Personal Finance
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FEMA with effect from 1.06.2000.

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

1.

The Foreign Exchange Management Act, 1999 (FEMA) has been enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of the foreign exchange market in India. It replaces the Foreign Exchange Regulation Act, 1973. FEMA has come into effect from June 1, 2000.

1.1.

With the coming into effect of FEMA the India will have moved from a regulatory mechanism to a management mechanism with respect to foreign exchange. It is a great change not only structurally but also psychologically. It marks a step forward in the liberalization process initiated in the early 1990s.

2.

IMPORTANT FEATURES

2.1.

Primarily there are no restrictions on current account transactions related to foreign exchange and a person may sell or draw foreign exchange freely for his current account transactions (Section 5). This is significant.

2.2.

Capital account transactions continue to be regulated by RBI, who will lay down the provisions as regards the extent of prohibition, restriction, and regulation (Section 6). This is significant. But there are two very important areas on which RBI cannot impose any restrictions viz. drawing of foreign exchange for the repayment of any loans and for depreciation of direct investments in the ordinary course of business. It will be helpful if RBI clarifies the meaning of the words direct investments in the ordinary course of business.

2.3.

FEMA is now a civilized law. Primarily the consequence of any violation is a penalty. There is no prosecution.

2.4.

RBI will no longer issue circulars. It can only issue regulations. If a person complies with the regulations, he can undertake the transaction, otherwise he cannot undertake the same. There will be no power to grant specific case-to-case basis permissions.

3.

APPLICABILITY OF FEMA – Section – 1

3.1.

It provides that FEMA shall extend to the whole of India. It provides that FEMA shall extend to the whole of India. It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention there under committed outside India by any person resident in India to whom this act applies.

4.

IMPORTANT TERMS UNDER FEMA – Section 2

4.1.

Capital Account Transaction means a transaction which: -

  n

Alters foreign assets & foreign liabilities of Indian residents.

  n

Alters Indian assets & Indian liabilities of Non-residents.

  n

Specified transactions listed in section 6(3). Essentially this is an economic definition and not an accounting or legal definition. It is intended to cover cross border investments, cross border loans and transfer of wealth across borders.

4.2.

Current Account Transactions means all transactions, which are not capital account transactions. Specifically it includes :

  n

Business transactions between residents and non-residents.

  n

Short-term banking and credit facilities in the ordinary course of business.

  n

Payments towards interest on loans and by way of income from investments.

  n

Payment of expenses of parents, spouse or children living abroad or expenses on their foreign travel, medical and education.

  n

Gifts

   

Some principles which can be considered to distinguish between capital and current account transactions are: -

  n

If a transaction does not give rise to any claim or obligation between a resident and a non-resident it is a current account transaction, e.g. if machinery is purchased on hire by a resident from a non-resident he is obligated to the non-resident. This is a capital account transaction.

  n

If on completion of a transaction there is nothing further to be done, then it is a current account transaction, e.g. if a non-resident purchases machinery and pays for the same in cash there is no further financial obligation between the resident and non-resident. This is current account transaction.

4.3.

The termPerson includes: -

  (a)

an individual

  (b)

a Hindu Undivided Family (HUF)

  (c)

a Company

  (d)

a firm

  (e)

an association of persons or body of individuals, whether incorporate or not

  (f)

every artificial judicial person not falling in any of the above sub-clauses

  (g)

any agency, office or branch owned or controlled by such person.

4.4.

If an individual stays in India for more than 182 days in during the course of the preceding financial year will be treated as a person resident in India. There are a few exceptions to this general rule and if a person falls under any of these exceptions he will or will not be treated as a person resident in India, respectively.

  n

If a person goes/stays outside India for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident outside India.

  n

If a person comes to/stays in India for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident in India.

   

Stress in FEMA is laid on the persons stay in India and not on his citizenship. If a person stays in India/or stays outside India for a particular number of days in the preceding financial year or for a particular purpose he will be deemed to resident in India or resident outside India. The term financial year is not defined, but will normally mean the twelve-month period beginning from April 01 and ending on March 31 next following.

