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Foreign Investment in India

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RBI vested with powers to administer FEMA and and make rules and regulation for monitering forex transactions so as to maintain orderly conditions in forex markets ... – PowerPoint PPT presentation

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Title: Foreign Investment in India


1
Foreign Investment in India
  • Neeta Behramfram

2
Definition
  • Foreign Investment
  • i) Foreign Direct Investment
  • Strategic long term relationship or lasting
    interest
  • ii) Foreign Portfolio Investment
  • - Higher returns

3
Regulatory framework
  • The Act
  • Regulations
  • Press Notes
  • Press Releases
  • Clarifications

4
Legal basis
  • Foreign Exchange Management Act (FEMA), 1999
    came into effect from June 1, 2000.
  • RBI vested with powers to administer FEMA and and
    make rules and regulation for monitering forex
    transactions so as to maintain orderly conditions
    in forex markets

5
FEMA,1999
  • Foreign investment in India is governed by
    sub-section (3) of Section 6 of the Foreign
    Exchange Management Act, 1999, which covers
    Capital Account Transactions
  • Section 6 (3)
  • (a) transfer or issue of any foreign security by
    a person resident in India
  • (b) transfer or issue of any security by a person
    resident outside India

6
Section 6 (3)
  • c) transfer or issue of any security or foreign
    security by any branch, office or agency in India
    of a person resident outside India
  • d) any borrowing or lending in foreign exchange
    in whatever form or by whatever name called
  • (e) any borrowing or lending in rupees in
    whatever form or by whatever name called between
    a person resident in India and a person resident
    outside India

7
Section 6 (3)
  • (f) deposits between persons resident in India
    and persons resident outside India
  • (g) export, import or holding of currency or
    currency notes
  • (h) transfer of immovable property outside India,
    other than a lease not exceeding five years, by a
    person resident in India

8
Section 6 (3)
  • (i) acquisition or transfer of immovable property
    in India, other than a lease not exceeding five
    years, by a person resident outside India
  • j) giving of a guarantee or surety in respect of
    any debt, obligation or other liability incurred
    -
  •  (i) by a person resident in India and owed to a
    person resident outside India or
  •  (ii) by a person outside India.

9
FEMA Notifications
  • Notification No. FEMA 20/2000-RB dated May 3,
    2000 covers the aspects relating to Foreign
    investment in India
  • Contains the Regulations prescribing the mode of
    investments i.e. manner of receipt of funds,
    issue of shares / type of instruments and
    reporting of the investments to the Reserve Bank.

10
Circulars
  • RBI issues notifications and AP (DIR Series)
    circulars from time to time which the procedural
    and operational aspects.
  • These generally follow the changes made in the
    FDI policy or the procedural changes to be
    brought in.

11
FDI Policy
  • Foreign Direct Investment (FDI) in India is
    governed by the FDI Policy announced by the
    Government of India and the provisions of FEMA)
    1999.
  • Consolidated policy announced by Dept. of
    Industrial Policy and Promotion (DIPP), Ministry
    of Commerce and Industry on 31st March and 30th
    September
  • Last policy annoucement on 31.1.2011 effective
    from 1.4.2011

12
FEMA 20
  • The six schedules of the FEMA notification No.
    20 dt.3.5.2000 prescribe the mode of investments
    by different class of investors and the
    reporting to RBI.
  • Schedule 1 Foreign Direct Investment by persons
    resident outside India
  • -The reporting requirement under para 9 (1)
    (A) and 9 (1) (B) of Schedule 1

13
Schedules......
  • Schedule 2
  • Foreign Portfolio investment by FIIs registered
    with SEBI.
  • Reporting to RBI by SEBI on a daily basis.
  • Schedule 3
  • Investment by an NRI on a Stock Exchange in
    India on Repatriation and/or non-repatriation
    basis under Portfolio Investment Scheme

14
Schedules ................
  • Schedule 4
  • Investment by NRIs on Non-Repatriation basis.
  • Schedule 5
  • Other investments (G-Sec, NCDs, etc) by FIIs and
    NRIs

15
Schedules......
  • Schedule 6
  • Foreign Venture Capital Investments (SEBI
    registered) in IVCF/ IVCU
  • RBI permission for opening of special accounts
    with designated AD Cat. I bank
  • Concessions regarding pricing, compliance with
    Press Note 1 of 2005
  • Reporting to Central Office through Custodian

16
Prohibition on investment in India
  • Sectors prohibited for FDI
  • I. Retail Trading (except single brand product r
    etailing)
  • II. Atomic Energy
  • III. Lottery Business
  • IV. Gambling and Betting
  • V. Business of chit fund
  • VI. Nidhi Company

17
Prohibition .............
  • VII. Trading in Transferable Development Rights
    (TDRs)
  • VIII. Activities/sector not opened to private
    sector investment
  • IX. Agriculture and Plantations (Other than Tea
    Plantations)
  • X. Real estate business, or construction of farm
    houses.

