Foreign direct investment

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Foreign direct investment

  1. 1. 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”.
  2. 2. 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.
  3. 3.  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).
  4. 4.  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.)
  5. 5. 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.
  6. 6.  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.
  7. 7.  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
  8. 8. 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).
  9. 9. 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
  10. 10.  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.
  11. 11. 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.

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