Foreign Direct Investment in Indian Ventures:
Before discussing Foreign Direct Investment (FDI) in Indian Ventures, it is important to understand the following terms as provided under FEMA & Regulation made thereunder:
‘Capital Instruments’ means equity shares, debentures, preference shares and share warrants issued by an Indian company.
‘Foreign Direct Investment’ (FDI) means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
If an existing investment by a person resident outside India in capital instruments of a listed Indian company falls to a level below 10 percent of the post issue paid-up equity capital on a fully diluted basis, the investment will continue to be treated as FDI.
Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
‘Foreign Investment’ means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.
‘Investment on repatriation basis means an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression ‘Investment on non-repatriation basis’, shall be construed accordingly.
‘Sectoral cap’ is the maximum investment including both foreign investment on a repatriation basis by persons resident outside India in capital instruments of a company or the capital of an LLP, as the case may be, and indirect foreign investment, unless provided otherwise. This shall be the composite limit for the investee Indian entity.
FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the sectoral cap.
Any equity held by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned under the sectoral cap.
‘Automatic Route’ means the entry route through which investment by a person resident outside India does not require the prior Reserve Bank approval or Government approval.
‘Government Route’ means the entry route through which investment by a person resident outside India requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.
‘Real estate business’ means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships;
Govt. of India (GOI ) has classified certain Sectors where FDI is permitted under Automatic Route although compliances under this route is required. GOI has classified certain sectors where Govt. Approval is required for FDI in the ventures under these Sectors. GOI has specified different Caps for investments in different Sectors. For the Sectors in which is under automatic route are given under investments under Automatic Route and there are Sectors where GOI permission is required for FDI in the ventures falling under that Sectors. FDI in these Segments is given under Investments with Govt. Approval. There are certain Sectors where FDI is not permitted and are given under Prohibited Sectors for FDI