18
Automatic route
  • FDI permitted in almost all the sectors
  • Sectoral caps specified in some activities
  • e.g. Scheduled and non-scheduled air transport
    services, private sector banking, Insurance,
    Telecom, SSIs (except in SEZs/EPZs, etc)

19
Approval route
  • Sectors which are not covered under general
    permission
  • e.g.
  • Satellites Establishment and operation (74)
  • Single Brand Product retailing (51)
  • Print media (100)
  • Petroleum Natural Gas sector (PSUs- 49)

20
Approval .......
  • Investing companies in infrastructure / services
    sector (except telecom sector)100
  • Credit Informatio Companies(CIC) -49
  • Courier services 100
  • Stock exchanges, depositories and clearing
    corporations - 49

21
Approval route
  • Broadcasting
  • a)(DTH, cable, FM radio) -49
  • b)Commodity exchanges 49
  • c) Setting up hardware facilities / HUB-49
    d) Up-linking a News Current Affairs
  • TV Channel 26
  • e) Up-linking a Nonnews Current Affairs TV
  • Channel 100

22
Approval route
  • Asset Reconstruction companies 49
  • Existing projects in Airports -100
  • Defence production 26
  • Mining and mineral separation of titanium
  • 100
  • Tea Sector, including tea plantation-100

23
Reporting of inflow
  • Under para 9 (1) (A) of Schedule 1
  • Through AD Cat I bank within 30 days from date of
    receipt of inward remittance by normal banking
    channel / debit to NRE/FCNR account
  • In prescribed format along with FIRC and KYC
    report on remitter / investor
  • Purpose of remittance in FIRC
  • UIN is allotted

24
Allotment of equity instruments
  • In t/o AP (DIR Series) circular No. 20. dt.
  • 14. 12.2007, fixed time limit of 180 days from
    the date of receipt of inward remittance for
    allotment of equity instruments for all
    remittances pending allotment for less than 180
    days as on 29.11.2007 and those received
    subsequently.
  • Non-allotment within 180 days / allotment after
    lapse of 180 days without RBI approval
    contravention of Para 8 of schedule 1

25
Reporting of allotment
  • In form FCGPR within 30 days from date of
    allotment through AD cat.I bank
  • Along with Fair valuation certificate from CA
  • Certificate from CS in stipulated format
  • Copy of FIPB appoval if under approval route
  • In case of allotment against inflow received
    prior to June 1, 2008, FIRC and KYC

26
FCGPR
  • Complete in all respect
  • Correct NIC code
  • Post issue share structure
  • UIN for inflow
  • Purpose of remittance
  • Declaration part of FCGPR Press Note 1 of 2005,
    SSI unit, rights issue

27
NBFCs
  • For NBFCs (18 activities) compliance with min.
    Capitalisation norms
  • Fund based and non-fund based activities
  • NBFC activities other than 18 listed in Annex1
    require approval from FIPB

28
FCGPR
  • Real estate development Undertaking regarding
    compliance with Press Note 2 of 2005
  • In cases of merger/amalgamation No inflow
  • Copy of Court order required which would give
    the ratio for allotment
  • Conversion of ECB no inflow reported to Regional
    Office but FCGPR filed with RO along with CA
    certificate and copy of ECB returns submitted to
    Central Office

29
Permissible instruments
  • Equity shares
  • CCPS/CCDs subject to compliance with pricing
    guidelines under para 5 of schedule 1
  • Warrants or partly paid instruments are not
    covered under FEMA, hence require FIPB approval
  • Redeemable debentures / preference shares to
    comply with ECB norms and is not FDI

30
Eligible investors
  • A person resident outside India (other than a
    citizen of Pakistan) or an entity incorporated
    outside India, (other than an entity incorporated
    in Pakistan) can invest, subject to the FDI
    Policy.
  • A person who is a citizen of Bangladesh or an
    entity incorporated in Bangladesh can invest
    with the prior approval of the FIPB

31
Eligible investors
  • Overseas Corporate Bodies (OCBs) - a company,
    partnership firm, society and other corporate
    body owned directly or indirectly to the extent
    of at least sixty per cent by Non-Resident
    Indians and includes overseas trust in which not
    less than sixty per cent beneficial interest is
    held by NRIs
  • . OCBs have been de-recognised as a class of
    investors in India with effect from September 16,
    2003.

32
OCBs
  • Erstwhile OCBs which are incorporated outside
    India and are not under adverse notice of RBI can
    make fresh investments (including on rights
    basis) as incorporated non-resident entities,
  • with the prior approval of Government of India if
    the investment is through Government Route
  • with the prior approval of Reserve Bank if the
    investment is through Automatic Route.

33
OCBs
  • However, no permission required for issue of
    bonus shares
  • For disinvestment by OCBs permission of RBI
    required to open NRO account to credit sale
    proceeds
  • Prior permission required even for transfer of
    shares

34
TRANSFER of Securities
  • W.e.f. October 2004, general permission fo
    transfer of shares from Resident to Non Resident
    (except in financial services sector, investment
    under Govt. Approval route and OCBs)
  • Gen. Permission for transfer by way of sale or
    gift from NR to Resident
  • Gen. Permission for transfer from NRIs to NRIs
  • Reporting in FCTRS within 60 days

35
Transfer
  • Gen. Permission also for NR (other than NRIs/
    OCBs) to NR
  • No reporting in FCTRS
  • Cases for permission for tranfer (which are not
    under general permission) to be sent to Central
    Office with RO comments

36
FDI
  • THANK YOU
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