4.5.

In case of persons other than individuals they will be treated as person resident in India if :

  n

The person or body corporate is registered or incorporated in India

  n

An office, branch or agency in India, if it is owned or controlled by a person resident outside India

  n

An office, branch or agency outside India, if it is owned or controlled by a person resident in India

4.6.

Person resident outside India means a person who is not resident in India.

5.

DEALING IN FOREIGN EXCHANGE – Section 3

5.1.

All dealings in foreign exchange or foreign security will be governed by the provisions of FEMA. Receipt and payments in foreign exchange will be through an authorised person in the manner provided.
6.

HOLDINGS OF FOREIGN CURRENCY – Sections 4, 8 & 9

6.1.

Persons resident in India are primarily prohibited from acquiring, holding, owning possessing, etc. any foreign exchange, foreign security or immovable property outside India. Also they are required to repatriate and bring to India all foreign exchange that is due to or accrued to them. But they are permitted to hold foreign currency and coins up to certain limits and under certain circumstances as the RBI may prescribe from time to time.

7.

CONTRAVENTION, PENALTIES & APPEALS Sections 13 To 35

7.1.

The penalties for contraventions under FEMA are per se monetary in nature. If any person contravenes any provisions, rules, regulations, etc. than the penalty imposed may go up to 3 times the amount involved in contravention and if the amount of contravention is not ascertainable than up to Rs. 2,00,000. If the contravention is a continuing one than a penalty up to Rs. 5,000 per day may be imposed for every day after the 1st day during which the contravention continues.

7.2.

The adjudicating officer may also confiscate any currency, security or property in addition to imposing penalty.

7.3.

If a person does not pay up the penalty within 90 days he will liable to civil imprisonment.

7.4.

There is right to appeal given at every stage and an appeal against an order of the Adjudicating Authority can be made to the Special Director (Appeal). An appeal against the order of the Special Director (Appeals) can be made to the Appellate Tribunal. An appeal, on questions of Law, against the order of the Appellate Tribunal can be made to the High Court.

7.5.

A person preferring an appeal to the Special Director (Appeals) or the Appellate Tribunal can take assistance of a Chartered Accountant or Legal Practitioner.

8.

DIRECTORATE OF ENFORCEMENT – Sections 36 To 38

8.1.

The Central Government may establish a Directorate of Enforcement.

8.2.

The officers of the Directorate shall have powers to investigate contraventions referred to in section 13.

8.3.

The powers and limitations of these Officers shall the same as those conferred on Income-Tax Authorities under the Income-Tax Act, 1961

9.

CASES UNDER OLD FERA – Section 49

9.1.

This is a sunset clause in respect of FERA. It provides that FERA shall stand repealed and the Appellate Board shall stand dissolved, upon the coming into force of FEMA.

9.2.

No court shall take cognizance of an offence under FERA and no adjudicating officer shall take notice of any contravention under section 51 of FERA after the expiry of a period of 2 years from the date of commencement of FEMA. Thus, a time period of 2 years has been provided for the final lapse of FERA.

9.3.

Violations already detected and for which proceedings have commenced will continue to be governed by FERA.

10.

JOINT VENTURES ABROAD

 

RBI has been granted powers to permit Indian investments abroad in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS).

 

There are 7 routes of investment.

 

General Guidelines:

  1.

Indian companies are allowed to invest abroad. Individuals, firms, etc. are not allowed.

  2.

Investments can be made in existing companies or new companies or for acquiring overseas business.

  3.

The foreign company can be engaged in any industrial, commercial, trading, service industry, financial services such as insurance, mutual funds, etc.

  4.

Following activities are not covered :

   

- Portfolio Investment by Indian parties.

   

- Investment in banking sector.

  5.

