Sign up to our newsletter Back to news
Foreign direct investment into india
Introduction
The Indian Government embarked on liberalising the regulatory framework, with specific reference to foreign investment through the Statement on Industrial Policy of 1991. Since then, the Indian regulatory environment for foreign investment has been consistently eased to make it investor- friendly.
While the early years of liberalization witnessed the first phase of structural reforms in the industrial, financial and export sectors, the last few years have seen the beginning of the second phase of economic restructuring with major fiscal reforms in foreign investment and trade policy spheres.
In 2011-12, FDI inflows recorded a strong growth of 34% (US$ 12 billion). In particular, FDI inflows into equity capital rose by 88% to US$ 36.5 billion. According to the United Nations Conference on Trade and Development, India ranks second in global FDI growth, behind Brazil, and is seen as one of the top five attractive destinations for international investors. In 2011-12, sectors which attracted large FDI inflows were chemicals (US$ 7.2 billion), services (US$ 5.2 billion), pharmaceuticals (US$ 3.2 billion),
telecom (US$ 2 billion), construction (US$ 2.8 billion), power (US$ 1.65 billion) and metallurgical industries (US$ 1.8 billion).
Under the current FDI Policy, foreign investment is permitted by all categories of investors and in all sectors except the prescribed prohibited sectors. Apart from these prohibited sectors, foreign investments can be made in other sectors under:
- Approval route, i.e., by the Government through the Foreign Investment Promotion Board (FIPB) under the Ministry of Finance
- Automatic route, i.e., no prior approvals, under delegated powers exercised by the Reserve Bank of India (RBI)
FDI of up to 100 per cent is allowed in the following sectors in India:
Automatic Route |
Automatic Route with Conditions |
Approval Route |
|
|
|
FDI ranges between 26 per cent and 74 per cent in the following sectors:
Asset Reconstruction Company |
Banking |
Broadcasting |
Airports |
Air Transport services |
Civil Aviation Services |
Petroleum and natural gas |
Telecom |
Commodity Exchange |
Defence |
Insurance |
Satellites: Establishment operations |
Security agencies in the private sector |
Stock exchanges, depositories, corporations |
|
Prohibition of FDI in the following sectors:
Atomic energy and railways |
Lotteries, gambling and betting
|
Agriculture (excluding floriculture, horticulture, seed development, animal husbandry, pisciculture, aquaculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) |
Plantations (excluding tea plantations)
|
Retail trading (other than single brand retail)
|
Real estate (except construction development projects) |
Chit funds, nidhi companies, or trading in transferable development rights |
Manufacturing of cigars, cheroots, cigarillos and cigarettes, and tobacco and tobacco substitutes |
|
|
Legal Structure
A foreign company looking to set up operations in India, can consider the following options:
Operating as an Indian company
Wholly-owned subsidiary company
A foreign company can set up a wholly owned subsidiary company in India to carry out its activities. Such company shall be treated as an Indian resident despite being 100% foreign-shareholders. The Company has minimum requirement of two members, for a private limited company, and seven members, for a public limited company. Activities of such company will need to comply with the provisions of the FDI policy.
Joint venture with an Indian partner (equity participation)
Although a wholly owned subsidiary has proved to be the preferred option, foreign companies can also carry out its activities in India by forming strategic alliances with Indian partners. The company also needs to comply with the provisions of the FDI Policy.
Limited liability partnership (LLP)
LLP is a new form of business structure in India. It combines the advantages of a company, such as being a separate legal entity having perpetual succession, with the benefits of organisational flexibility associated with a partnership. At least two partners are required to form an LLP and they have limited liability.
Operating as a foreign company
Liaison office
The role of these offices is limited to collecting information about the market and providing information about the company and its products to prospective Indian customers.
Project office
Foreign companies planning to execute specific projects in India can set up temporary project and site offices here for this purpose
Branch office
Foreign companies engaged in manufacturing and trading activities abroad can set up branch offices in India for the following purposes such as Export and import of goods, Professional or consultancy services, Research work in which the parent company is engaged, to promote technical or financial collaboration between Indian companies and the parent or overseas group company, representing the parent company in India and acting as a buying or selling agent in India, IT and software development services in India, Technical support for products supplied by the parent or group companies.
Gautam Khurana
India Law Offices
office@indialawoffices.com
Comments :
- No comments
Post a comment