are the statutory basis for foreign investment in India?
The foreign investment in India is governed by the provisions of Foreign
Exchange Management (Transfer or Issue of Security by a person resident
outside India) Regulation, 2000. Reserve Bank of India has issued
Notification No. FEMA.20/2000-RB dated 3rd May 2000 as amended from time to
What are the classes of Investors who come to India for the purpose of
Generally following four categories of investors come to India for the
purpose of Investments
- Non-Resident Indians/Persons of Indian Origin.
- Foreign Companies
- Foreign Institutional Investors and
- Foreign Venture Capital companies.
What is Automatic Route of foreign
investment in India?
Foreign Direct Investment (FDI) up to 100% ( See Table 30 where sectoral
caps are indicated against each industry) is allowed under the automatic
route in all activities/sectors except the following which require prior
approval of the Government :
- Activities/items that require an Industrial License;
- Proposals in which the foreign collaborator has an existing
financial/technical collaboration in India in the 'same' field'
- Proposals for acquisition of shares in an existing Indian company
in: Financial services sector and where Securities & Exchange
Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 is attracted;
- All proposals falling outside notified sectoral policy/caps or
under sectors in which FDI is not permitted.
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-or shares to foreign investors.
Whether any reporting system is to be observed after investments?
Yes: A two-stage reporting procedure has been introduced for this purpose.
On receipt of money for investment: Within 30 days of receipt of money from
the foreign investor, the Indian company will report to the Regional Office
of RBI under whose jurisdiction its Registered Office is located, a report
containing details such as: Name and address of the foreign investors Date
of receipt of funds and their rupee equivalent Name and address of the
authorised dealer through whom the funds have been received, and Details of
the Government approval, if any; On issue of shares to foreign investor:
Within 30 days from the date of issue of shares, a report in Form FC-GPR
together with the following documents should be filed with the Regional
Office of RBI: Certificate from the Company Secretary of the company
accepting investment from persons resident outside India certifying that All
the requirements of the Companies Act, 1956 have been complied with; Terms
and conditions of the Government approval, if any, have been complied with;
The company is eligible to issue shares under these Regulations; and The
company has all original certificates issued by authorised dealers in India
evidencing receipt of amount of consideration; Certificate from Statutory
Auditors or Chartered Accountant indicating the manner of arriving at the
price of the shares issued to the persons resident outside India.
What are the guidelines for transfer of existing shares from residents
to non-residents or non-residents to residents?
Reserve Bank has given general permission to transfer the shares [Please
refer details of the scheme in A.P.(DIR Series) Circular No.16 dated 4th
Can a foreign investor puts his money in an unlisted shares issued by a
company in India?
As per the regulations/guidelines issued by RBI/Government of India,
investment can be made in unlisted shares of Indian companies.
Can a foreigner set up a partnership/proprietorship concern in India?
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concern
in India. Even for NRIs/PIOs investment is allowed only on non-repatriation
What should be done, if Automatic Route of RBI for technology transfer
is not available?
Proposals which do not satisfy the parameters prescribed for automatic
route of RBI, require clearance from Ministry of Commerce, Department of
Industrial Policy and Promotion, Government of India.
What is the procedure for setting up Branch office?
Reserve Bank permits companies engaged in manufacturing and trading
activities abroad to set up Branch Offices in India for the following
- To represent the parent company/other foreign companies in
various matters in India e.g. acting as buying/selling agents in
- To conduct research work in the area in which the parent company
- To undertake export and import activities and trading on
- To promote possible technical and financial collaborations
between the Indian companies and overseas companies.
- Rendering professional or consultancy services.
- Rendering services in Information technology and development of
software in India.
- Rendering technical support to the products supplied by the
A branch office is not allowed to carry
out manufacturing, processing activities directly/indirectly. A Branch
Office is also not allowed to undertake Retail Trading activities of any
nature in India. Branch Offices have to submit Activity Certificate from a
Chartered Accountant on an annual basis to the Central Office of FED. For
annual remittance of profit Branch Office may submit required documents to
an authorised dealer.
What is the procedure for opening the Branch/Liaison office in India by
a foreign company?
Foreign company has to obtain the prior permission of Reserve Bank. For
this purpose a foreign company should apply in Form FNC.l to the Central
Office of Reserve Bank of India located in Mumbai.
Whether permission is also required to open a project office in India.
No. Reserve Bank has given general permission provided-
- They have secured from an Indian company;
- A contract to execute a project in India; and
- The project is funded directly by inward remittance from abroad;
- The project is funded by a bilateral or multilateral
International Financing Agency; or
- The project has been cleared by an appropriate authority; or
- A company or entity in India awarding the contract has been
granted Term Loan by a Public Financial Institution or a bank in
India for the project.
However, if the above criteria are not
met, or if the parent entity is established in Pakistan, Bangladesh, Sri
Lanka, Afghanistan, Iran or China, such applications have to be forwarded to
Central Office of the Foreign Exchange Department of the Reserve Bank of
India at Mumbai for approval.
What is the procedure to be followed for obtaining Reserve Bank's
approval for opening Liaison Office/Representative Office?
A Liaison office can carry on only liaison activities, i.e. it can act as a
channel of communication between Head Office abroad and parties in India. It
is not allowed to undertake any business activity in India and cannot earn
any income in India. Expenses of such offices are to be met entirely through
inward remittances of foreign exchange from the Head Office abroad. The role
of such offices is, therefore, limited to collecting information about
possible market opportunities and providing information about the company
and its products to the prospective Indian customers.
The companies desirous of opening a liaison office in India may make an
application in form FNC-l along with the documents mentioned therein to
Foreign Investment Division, Foreign Exchange Department, Reserve Bank of
India, Central Office, Mumbai.
Permission to set up such offices is initially granted for a period of 3
years and this may be extended from time to time by the Regional Office in
whose jurisdiction the office is set up. Liaison/representative offices have
to file an Activity Certificate on annual basis from a Chartered Accountant
to the-concerned Regional Office of the RBI, stating that the Liaison Office
has undertaken only those activities permitted by RBI.