Foreign direct investment, or FDI, is a typeof investment that involves the injection offoreign funds into an enterprise that operates ina different country of origin from the investor.In a simple term FDI is “investment by acompany in a country other than that in whichthe company is based”.
FDI is permitted as under the following forms ofinvestments:1. Through financial collaboration.2. Through joint ventures and technical collaborations.3. Through capital markets via Euro issues.4. Through private placement and preferential allotments.
Person Resident outside India except of Pakistan. Entity incorporated outside except Pakistan & Bangladesh. Person Resident of Bangladesh & entities incorporated there can make investment in India in form of shares and conv. Debentures with prior approval of RBI. SEBI registered Foreign Venture Capital Investor(FVCI).
NRI citizen as well as citizen of Nepal and Bhutan onrepatriation basis. Erstwhile OBCs as incorporated non-resident entities.SEBI registered FIIs or NRIs through a registered broker onrecognised Indian Stock Exchange.An FII under the Portfolio Investment Scheme.(An FII may invest under the Portfolio Investment Schemewhich limits the individual holding of an FII to 10% of thecapital of the company and the aggregate limit for FII to 24%of the capital of the company.)
FDI is not permitted under the following sectors: Arms & Ammunition. Atomic Energy. Railway Transport. Coal & lignite. Mining of Iron, Manganese, chrome, gypsum, sulphur, gold , diamonds, copper, zinc. Lottery Business. Gambling & Betting. Chit Fund & Nidhi Company.
Retail Trading (except single brand retailing). Trading in Transferable Development Rights. Activity /sector not opened for private sector investment. Agriculture except few prescribed Plantation except tea plantation Real Estate Business except few prescribed Manufacture of Cigars, cigarettes etc.
Petroleum Sector Investing Companies in Infrastructure and Service Sector Defense & Strategic Industries Atomic Minerals Print Media Broadcasting Postal Services Courier Services Establishment & operation of Satellite Development of Integrated Township Tea Sector Asset Reconstruction Company
An Indian Company can arrange fund by issue of followingtype of instruments: Equity Shares. Preference Shares ( Fully, Compulsory & Mandatory Convertible). Debentures ( Fully, Compulsory & Mandatory Convertible). Issue of Foreign Currency Convertible Bonds(FCCBs). Depository Receipts (DRs) ( American Depository Receipts (ADRs) & Global Depository Receipts (GDRs)). Foreign Currency Exchangeable Bond (FCEBs).
Automatic Route Automatic Route No Prior Regulatory Approval but only Foreign Investment Promotion Board Post Facto Filings to RBI, through AD (FIPB) Allowed for Most sectors Only for cases other than Automatic Route and those mentioned in sectoral Limits : Sectoral caps/ stipulated sector policy specific guidelines Inward remittances through proper Applies to cases with existing venture/ tie banking channels up in „same filed‟ Pricing valuations prescribed Post facto filing with 30 days of fund Applies to investment over 24% in SSI receipt reserved items Filings within 30 days of share allotment Includes Technical Collaboration/ Brand Name/ Royalty
Advantages Disadvantages Inflow of equipment and Crowding of local industry. technology. Conflicts of laws Competitive advantage & innovation. Loss of control. Financial resources for Effect on natural expansion. environment. Employment generation. Effect on local culture. Contribution to exports growth. Improved consumer welfare through reduced cost , wider choice and improved quality.
The Penalty could be up to thrice the sum involvedwhere amount is quantifiable If the Amount is not quantifiable , penalty up to Rs 2lacs can be imposed If contravention is of continuing nature, furtherpenalty up to Rs 5000 per day during which thecontravention continues can be imposed.