An Overview on FDI

SBS HyderabadAN OVERVIEW ON FOREIGN DIRECT INVESTMENT (FDI) By Sunil Reddy Sama [email protected] Date: 16.09.2017

Objectives  History of FDI in India  Introduction  Advantages  Disadvantages  Types of FDI  Who can invest  Where to invest  Prohibited Sectors2 www.sbsandco.com

History of FDI in India • What is FDI • How FDI came to India • Do we require FDI3 www.sbsandco.com

Advantages of FDI  Augmenting of domestic capital  Productivity  Employment  Technical Know-how  Infrastructure  Special Tax Privileges  Economic Growth4 www.sbsandco.com

Disadvantages of FDI  Disappearance of cottage and small scale industries  Contribution to the pollution  Exchange crisis  Cultural erosion  Political corruption  Currency convertibility  Inflation in the Economy5 www.sbsandco.com

Relevant Regulations and Notifications  Regulated by Foreign Exchange Management(Transfer or Issue of security by a person resident outside India) Regulations,2000  Notification No.FEMA 20/2000-RB dated 3rd May,2000  Latest FDI Policy announced by Government is effective from 12th May,20156 www.sbsandco.com

Types…7 www.sbsandco.com

Types of FDI Horizontal FDI Vertical FDI Platform FDI8 www.sbsandco.com

Methods of FDI  Incorporating a wholly owned subsidiary or company anywhere  Acquiring shares in an associated enterprise  Merger or an acquisition of an unrelated enterprise  Participating in an equity joint venture with another investor or enterprise9 www.sbsandco.com

FDI Routes FDI Route Automatic Government Route Route10 www.sbsandco.com

Who can invest in India A Non-resident entity Overseas Corporate Bodies (OCB’s) – w.e.f. 16th September,2003 Type of holding Individual holding Aggregate holdingLimits FII/FPI- 10% of the FII/FPI/QFI – 24% of the capital of the company capital of the company A SEBI registered Foreign Venture Capital Investor (FVCI) Qualified Foreign Investors (QFI’s) investment in equity shares Citizen or entity of Bangladesh - only government route Citizen or entity of Pakistan - only government route other than defence,space,atomic energy and sectors prohibited NRI of Nepal and Bhutan - on repatriation basis11 www.sbsandco.com

Entities into which FDI can bemade(1/3)FDI in an Indian Company Micro and Small Enterprises An Industrial Undertaking - 24% of it’s paid-up share capital with prior approval of Foreign Investment Promotion Board (FIPB)* of Government of IndiaSize of the enterprise Goods ServicesMicro Enterprises Up to Rs.25 lakh Up to Rs.10 lakhSmall Enterprises Rs.25 lakh to Rs.5 crore Rs.10 lakh to Rs.2 crore * As per Finance Budget-2016,FIPB12 www.sbsandco.com

Entities into which FDI can be made(2/3) FDI in Partnership Firm/Proprietary Concern NRI or PIO resident outside India on non-repatriation basis  Inward Remittance or out of NRE/FCNR(B)/NRO account  Not eligible for repatriation outside India  Investment restricted in some sectors Investments with repatriation option Investments by non-residents other than NRIs/PIO13 www.sbsandco.com

Entities into which FDI can bemade(3/3)FDI in Limited Liability Partnership (LLP) - From 20th May,2011 FDI is allowed in LLP registered and formed under the LLP Act,2008FDI in Venture Capital Fund (VCF)Nature of VCF VCF as Trust VCF as CompanyPerson resident outside India Can invest in such domestic VCF Can invest in such domestic VCF(NR Entity/Individual including subject to approval of FIPB through automatic route of FDIan NRI) schemeFDI in Trusts - other than VCF not permittedFDI in other entities - not permitted14 www.sbsandco.com

FDI in Other Financial Services*  100 % investment allowed  Automatic Route  NBFC’s engaged in 18 activities listed *Other Financial Services-RBI,SEBI,IRDAI,PFRDAI,NHB or any other as specified by Government of India in this regard.15 www.sbsandco.com

Types of Instruments Instruments Capital Debt CCD FCCB Equity (Fully CCPS ADR/GDR paid/ Partly paid)16 www.sbsandco.com

FDI-Prohibited Sectors(1/2)  Real Estate and construction of farm houses  Lottery  Gambling and Betting including casinos etc.  Nidhi Company  Chit Funds  Activities / Sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems)  Trading in Transferable Development Rights (TDR’s)17 www.sbsandco.com

FDI-Prohibited Sectors(2/2)  Manufacturing of cigars, cheroots, cigarillos and tobacco products  Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms etc.,  Plantations (other than Tea, coffee, rubber, cardamom, palm oil tree and olive oil tree plantations)  Foreign Technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business, Gambling and Betting Activities18 www.sbsandco.com

SBS And Company LLP Thank you!!!Chartered Accountants S. Sunil Reddy PH: +91 9010612252Our Presence in [email protected]: Hyderabad (HO)Andhra Pradesh: Nellore, Kurnool, TADA (near SriCity), VizagKarnataka: Bengaluru +91-40-40183366 / +91-40-64584494 / +91-9246883366 Read our monthly e-Journals www.sbsandco.com/wiki19 www.sbsandco.com/digest