Foreign Direct Investment (FDI) - Important Key Points

FOREIGN DIRECT INVESTMENT (FDI)

Introduction: 

Foreign Direct Investment (FDI) is an investment by non-resident entity in the capital of an Indian company outside India under schedule 1 of FEM (Transfer or Issue of Security by a person Resident outside India) Regulation 2000.

Types of Instrument: 

• The amount received by an Indian company against DRs and FCCBs, are treated as FDI and counted towards FDI. 
• Equity shares, fully, compulsorily and mandatory convertible debentures or preference shares (price should be decided upfront). 
• Other Types of Preference Shares that is non-convertible, optionally convertible for issue of which funds have been received after 1st May, 2007 are considered as debt.

Condition on Issue / Transfer of Shares:

• The capital instruments should be emerged within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account of the non-resident investor. In case, the capital instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of discretion so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) accounts, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and would attract penal provisions. In anomalous cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI. 

Reporting:

• Indian Companies are required to report, the details of the amount of consideration received for issue of FDI instruments, under the FDI scheme, in the Advance Reporting Format along with the KYC report on the non-residing investor, to the RBI, within 30 days of receipt of the amount of consideration. Further the Indian company is required to issue the FDI instruments to the non-resident investor within 180 days of the receipt of the inward remittance and report the same in Form FC-GPR, to the RBI, within 30 days from the date of issue of shares. 
• Government of India, on 24th June, 2016, made the following changes in sector-wise FDI limits: 
• Mining – 100%

• mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities. 

Agriculture & Animal Husbandry – 100%

• Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions
• Development and Production of seeds and planting material
• Animal Husbandry (including breeding of dogs), Pisciculture, and Aquaculture Services related to agro and allied sectors. 

Petroleum & Natural Gas – 49%

Broadcasting – 100%

• Teleports (setting up of up-linking HUBs/Teleports)
• Direct to Home (DTH)
• Cable Networks
• Mobile TV
• Head end-in-the Sky Broadcasting Service (HITS). 

Civil Aviation – 100%

• Non-Scheduled Air Transport Service
• Helicopter services/seaplane services requiring DGCA approval
• Ground Handling Services subject to sectorial regulations and security clearance
• Maintenance and Repair organizations; flying training institutes; and technical training institutions. 

Railway Infrastructure – 100%

• Construction, operation and maintenance of the following
• Suburban corridor projects through PPP
• High speed train projects
• Dedicated freight lines
• Rolling stock including train sets and locomotives/coaches manufacturing and maintenance facilities
• Railway Electrification
• Signalling systems
• Freight terminals
• Passenger terminals
• Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivity’s to main railway line
• Mass Rapid Transport Systems. 

Plantation Sector - 100%

• Tea sector including tea plantations
• Coffee plantations
• Rubber plantations
• Cardamom plantations
• Palm oil tree plantations
• Olive oil tree plantations 

Defence Manufacturing – 100% 

Petroleum & Natural Gas – 100%

• Investigation activities of oil and natural gas fields, marketing of natural gas and petroleum products, infrastructure related to marketing of petroleum products and natural gas etc. 

Food products manufactured or produced in India – 100%

• trading, along with e-commerce, in respect of food products manufactured or produced in India. 

Telecom Service - 100%

Pension Sector - 49%

White Level ATM Operations - 100%

Banking- Public Sector - 20%

Banking- Private Sector - 74%

Eligibility of FDI in Residential Entities: 

FDI can be in an Indian company or in a Partnership Firm/ Proprietary Concern. In Trust or any other entities, the FDI is not permitted.