India Market
Investment Routes in India
Entry Strategies for Foreign Investors
A foreign company planning to set up business operations in India has the following options:
1) As an Indian Company
A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through
- Joint Ventures; or
- Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India (http://www.dipp.nic.in ).
Joint Venture With An Indian Partner
Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.
Joint Venture may entail the following advantages for a foreign investor:
- Established distribution/ marketing set up of the Indian partner
- Available financial resource of the Indian partners
- Established contacts of the Indian partners which help smoothen the process of setting up of operations
Wholly Owned Subsidiary Company
Foreign companies can also to set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
Incorporation of Company
For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
For further information, contact:
Department of Company Affairs under Ministry of Finance: http://dca.nic.in
2) As a Foreign Company
Foreign Companies can set up their operations in India through
- Liaison Office/Representative Office
- Project Office
- Branch Office
Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
Liaison office/ Representative office
Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
The approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI).
Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Branch Office
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
- Export/Import of goods
- Rendering professional or consultancy services
- Carrying out research work, in which the parent company is engaged.
- Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
- Representing the parent company in India and acting as buying/selling agents in India.
- Rendering services in Information Technology and development of software in India.
- Rendering technical support to the products supplied by the parent/ group companies.
- Foreign Airline/shipping Company.
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Branch Office on "Stand Alone Basis"
Branch Office on "Stand Alone Basis"
Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
Application for setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1 (available at RBI website at www.rbi.org.in)
FDI policy
India's foreign trade policy has been formulated with a view to invite and encourage FDI in India. The process of regulation and approval has been substantially liberalized. The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI. FDI can be divided into two broad categories: investment under automatic route and investment through prior approval of Government.
Procedure under automatic route
FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.
Procedure under Government approval
FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion. Applications can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for further processing.
Investment by way of Share Acquisition
A foreign investing company is entitled to acquire the shares of an Indian company without obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines. If the acquisition of shares directly or indirectly results in the acquisition of a company listed on the stock exchange, it would require the approval of the Security Exchange Board of India.
New investment by an existing collaborator in India
A foreign investor with an existing venture or collaboration (technical and financial) with an Indian partner in particular field proposes to invest in another area, such type of additional investment is subject to a prior approval from the FIPB, wherein both the parties are required to participate to demonstrate that the new venture does not prejudice the old one.
General Permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.
Participation by International Financial Institutions
Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI.
FDI In SSI Units
A small-scale unit cannot have more than 24 per cent equity in its paid up capital from any industrial undertaking, either foreign or domestic. If the equity from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status and shall require an industrial license to manufacture items reserved for small-scale sector.
Sector wise Regulation in Foreign Investment
i) Automatic route for specified activities subject to Sectoral cap and conditions.
|
Sectors
|
Cap
|
|
Airports
|
74%
100% |
|
Air Transport Services
|
100%
49% |
|
Alcohol distillation and brewing
|
100%
|
|
Banking (Private Sector)
|
74%
|
|
Coal and Lignite mining (specified)
|
100%
|
|
Coffee, Rubber processing and warehousing
|
100%
|
|
Construction and Development (Specified projects)
|
100%
|
|
Floriculture, Horticulture and Animal Husbandry
|
100%
|
|
Specified Hazardous chemicals
|
100%
|
|
Industrial Explosives Manufacturing
|
100%
|
|
Insurance
|
26%
|
|
Mining (Precious metals, Diamonds and stones)
|
100%
|
|
Non banking finance companies ( conditional)
|
100%
|
|
Petroleum and Natural gas
|
100%
100% |
|
Power generation, transmission, distribution
|
100%
|
|
Trading
|
100%
100% |
|
SEZ’s and Free Trade
Warehousing Zones |
100%
|
|
Telecommunication
|
49%
49% 49% 100% |
Prior Approval from FIPB where investment is above Sectoral caps for activities listed below.
|
Sectors
|
Cap
|
|
New Investment by a foreign investor in a field in which the investor already has an existing joint venture or collaboration with another Indian partner
|
|
|
New investment sought to be made in manufacture of items reserved for Small Scale Industries
|
|
|
Existing Airports
|
74% to 100%
|
|
Asset reconstruction companies
|
49%
|
|
Atomic Minerals
|
74%
|
|
|
|
20%
49% 49% 49% 26% 100% |
|
100 %
|
|
100 %
|
|
26 %
|
|
49 %
|
|
26 %
|
|
100 %
|
|
100 %
|
|
100 %
|
|
51 %
|
|
74 %
|
|
|
|
26 %
100 % |
|
|
|
49 % to 74 %
49 % to 74 % 49 % to 100 %
|
Investment Facilitation
Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy and Promotion, Government of India provides a single window service for entrepreneurial assistance, Investor facilitation and monitoring implementation of the projects.
Secretariat for Industrial Assistance (SIA)
Department of Industrial Policy and Promotion
Ministry of Commerce & Industry
Udyog Bhavan, New Delhi-110 011
Email: dipp_sia@ub.nic.in
Tel.: +91-11-23011983
Fax: +91-11-23011034
Department of Industrial Policy and Promotion
Ministry of Commerce & Industry
Udyog Bhavan, New Delhi-110 011
Email: dipp_sia@ub.nic.in
Tel.: +91-11-23011983
Fax: +91-11-23011034