Investment can be in equity, debentures, loans, and guarantees. Guarantees are considered @ 50% of the value to consider investment limits.

  6.

Remittance can be by way of cash, or export of goods and services. For contribution by way of exports, no agency commission will be payable to the wholly owned subsidiary / Joint Venture Company.

  7.

Dividends, royalties, etc. due to Indian investor should be repatriated to India in accordance with the prevailing time limits.

  8.

Authorised dealers have been permitted to release of FX for feasibility studies prior to actual investment.

  9.

Annual Performance Report (APR) should be submitted respectively pre / post commencement of commercial operation. Audited Annual accounts, Directors' Report also should be submitted.

  10.

In the event of changes proposed in the JV (where Indian Party's investment exceeds 50 %)/WOS regarding activities investment in another concern / subsidiary or alterations of share capital, there are approvals / reporting, requirements from / to RBI.

  11.

Disinvestments proposals should be accompanied by a Chartered Accountant's valuation report.

  12.

Residents now do not need permission to accept appointment as Director on boards of overseas companies.

INVESTMENTS ABROAD – FAST TRACK

SR.NO. PARTICULARS FASTTRACK ROUTE ADR/GDR ROUTE EEFC ROUTE OVERSEAS BIDDING OR TENDER ROUTE INDIAN COMPANIES IN INFORMATION TECHNOLOGY & ENTERTAINMENT SOFTWARE, PHARMA SECTOR AND BIOTECHNOLOGY
1. Approval by Banks (Authorised Dealer) Banks (Authorised Dealer) Banks (Authorised Dealer) Banks (Authorised Dealer) Intimation To RBI
2. Manner of Investments Cash Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery) Proceeds of ADR/GDR Issue (ADR/GDR issue should be in accordance with the scheme framed by the Central Government Cash Cash Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery) Swap or exchange of underlying shares from ADR/GDR issued by Indian Party with shares of Foreign Company
3. Amount of Investments Up to US $ 50 Million, but for SAARC Countries (except Pakistan) and Myanmar up to US $ 75 Million (for Nepal & Bhutan Rs. 350 Crores) in a block of 3 financial years Upto 50 % of the proceeds of the ADR/GDR issue Up to US $ 50 Million, but for SAARC Countries (except Pakistan) and Myanmar up to US $ 75 Million (for Nepal & Bhutan Rs. 350 Crores) in a block of 3 financial years Up to US $ 50 Million, but for SAARC Countries (except Pakistan) and Myanmar up to US $ 75 Million (for Nepal & Bhutan Rs. 350 Crores) in a block of 3 financial years Up to US $ 100 Million or 10 times of export earnings of the Indian Party during the preceding financial year
4. As % of net worth 25% of its net worth as on the date of its last audited balance sheet Not Applicable Not Applicable As is applicable to investments under the Fast Track / EEFC / ADR & GDR Route Not Applicable
5. Area of Business of Foreign JV/WOS Same core activity as that of Indian Party Same core activity as that of Indian Party Not Applicable Same core activity as that of Indian Party Similar activity as that of Indian Party
6. Profitability/Turnover criteria Indian Party has earned profits during 3 accounting years Indian Party has earned profits during 3 accounting years Not Applicable Indian Party has earned profits during 3 accounting years At least 80 % of the average turnover of the Indian Party in previous 3 financial years is from the specified activity or the average export earnings in the previous 3 financial years is Rs. 100 crores from the specified activity
7. No. of projects within overall limits of amount and time period Any number of projects Any number of projects Any number of projects Any number of projects Not Applicable
8. No. of copies of  application 3 copies of Form ODA 2 copies of Form ODA within 30 days of making the investment 3 copies of Form ODA 3 copies of Form ODA 3 copies of Form ODG within 30 days of swap to RBI
 

