
37
|
|
5.2 Levels of approval for cases
under Government Route
|
37
|
|
5.3 Cases which
do not require fresh Approval
|
37
|
|
5.4 Online filing of applications for FIPB/Government‟s approval
|
38
|
|
|
|
|
CHAPTER-6 SECTOR SPECIFIC
CONDITIONS
ON FDI
|
39
|
|
6.1 PROHIBITED SECTORS
|
39
|
|
6.2 PERMITTED SECTORS
|
39
|
|
AGRICULTURE
|
40
|
|
6.2.1 Agriculture
& Animal Husbandry
|
40
|
|
6.2.2 Tea plantation
|
41
|
|
MINING
AND PETROLEUM & NATURAL GAS
|
42
|
|
6.2.3 Mining
|
42
|
|
6.2.4 Petroleum & Natural Gas
|
44
|
|
MANUFACTURING
|
45
|
|
6.2.5 Manufacture
of items reserved
for production
in
Micro and Small
Enterprises (MSEs)
|
45
|
|
6.2.6 Defence
|
45
|
2
|
|
|
|
SERVICES SECTOR
|
48
|
|
6.2.7 Broadcasting
|
48
|
|
6.2.8 Print Media
|
53
|
|
6.2.9 Civil Aviation
|
54
|
|
6.2.10 Courier Services
|
57
|
|
6.2.11 Construction Development: Townships,
Housing, Built-up
infrastructure
|
58
|
|
6.2.12 Industrial Parks new and existing
|
59
|
|
6.2.13 Satellites – Establishment and operation
|
61
|
|
6.2.14 Private Security Agencies
|
61
|
|
6.2.15 Telecom Sector
|
61
|
|
6.2.16 Trading
|
66
|
|
FINANCIAL
SERVICES
|
71
|
|
6.2.17. FINANCIAL
SERVICES
|
71
|
|
6.2.17.1 Asset Reconstruction Companies
|
71
|
|
6.2.17.2 Banking –Private sector
|
72
|
|
6.2.17.3 Banking- Public Sector
|
75
|
|
6.2.17.4 Commodity Exchanges
|
75
|
|
6.2.17.5 Credit Information
Companies (CIC)
|
76
|
|
6.2.17.6 Infrastructure
Company in the
Securities Market
|
77
|
|
6.2.17.7 Insurance
|
77
|
|
6.2.17.8 Non-Banking Finance Companies (NBFC)
|
77
|
|
OTHERS
|
|
|
6.2.18 Pharmaceuticals
|
79
|
|
6.2.19 Power Exchanges
|
79
|
|
|
|
|
CHAPTER-7 REMITTANCE, REPORTING AND VIOLATION
|
81
|
|
7.1 Remittance and
Repatriation
|
81
|
|
7.2 Reporting of FDI
|
82
|
|
7.3 Adherence
to Guidelines/Orders and Consequences of
Violation
Penalties
Adjudication
and Appeals
Compounding Proceedings
|
84
|
|
ANNEXURES
|
|
|
Annex-1 Form FC-GPR
|
87
|
|
Annex-2 Terms and conditions for transfer of capital instruments
from resident to
non-resident and vice-versa
|
94
|
|
Annex-3 Documents to be submitted
by a person resident in India for transfer of
shares to a person resident outside India by way of gift
|
98
|
|
Annex-4 Definition of
"relative"
as given in Section 6
of
Companies Act, 1956
|
99
|
|
Annex-5 Report by the Indian company
receiving amount of consideration for
issue of shares / convertible debentures under the FDI scheme
|
100
|
|
Annex-6 Know Your Customer (KYC) Form in respect of the
non-resident
investor
|
102
|
3
|
Annex-7 Form Annual
Return on Foreign Liabilities and
Assets
|
103
|
|
Annex-8 Form FC-TRS
|
111
|
|
Annex-9 Form DR
|
117
|
|
Annex-10 Form DR - Quarterly
|
119
|
CHAPTER 1: INTENT AND OBJECTIVE
1.1 INTENT AND
OBJECTIVE
1.1.1 It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated
economic growth. Foreign Direct Investment, as distinguished from portfolio investment, has the connotation of establishing a „lasting interest‟ in an enterprise that is resident
in an economy other than that of the investor.
