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Investing in India: FDI norms for NRIs, PIOs and OCI

FDI Norm displayed on iPad

Foreign Direct Investment is a scheme by the Government of India to attract and promote foreign investment directly for the industries that need domestic capital to be supplemented and better technology and skills to be infused into the economy of the country to accelerate economic growth. FDI generates more jobs not only in the different sectors in which it is allowed but also in all the associated sectors to those that are allowed. New technologies come into the country, which may or may not include knowledge transfer. This strengthens the country economically as is stated above but also giving individual capital a boost.

The government of India revised its foreign direct investment (FDI) norms in the month of June 2016. This has been a path breaking policy change from the past. These changes have made the FDI regime transparent, comprehensive and easy to comprehend. Many industries have been opened up and the feeling is that the non resident investing back in India is most welcome. More so like making it feel like a home coming for the expatriates, who yearn to give back something to their motherland. Non Resident Indians have been included as eligible investors, for the purpose of the FDI Rules and Regulations. There is a list of legal entities which have been mentioned as eligible investees.

They are:

1. Indian Companies

2. Partnership Firms and Proprietary Concerns

3. Trusts

4. Limited Liability Companies (LLPs)

5. Investment Vehicles

There are two routes for the same, one being the Automatic Route and the second being the Government Route. In the sectors under automatic route the foreign entities do not have to seek prior approval from the government, but have to inform the Reserve Bank of India (RBI the Indian Regulator) regarding the amount of investment within a specified timeline. Under the government route the foreign entities have to seek prior approval from the government. These government department is the Foreign Investment Promotion Board (FIPB). The FDI policy limits for different sectors is not uniform.

FIPB is a board formed by serving government servants of the level of secretary and constitutes many sub boards for different sectors. The FIPB reports directly to the Cabinet Committee of economic affairs under the Union Cabinet of the Government of India, which is chaired by the Prime Minister of India. The FIPB has authority to deal with investments up to INR 5000 crores or 50 Billion INR or US $ 800 million. Anything above this amount goes directly to the cabinet for approval. FIPB has to refer the same to the Union Cabinet.

There are cases which would not need a fresh approval, if the foreign entity intends to bring in fresh capital into the invested company, provided the same had been approved within the norms before. There could be cases when a certain business activity would have required government approval, in the past, but under the current norms, it has been classified under automatic route, then also no fresh approval is needed. Also if the overall investment cap has been increased, and then the fresh funds are infused into the business, and now the upper limit of such investment cap has been increased, then also no fresh approval is required.

FIPB has facilitated electronic filing of the applications, amendments to applications in their website, which is http://finmin.nic.in/ and http://fipb.gov.in .

Prohibited Sectors

1. Lottery Business including Government/private lottery, online lotteries, etc.

2. Gambling and Betting including casinos etc.

3. Chit funds

4. Nidhi company

5. Trading in Transferable Development Rights (TDRs)

6. Real Estate Business or Construction of Farm Houses (Real estate business does not include development of townships, construction of residential /commercial premises, roads or bridges)

7. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

8. Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway operations (other than permitted activities)

There could be foreign technology collaborations as well and that would qualify under the FDI norms. This includes licensing for franchises, trademarks, brand name and management contracts is also prohibited under the lottery business and gambling & betting activities.

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