INVESTMENTS ABROAD - OTHER ROUTE

SR.NO. PARTICULARS NON-AUTOMATIC ROUTE INDIAN COMPANIES IN INFORMATION TECHNOLOGY & ENTERTAINMENT SOFTWARE, PHARMA SECTOR AND BIOTECHNOLOGY OVERSEAS BIDDING ROUTE
1. Approval by RBI RBI RBI
2. Manner of Investments Cash Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery) Swap or exchange of underlying shares from ADR/GDR issued by Indian Party with shares of Foreign Company Cash Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery)
3. Amount of Investments Any amount Exceeding US $ 100 Million or 10 times of export earnings of the Indian Party during the preceding financial year Above U.S.$ 50 Million, but for SAARC Countries (except Pakistan) and Myanmar up to US $ 75 Million (for Nepal & Bhutan Rs. 350 Crores)
4. As % of net worth Not Applicable Not Applicable Not Applicable
5. Area of Business of Foreign JV/WOS Expertise & experience of Indian Party in the line of activity of the JV/WOS Similar activity as that of Indian Party Expertise & experience of Indian Party in the line of activity of the JV/WOS
6. Profitability/Turnover criteria Financial position and business track record of the Indian Party and Foreign Entity At least 80 % of the average turnover of the Indian Party in previous 3 financial years is from the specified activity or the average export earnings in the previous 3 financial years is Rs. 100 crores from the specified activity Financial position and business track record of the Indian Party and Foreign Entity
7. No. of projects within overall limits of amount and time period Not Applicable Not Applicable Not Applicable
8. No. of copies of  application 3 copies of Form ODI 3 copies of Form ODB 3 copies of Form ODB

11.

INVESTMENTS IN INDIA

11.1.

Foreign Investment in India

 

The Industrial Policy has laid down parameters for Foreign Investment in India. RBI has laid down parameters for NRI Investment. India has virtually opened the doors completely for foreigners to invest in India. Various avenues, and policy for foreign investment are covered in brief.

 

Investment in India can be made in ANY sector without any approval from any authority. This is known as the "Automatic route". Even for the small list of sectors, which are not under the "automatic route", a specific approval can be taken from Foreign Investment Promotion Board (FIPB).

 

"Automatic route" is available for all sectors except: -

  -

Where an Industrial License is required i.e. in case of: -

   

Alcoholic Drinks

   

Tobacco products

   

Defence equipments

   

Industrial Explosives

   

Hazardous chemicals

   

Drugs and Pharmaceutical

  -

Sectors which are reserved for Public sector – i.e. in case of :

   

Arms and Ammunitions

   

Atomic Energy

   

Railways

  -

Foreign investment exceeding 24% in case of items, which are, reserved for small sector undertakings. These items include biscuits, toys, woodwork etc. - which does not require high technology.

  -

The investment is within the sectoral guidelines.

 

In case the foreign investment falls within the above-restricted list or does not fall within the sector specific investment limits prescribed for automatic approval, an approval needs to be obtained from FIPB by satisfying them about the benefits to India. Powers of FIPB are discretionary.

 

It is also necessary that the foreigner investor should not have any other investment or collaboration or trademarks agreement with an Indian resident. Otherwise an FIPB approval is required.

 

Investments can be made in Indian companies' shares only. Business can be done through the companies.

 

Investment can be made into projects up to Rs.600 crores except in the case of projects for electricity generation, transmission and distribution where 100% FDI is permitted without any upper ceiling on investment, under automatic approval route. Beyond that, approval of FIPB is required.

 

The person making the investments should not be a citizen of, or the Company making the investments should not be incorporated in Pakistan, Bangladesh or Sri Lanka.

 

In case of investments under "Automatic Route" intimation has to be made to RBI within 30 days from the date of issue of shares in Form FC-GPR.