1.1.2 The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily
comprehensible. This
framework is embodied in the Circular
on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected
in
the
interregnum. The Department of Industrial Policy
and Promotion
(DIPP), Ministry
of
Commerce
&
Industry, Government
of
India makes
policy
pronouncements on FDI through Press Notes/ Press Releases which are notified by the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated
May
3, 2000). These notifications take effect
from
the date of issue of Press Notes/ Press Releases, unless specified otherwise
therein. In case
of
any
conflict,
the
relevant
FEMA Notification will prevail.
The procedural instructions are issued by the Reserve Bank of India vide
A.P. Dir. (series) Circulars.
The regulatory framework, over a period of time, thus, consists of Acts,
Regulations,
Press
Notes, Press Releases,
Clarifications,
etc.
1.1.3 The present consolidation subsumes and supersedes all Press Notes/Press
Releases/Clarifications/ Circulars issued by DIPP, which were in force as on April 4, 2013 and
reflects the FDI Policy as on April 5 2013. This Circular accordingly will take effect from April
5,
2013.
Reference
to
any
statute
or
legislation made in this
Circular shall include modifications, amendments or re-enactments thereof.
1.1.4 Notwithstanding the rescission of earlier Press Notes/Press
Releases/Clarifications/Circulars, anything done or any action taken or purported to have been
done or taken under the rescinded Press Notes/Press Releases/Clarifications/Circulars prior to
5
April
5,
2013,
shall,
in
so
far as
it
is
not inconsistent with
those Press Notes/Press
Releases/Clarifications/Circulars, be deemed to have been done or taken under the corresponding
provisions of this circular and
shall be valid
and
effective.
CHAPTER 2: DEFINITIONS
2.1 DEFINITIONS
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2.1.1
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„AD Category-I Bank‟ means a bank( Scheduled Commercial, State or Urban
Cooperative) which
is authorized under Section 10(1) of FEMA
to undertake all current and
capital account transactions according to the directions issued by
the RBI from time to time.
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2.1.2
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„Authorized Bank‟ means a bank including a co-operative bank (other than an
authorized dealer) authorized by the Reserve Bank to maintain an account of a
person resident outside India
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2.1.3
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„Authorized Dealer‟ means a person authorized as an authorized dealer under
sub-section (1) of
section 10 of
FEMA.
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2.1.4
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„Authorized Person‟ means
an authorized dealer, money
changer,
offshore
banking
unit or any other
person for the time being
authorized under Sub- section (a) of Section 10 of FEMA to deal in foreign exchange or foreign securities.
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2.1.5
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„Capital‟ means equity shares; fully, compulsorily &
mandatorily convertible
preference shares;
fully, compulsorily & mandatorily convertible
debentures.
Note : Warrants
and partly paid shares can be issued to person/
(s) resident
outside India only after approval through the Government route1.
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2.1.6
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„Capital account
transaction‟ means a transaction which alters the assets or
liabilities, including contingent liabilities, outside India of persons
resident in India
or assets or
liabilities in India of persons resident
outside India, and
includes transactions referred
to in sub-section (3) of section
6 of FEMA.
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2.1.7
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A company is considered as “Controlled” by resident Indian citizens if the
resident
Indian citizens and Indian
companies, which are owned and controlled by resident Indian citizens, have the power to appoint
a majority of its directors
in that company .
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2.1.8
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„Depository Receipt‟ (DR) means a negotiable security issued outside India by
a Depository bank, on behalf of an Indian
company, which represent the local
Rupee denominated equity
shares
of
the
company held
as deposit
by a Custodian bank in India.
