The Basics Of Foreign Direct Investment

The use of FDI can be viewed from two different angles. Investments can be made to acquire or purchase corporate assets situated in other nations or through expanding the current enterprise overseas. Only if there is a long-term interest may an investment made in a foreign company be classified as FDI. Obtaining the foreign company equity or the company's voting power will demonstrate a long-term interest. The investor has a variety of options for obtaining voting rights within the company

By acquiring 10% of the international company
Through mergers and acquisitions
Partnership with international companies
Establishing a domestic company's international division.

Foreign Direct Investment In India

The 1991 economic crisis resulted in a significant evolution of the FDI paradigm
Because of this, there were more imports and fewer exports, which caused investors to withdraw their money from the market, creating a trade deficit
The government adopted a liberalisation policy in response to the economic crisis, which opened the door for more FDI to enter India
The majority of foreign businesses engage in India in order to benefit from the country's specific investment rights, including Special Economic Zones (SEZs), reduced trade barriers, greater manpower, and relatively lower wages.

Sectors That Fall Under Complete Automatic Route as per the FDI Policy

The 1991 economic crisis resulted in a significant evolution of the FDI paradigm
Because of this, there were more imports and fewer exports, which caused investors to withdraw their money from the market, creating a trade deficit
The government adopted a liberalisation policy in response to the economic crisis, which opened the door for more FDI to enter India
The majority of foreign businesses engage in India in order to benefit from the country's specific investment rights, including Special Economic Zones (SEZs), reduced trade barriers, greater manpower, and relatively lower wages.

Sectors That Fall Under Complete Automatic Route as per the FDI Policy

Transportation, agriculture, and animal husbandry, Airports
Radio and TV Services Biotechnology, broadcasting carriage services (Greenfield)
Cash & Carry, capital goods, retail trading chemicals, coal and lignite, hospital building, construction development, and credit information organisations
Duty-Free stores, online shopping, electronics, the food processing industry, gems, and jewellery
Plants, industrial parks, IT & BPM, and healthcare
Services for civil aviation
White-label ATM operations, single-brand retail, travel, accommodation, and textiles
Government route: In the section the RBI approval is crucial for the foreign investor to conduct any form of investments in the Indian subcontinent
Similar to this, all the sectors required to gain this approval are classified in India's FDI policy
Depending on the sector and investment, a different approval body is used.

Sectors that Require Government Approval

Up To 100% Of Government Approval

Mining operations and mineral separation for ores and minerals containing titanium
Business in retail food products
Publication and printing of scientific periodicals and journals
Publication of foreign newspaper facsimile editions
Satellite (both establishment and operations)

More than 49% Of Approval

Defense
Air transportation (scheduled)
Telecom industry
Private sector banks
Specialised security companies
A contribution from international carriers
Services for broadcasting
An FM radio
Television news and current affairs programmes

Up To 26% Of Approval

Publishing of news and current affairs-related newspapers and magazines is known as printing media
Printing Media - Publication of international periodicals covering news and current affairs in India

Other Approval %

• Public sector banking has received up to 20% approval, while multi-brand product retail trading has received up to 51% approval.

FDI Policy: Sectors Where FDI Is Prohibited

Nidhi corporation
The purchases of chit funds
Atomic energy production, gaming, or a related industry
Lottery
Housing and real estate (doesn't include townships and commercial projects)
Cigarettes and other tobacco-related industries.
Transferable Development Rights (TDR)
Farming and husbandry

Advantages of FDI in India

As investors establish new businesses, which create additional job possibilities, FDI increases the employment rate inside the target country
The target nation's overall productivity will rise as a result of the investor's provision of cutting-edge technology and various equipment types
Additionally, FDI will encourage the transfer of aids and the sharing of understanding and aptitudes with the mark nation
The fact that FDI results in more job possibilities and higher earnings is one of its key benefits.

Checklist for FDI Compliance

For the investment in share capital, the purpose of the remittance and customer information should be specified
Investors bank statement be used to furnish all the FDI accounts
Within a month after receiving the remittance and providing a copy of the FIRC, the banker must provide the FDI receipt
Allocate the shares related to the remittance received using the following procedures within 180 days after receiving the remittance
Chartered Accountant (CA) report on share valuation is mandatory
Part A of the form FC-GPR along with the required documentation has to be provided to the banker within 30 days of FDI allocation.

Procedure for Approval of FDI in India

Automatic Route The Indian government and Reserve Bank of India (RBI) do not need to grant any previous clearance for the FDI sector that is allowed under the automatic method. The investors must notify the regional office within one month. In a similar manner, within 30 days following the issue of shares to the overseas investors, the necessary paperwork has to be submitted to the same regional office.

Government Route The Foreign Investment Promotion Board (FIPB) will review it, and prior clearance from the Indian government is required.

Approval Procedure

Submit your proposal along with the necessary paperwork through the Foreign Investment Facilitation Portal (FIPB)
Within a week, the recommendations are assessed, and if further knowledge is needed, it will be ordered
The applicant receives online notification of the proposal's acceptance or rejection
If the total amount invested in foreign stock exceeds ₹5000 crore.

Documents for FDI in India

The names, addresses, and IDs of all the company's international partners
Both the Investee and Investor companies must submit the following documents
Certificate of company Incorporation
Memorandum of Association (MOA)
A decision made during a board meeting
The previous financial year's audited financial statements
Article of Association (AOA)
The investee company's shareholding structure both before and after the investment
If there are existing JV's, a copy of the JV agreement should also be provided
Apart from this shareholder agreement, trademark assignment, brand assignment agreement should be provided
An affidavit certifying that the information submitted online and in physical copy is same and accurate
A copy of the notification downstream
A copy of any prior FIPB, SIA, or RBI permissions that are applicable to the recent request
Foreign Inward Remittance Certificates (FIRCs) must be provided if the foreign entity has already made the investment
Credential of share valuation marked by a Chartered Accountant.