An Indian company may receive Foreign Direct Investment under the two routes viz. Automatic Route & Government Route.
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.
The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank .
In a growing economy, Real Estate sector invites a lot of attention from all quarters including foreigners. India has a policy for non-residents which invites them to invest in the Construction and Development sector. For investment in independent premises, the policy is open only for NRIs.
Non-residents are permitted to invest in Real Estate Development activity through Indian companies. Investment through LLPs, partnership firms, branch, or any in any other manner is not permitted. Direct business by non-residents is not permitted. The investment is subject to a few conditions discussed in subsequent paragraphs.
Foreign investment into Non-Banking Finance Companies is allowed to the extent of 100% under the automatic route in only the following activities, viz. Merchant Banking, Under Writing, Portfolio Management Services, Investment Advisory Services, Financial Consultancy, Stock Broking, Asset Management, Venture Capital, Custodian Services, Factoring, Credit Rating Agencies, Leasing & Finance, Housing Finance, Forex Broking, Credit Card Business, Money Changing Business, Micro Credit and Rural Credit.
In addition, the NBFC will have to comply with the guidelines of the relevant regulator/s, as may be applicable. For instance, those companies, which are Core Investment Companies (CICs), will have to additionally follow RBI’s Regulatory Framework for CICs
Furthermore, such FDI in an NBFC would also be subject to the following minimum capitalisation norms-
It is to be noted that 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.
Foreign Direct Investment (FDI) in India is subject to certain Rules and Regulations and is subject to predefined limits ('Limits') in various sectors which range from 20% to 100%. There are also some sectors in which FDI is prohibited. The FDI Limits are reviewed by the Government from time to time and as and when the need is felt and FDI is allowed in new sectors where the limits of investment in the existing sectors are modified accordingly.
Some of the important changes made in the Existing FDI Limits are provided below:
FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent, out of which up to 49 per cent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations.
FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.
FDI in single brand retail is to be allowed up to 49 percent under the automatic route and beyond that shall be through FIPB.
In credit information firms, 74 per cent FDI under automatic route will be allowed.
In respect of courier services, FDI of up to 100 per cent will be allowed under automatic route. Earlier, similar amount of investment was allowed through FIPB route
FDI cap in defences sector remained unchanged at 26%, however higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS). Technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.
In the contentious insurance sector, it was decided to raise the sectoral FDI cap from 26 per cent to 49 per cent under automatic route under which companies investing do not require prior government approval. A Bill to raise FDI cap in this sector is pending in the Rajya Sabha. Some of the sectors in which FDI limits were expected to be increased but did not were, civil aviation, airport, media, multi-brand retail and brownfield (existing firms) pharmaceuticals.