DRs
are
traded on Stock
Exchanges in the
US,
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1 Review of FDI policy to include warrants and
partly-paid
shares is under
consideration of the
Government.
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Singapore, Luxembourg,
etc. DRs listed
and traded in the US markets are
known as American Depository Receipts (ADRs) and those
listed and traded anywhere/elsewhere are
known as Global Depository Receipts
(GDRs).
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2.1.9
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„Erstwhile Overseas Corporate Body‟
(OCB) means a company, partnership
firm, society
and other corporate body owned directly or indirectly
to the extent
of at least sixty percent by non-resident Indian and includes overseas trust in which not less than sixty
percent beneficial interest is held by non-resident Indian directly or indirectly but irrevocably and which was in existence on the date of commencement
of the Foreign Exchange Management (Withdrawal of
General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003 (the Regulations) and immediately prior to such commencement
was eligible to
undertake transactions pursuant to the general permission granted under the Regulations.
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2.1.10
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„Foreign Currency Convertible
Bond‟ (FCCB) means
a bond issued by
an
Indian company expressed in foreign currency, the principal and interest of which is payable in foreign currency. FCCBs are issued in accordance with the Foreign Currency Convertible Bonds and ordinary shares (through depository receipt
mechanism) Scheme 1993 and subscribed by a non-resident
entity in foreign currency and convertible into ordinary shares of the issuing company
in any manner, either in whole, or
in part.
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2.1.11
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„FDI‟ means investment by non-resident entity/person resident outside India in
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2.1.12
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„FEMA‟ means the Foreign Exchange Management Act 1999
(42 of 1999)
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2.1.13
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„FIPB‟ means
the
Foreign Investment
Promotion Board constituted
by
the
Government of India.
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2.1.14
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„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
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8
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India (SEBI) (Foreign Institutional
Investor)
Regulations 1995.
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2.1.15
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„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
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2.1.16
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„Government route‟ means that investment in the capital of resident
entities by
non-resident
entities can be made only with the prior approval of Government
(FIPB,
Department
of
Economic
Affairs
(DEA), Ministry of Finance or Department
of Industrial Policy & Promotion,
as the case may be).
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2.1.17
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„Holding Company‟ would have the same meaning
as defined in Companies
Act 1956.
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2.1.18
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„Indian Company‟ means
a
company
incorporated
in
India under the
Companies Act, 1956.
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2.1.19
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„Indian Venture Capital Undertaking‟ (IVCU) means
an Indian company:─
(i) whose
shares are not listed in a recognised stock exchange in India;
(ii) which
is
engaged
in
the
business of providing services,
production
or
manufacture of articles or things, but does not include
such activities or sectors which are specified in the negative list by the SEBI, with approval of Central Government, by notification
in the Official Gazette in
this behalf.
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2.1.20
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„Investing Company‟
means an Indian Company holding only investments in
other Indian company/ (ies), directly or indirectly, other
than for trading of such
holdings/securities.
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2.1.21
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„Investment on repatriable basis‟ means investment, the sale proceeds
of which,
net of taxes, are eligible to be repatriated
out of India and the
expression
„investment on non-repatriable basis‟ shall be construed
accordingly.
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2.1.22
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„Joint Venture‟ (JV) means an Indian entity incorporated in accordance with the
laws and regulations in India
in whose capital a non-resident entity makes an investment.
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2.1.23
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"Limited
Liability Partnership" means
a Limited
Liability Partnership firm,
formed and registered under the
Limited Liability Partnership Act, 2008.
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2.1.24
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„Non resident
entity‟ means a „person resident outside India‟ as defined under
FEMA.
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2.1.25
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„Non Resident
Indian‟ (NRI) means an individual resident outside India who is
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9
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a citizen of
India or is a person of Indian origin.