11.2

Euro Issues, ADR/GDR Issues

  -

Approval required From MOF

  -

No end-use restrictions except prohibition on investment in stock market & real estate

11.3

Technical Know-how Fees

 

Fees can be remitted with RBI permission, on automatic approval basis, up to US $ 2 million in lump sum, 5% royalty on domestic sales and 8% royalty on export sales over 7 years from commencement of production or 10 years from the date of agreement (net of taxes), whichever is earlier. But payment by wholly owned subsidiaries to their offshore parent companies of 5% royalty on domestic sales and 8% royalty on export sales allowed under the automatic route without any restriction on the duration of payment.

11.4

Royalty Payment

 

Royalty up to 2% of export sales and 1% for local sales is allowed to be paid to the foreign collaborator under the automatic route for use of his trademarks and brand name even if there is no transfer of technology.

11.5

Foreign Institutional Investors (FIIs)

 

FIIs such as Pension Funds, Investment Trusts, Asset Management Companies, etc., who have obtained registration from SEBI, are permitted to invest on full repatriation basis in the Indian Primary & Secondary Stock Markets (including OTCEI) as well as in unlisted, dated Government Securities, Treasury Bills & Units of Domestic Mutual Funds without any lock-in period.

 

Limits on Investment in the Primary & Secondary Markets are: -

  a)

The total holdings of all FIIs in any Company will be subject to a ceiling of 40 % of its total issued capital.

  b)

A single FII cannot hold more than 10% of the issued capital of any Company.

SECTOR SPECIFIC GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN INDIA BY FOREIGNERS, NRIs, PIOs AND OCBs

Sl.No. Sector Guidelines
1. Banking
Non Banking Financial Companies (NBFC)		 NRI holding may be up to 40%, inclusive of equity participation by other foreign investors. Foreign investment of up to 20% is permitted by foreign banking companies or finance companies including multilateral financial institutions. Multilateral institutions are allowed to invest within the overall foreign direct investment cap of 40% in case of shortfall in foreign direct investment contribution by NRIs. The automatic route is not available.
  1. FDI/NRI/OCB investments allowed in the following 17 NBFC activities shall be as per levels indicated below:
    i. Merchant banking
    ii. Underwriting
    iii. Portfolio Management Services
    iv. Investment Advisory Services
    v. Financial Consultancy
    vi. Stock Broking
    vii. Asset Management
    viii. Venture Capital
    ix. Custodial Services
    x. Factoring
    xi. Credit Reference Agencies
    xii. Credit rating Agencies
    xiii. Leasing & Finance
    xiv. Housing Finance
    xv. Forex Broking
    xvi. Credit card business
    xvii. Money changing Business

  2. Minimum Capitalisation Norms for fund based NBFCs:

    For FDI UPTO 51% - US$ 0.5 million to be brought upfront

    For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

    For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million to be brought upfront and the balance in 24 months

    100% NBFC to act only as holding company and specific activities to be undertaken by up to 100% step down subsidiaries.

  3. Minimum capitalisation norms for non-fund based activities:

    Minimum capitalisation norm of US $ 0.5 million is applicable in respect of all permitted non-fund based NBFCs with foreign investment.
    The automatic route is not available.