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2.1.26
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A company is considered as 'Owned‟ by resident Indian
citizens if more
than
50% of the capital in it is beneficially owned by resident
Indian citizens and / or
Indian companies, which are
ultimately
owned
and controlled by
resident Indian citizens;
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2.1.27
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„Person‟ includes
(i) an individual
(ii) a Hindu
undivided family,
(iii) a company
(iv) a firm
(v) an
association of
persons or
a
body of
individuals whether
incorporated or not,
(vi) every artificial juridical person,
not
falling
within any of
the
preceding sub-clauses, and
(vii) any agency,
office, or branch
owned
or controlled by such
person.
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2.1.28
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„Person of Indian Origin‟ (PIO) means
a citizen of any country other than
Bangladesh
or Pakistan, if
(i) he at any time held Indian Passport
(ii)
he or either of his parents or any of his grandparents was a citizen of India by virtue
of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
(iii)
the person is a spouse of an Indian citizen or
a person referred to in
sub-
clause (i) or (ii).
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2.1.29
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„Person resident
in India‟ means -
(i)
a person residing in India for more
than one hundred and eighty-two
days during
the course of the preceding financial year but does not include –
(A) A person who
has gone out of India or who stays outside India,
in either
case-
(a) for or on
taking up employment outside India, or
(b) for carrying
on
outside India
a
business or vocation
outside
India, or
(c) for any other purpose, in such
circumstances as would indicate his intention to stay outside India for an
uncertain period;
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10
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(B) A person who has come to or stays in India, in either case, otherwise
than-
(a) for or on
taking up employment in India; or
(b) for carrying on in
India a business
or vocation in India, or
(c) for any other purpose, in such
circumstances as would indicate his intention to stay in India for an uncertain
period;
(ii) any person
or body corporate
registered or incorporated
in India,
(iii) an office, branch or agency in India owned or controlled by a person
resident outside India,
(iv)an office, branch or agency outside India owned or controlled by a
person resident in India.
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2.1.30
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„Person
resident outside India‟ means a person who is not a Person resident in
India.
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2.1.31
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„Portfolio Investment Scheme‟ means the Portfolio
Investment Scheme referred
to in Schedules
2 & 3 of FEM (Transfer or Issue of Security by a Person
Resident Outside India) Regulations 2000.
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2.1.32
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„A Qualified Foreign Investor
(QFI)‟ means a non-resident
investor (other than
SEBI registered
FII and
SEBI registered
FVCI) who meets the KYC
requirements of SEBI for the purpose of making investments in accordance
with the regulations/orders/circulars
of
RBI/SEBI.
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2.1.33
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„RBI‟ means the Reserve Bank of India established under the Reserve Bank of
India Act,
1934.
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2.1.34
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„Resident
Entity‟
means
„Person resident in India‟ excluding an individual.
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2.1.35
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„Resident
Indian Citizen‟ shall be interpreted in line with the
definition of
„person resident in India‟ as per FEMA, 1999,
read in conjunction with the
Indian Citizenship Act, 1955.
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2.1.36
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„SEBI‟ means the Securities and Exchange Board of India established under the
Securities
and Exchange Board
of
India Act,
1992.
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2.1.37
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„SEZ‟ means a Special
Economic Zone as defined in Special
Economic Zone
Act, 2005.
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2.1.38
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„SIA‟ means
Secretariat of Industrial Assistance in DIPP,
Ministry of
Commerce &
Industry, Government of
India.
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2.1.39
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„Transferable Development Rights‟ (TDR) means certificates issued in respect
of category of land acquired for public purposes either by the Central or State
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11
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Government
in
consideration of surrender
of
land
by the owner without
monetary compensation, which
are transferable
in part or whole.
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2.1.40
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„Venture
Capital Fund‟ (VCF) means a Fund established in the form of a Trust,
a company including a body corporate and registered under Securities and
Exchange Board of
India (Venture
Capital Fund) Regulations, 1996, which
(i) has a dedicated pool of capital;
(ii) raised in the manner specified
under the Regulations;
and
(iii) invests in accordance with the Regulations.
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