2. Civil Aviation
(detailed guidelines have been issued by Ministry of Civil Aviation)		 In the domestic Airlines sector:
i. FDI up to 40% permitted subject to no direct or indirect equity participation by foreign airlines is allowed.
ii. 100% investment by NRIs/OCBs.
iii. The automatic route is not available.
3. Telecommunication
i. In basic, Cellular Mobile, paging and Value Added service, and Global Mobile Personal Communications by Satellite, FDI is limited to 49% subject to grant of license from Department of Telecommunications and adherence by the companies (who are investing and the companies in which investment is being made) to the license conditions for foreign equity cap and lock in period for transfer and addition of equity and other license provisions.
ii. FDI up to 100% is allowed for the following activities: -
a. ISPs not providing gateways (both for satellite and submarine cables)
b. Infrastructure Providers providing dark fibre (IP Category I)
c. Electronic Mail
d. Voice Mail
iii. No equity cap is applicable to manufacturing activities.
4. Petroleum
a. Under the exploration policy, FDI up to 100% is allowed for small fields through competitive bidding; up to 60% for unincorporated JV; and up to 51% for incorporated JV with a No Objection Certificate for medium size fields.
b. For refining, FDI is permitted up to 26% (PSU holding of 26% and balance 48% public). In case of private Indian company, FDI is permitted up to 100%.
c. For petroleum products and pipeline sector, FDI is permitted up to 51%.
d. FDI is permitted up to 74% in infrastructure related to marketing and marketing of petroleum products.
e. 100% wholly owned subsidiary (WOS) is permitted for the purpose of market study and formulation.
f. 100% wholly owned subsidiary is permitted for investment/Financing.
g. For actual trading and marketing, minimum 26% Indian equity is required over 5 years. The automatic route is not available.
5. Housing &
Real Estate
(detailed guidelines have been issued by Ministry of Civil Aviation)		 No foreign investment is permitted in this sector. NRIs/OCBs are allowed to invest. The scheme specific to NRIs and OCBs covers the following:
a. Development of serviced plots and construction of built up residential premises
b. Investment in real state covering construction of residential and commercial premises including business centres and offices
c. Development of townships
d. City and regional level urban infrastructure facilities, including both roads and bridges
e. Investment in manufacture of building materials
f. Investment in participatory ventures in (a) to (e) above
g. Investment in housing finance institutions
6. Coal and Lignite
i. Private Indian companies setting up or operating power projects as well as coal or lignite mines for captive consumption are allowed FDI up to 100%.
ii. 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
iii. FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption.
iv. In all the above cases, FDI is allowed up to 50% under the automatic route subject to the condition that such investment shall not exceed 49% of the equity of a PSU.
7. Venture Capital Fund(VCF) and Venture Capital Company(VCC) An offshore venture capital company may contribute up to 100% of the capital of a domestic venture capital fund and may also set up a domestic asset management company to manage the fund.

VCFs and VCCs are permitted up to 40% of the paid up corpus of the domestic unlisted companies. This ceiling would be subject to relevant equity investment limit in force in relation to areas reserved for SSI. Investment in a single company by a VCF/VCC shall not exceed 5% of the paid-up corpus of a domestic VCF/VCC.

The automatic route is available.

8. Trading Trading is permitted under automatic route with FDI up to 51% provided it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house. But, FDI up to 100% is permitted in the case of e-commerce activities provided the Company is engaged in only business to business (B2B) activities. However, under the FIPB route:
i. 100% FDI is permitted in case of trading companies for the following activities:
l exports;
l bulk imports with export/expanded warehouse sales;
l cash and carry wholesale trading;
l other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and for third party use or onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy:
a. Companies for providing after sales services (that is no trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialised after sales service
d. Trading of items for social sector
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing.
9. Investing companies in infrastructure/ service sector In respect of the companies in infrastructure/service sector, where there is a prescribed cap for foreign investment, only the direct investment will be considered for the prescribed cap and foreign investment in an investing company will not be set off against this cap provided the foreign direct investment in such investing company does not exceed 49% and the management of the investing company is with the Indian owners. The automatic route is not available.
10. Atomic energy The following three activities are permitted to receive FDI/NRI/OCB investments through FIPB (as per detailed guidelines issued by Department of Atomic Energy vide Resolution No.8/1(1)/97-PSU/1422 dated 6.10.98):
a. Mining and mineral separation
b. Value addition per se to the products of (a) above c. Integrated activities (comprising of both (a) and (b) above. The following FDI participation is permitted: a. Up to 74% in both pure value addition and integrated projects. ii. For pure value addition projects as well as integrated projects with value addition up to any intermediate stage, FDI is permitted up to 74% through joint venture companies with Central/State PSUs in which equity holding of at least one PSU is not less than 26%. iii. In exceptional cases, FDI beyond 74% will be permitted subject to clearance of the Atomic Energy Commission before FIPB approval.
c. Integrated activities (comprising of both (a) and (b) above.
The following FDI participation is permitted:
i. Up to 74% in both pure value addition and integrated projects.
ii. For pure value addition projects as well as integrated projects with value addition up to any intermediate stage, FDI is permitted up to 74% through joint venture companies with Central/State PSUs in which equity holding of at least one PSU is not less than 26%.
iii. In exceptional cases, FDI beyond 74% will be permitted subject to clearance of the Atomic Energy Commission before FIPB approval.
11. Defence and strategic industries No FDI/NRI/OCB investment is permitted
12. Agriculture (including plantation) No FDI/NRI/OCB investment is permitted
13. Print media No FDI/NRI/OCB investment is permitted
14. Broadcasting No FDI/NRI/OCB investment is permitted
15. Power Up to 100% FDI allowed
16. Drugs & Pharmaceuticals
i. FDI up to 74% in the case of bulk drugs, their intermediates and formulations (except those produced by the use of recombinant DNA technology) would be covered under automatic route.
ii. FDI above 74% for manufacture of bulk drugs will be considered by the Government on case to case basis for manufacture of bulk drugs from basic stages and their intermediates and bulk drugs produced by the use of recombinant DNA technology as well as the specific cell/tissue targeted formulations provided it involves manufacturing from basic stage.
17. Roads & Highways, Ports and Harbours FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours.
18. Hotels & Tourism 100% FDI is permissible in the sector.

The term hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organisations.

Automatic route is available up to 51% subject to the following parameters.

For foreign technology agreements, automatic approval is granted if
i. up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc.
ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and
iii. up to 10% of gross operating profit is payable for management fee, including incentive fee.
19. Mining
i. For exploration and mining of diamonds and precious stones FDI is allowed up to 74% under automatic route.
ii. For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing FDI is allowed up to 100% under automatic route.
iii. Press Note No. 18 (1998 series) dated 14.12.98 would not be applicable for setting up 100% owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and / or the particular mineral.
20. Postal services Couriers carrying packages, parcels and other items which do not come within the ambit of Indian Post Office Act 1998 shall not be permitted.
21. Pollution Control and management FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted under automatic route.
22. Advertising and films Automatic approval is available for the following:
l Up to 74% FDI in advertising sector
l Up to 100% FDI in film industry (i.e. film financing, production, distribution, exhibition, marketing and associated activities relating to film industry) subject to the following:
i. Companies with an established track record in films, TV, music, finance and insurance would be permitted.
ii. The company should have a minimum paid up capital of US $ 10 million if it is the single largest equity shareholder and at least US $ 5 million in other cases.
iii. Minimum level of foreign equity investment would be US $ 2.5 million for the single largest equity shareholder and US $ 1 million in other cases.
iv. Debt equity ratio of not more than 1:1, i.e., domestic borrowings shall not exceed equity. v. Provisions of dividend balancing would apply.
23. Manufacturing activities in SEZs FDI up to 100% is allowed through the automatic route, except for the following activities:
a. Arms and ammunitions, explosives and allied items of defense equipment, defense aircraft and warships.
b. Atomic substances.
c. Narcotics and psychotropic substances and hazardous chemicals.
d. Distillation and brewing of alcoholic drinks.
e. Cigarettes / cigars and manufactured tobacco substitutes.
24. Insurance sector FDI up to 26% under automatic route.

 

NOTES ON INVESTMENTS BY NRIs/PIOs/OCBs: -

 

NRIs from Nepal are also permitted to make direct investments if they remit funds in foreign exchange.

 

RBI has granted general permission to NRIs/PIOs/OCBS to acquire shares from other NRIs/PIOs/OCBs.

 

Portfolio Investment in Companies listed on Stock Exchanges Permitted up to 5% for each NRI/OCB subject to overall ceiling of 10% of the Company's capital. The Company concerned can increase this limit of 10% to 24%. NRIs/OCBs are permitted to invest up to 100% in PSE Capital/ PSU Bonds.

 

NRIs are permitted to invest up to 100% in Govt. Securities (other than Bearer Securities), units of UTI & instruments of domestic Mutual Funds (referred to in sec. 10 (23D) of the Income Tax Act, 1961).

 

For purchase of shares by NRIs/OCBs from existing shareholders permission is required from Central Government as well as RBI.

 

NRIs/PIOs can invest on non-repatriation basis in all sectors except plantations, nidhis, chit funds and real estate trading. In such cases restrictions placed on investments made on repatriation basis will also not apply. Investments in Company's, Partnership Firms or Proprietary Concerns can be made up to 100 % of the capital of these entities. These entities can in turn carry on business activity. No prior permission from RBI is required.

12.

BORROWINGS THROUGH ECB

Any legal entity can raise money abroad through the ECB Route as follows: -

A.

Automatic Route: - Fresh ECB or refinancing of existing ECB with average maturity of not less than 3 years for an amount up to US $ 50 Million. Three copies of the agreement will have to be filed with the Regional Office of the RBI after signing the ECB agreement.

B.

Raising ECB in excess of US $ 50 Million but up to US $ 100 million apply to the RBI for permission.

C.

Raising ECB in excess of US $ 100 Million will be considered by the Government of India.

Applications in all the above cases has to be made in Form ECB.

13.

BORROWINGS THROUGH LOANS / DEPOSITS

 

Indian Companies are now permitted to accept deposits from NRIs/PIOs/OCBs on repatriation or non-repatriation basis subject to certain conditions.

 

Indian Proprietary Concerns and Firms are permitted to accept deposits from NRIs/PIOs on non-repatriation basis subject to certain conditions.

 

Resident Individuals are permitted to avail of interest free loans up to US $ 2,50,000 from their NRIs/PIOs relatives on non-repatriation basis subject to certain conditions.

 

Proprietary Concerns and Partnership Firms are permitted to avail of interest bearing loans from NRIs/PIOs on non-repatriation basis subject to certain conditions.

 

Special permission of the RBI will be required in case where deposits/loans do not fulfill the specified criteria or where the deposits/loans are on repatriation basis in the case of individuals, proprietary concerns and firms.

14. ACQUISITION AND TRANSFER OF IMMOVEABLE PROPERTY OUTSIDE INDIA
  Indian Nationals Resident In India Indian Nationals Resident Outside India Foreign Nationals Resident In/Outside India
  1. By way of gift or inheritance from any person

2. By purchase out of funds held in RFC Account

No restrictions No restrictions

15. ACQUISITION AND TRANSFER OF IMMOVEABLE PROPERTY IN INDIA
  Indian Nationals Resident In India Indian Nationals Resident Outside India Persons of Indian Origin Resident Outside India
  No restrictions 1. Can acquire any immoveable property other than agricultural land/plantation/farm house

2. Can transfer any immoveable property to a person resident in India

3. Can transfer any immoveable property other than agricultural land/plantation/farm house to a PIO/Indian National resident outside India.

 1. Can acquire any immoveable property other than agricultural land/plantation/farm house out of foreign currency funds or by way gift or by way of inheritance.

2. Can sell any immoveable property other than agricultural land/plantation /farm house to a person resident in India

3. Can gift any immoveable property to a person Resident in India or to a PIO/Indian National Resident outside India

4. Can sell/gift any agricultural land/plantation/farm house to an Indian citizen resident in India

  Foreign Citizens Resident In India Foreign Citizens Resident Outside India Indian Branch/Office of Foreign Concern
  No restrictions, except in the case of Nationals of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal & Bhutan who will require prior permission from RBI in all cases except where the immoveable property is acquired by way of lease for less than 5 years Can acquire only after prior permission from RBI Can acquire immoveable property which is required for carrying on its activities, a declaration in Form IPI will have to filed with RBI within 90 days of such acquisition (the above procedure is not applicable to a liaison office)

 

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