The Indian economy has benefited greatly from foreign direct investment. In this article, we will explain how a foreign company can invest in an Indian company.
Due to its large market size, natural riches, and skilled low-wage labor, India has attracted a lot of international investment in recent years. Various international investors aim to make the most of Indian resources for profit, and as a result, India is undergoing significant growth as a result of foreign direct investment.
For many international investors, the road to foreign investment in India is unclear. In this article, we will explain how a foreign company can invest in an Indian company.
Overview of the Administrative Framework
Before establishing foreign investments in India, it is important to grasp the foreign policy guidelines that the Indian government has established from time to time since they are subject to change. The government route and the automated route are the two options for foreign direct investment in India.
Through the government route, there are specific industries in which the Indian government has imposed limits on foreign investment, requiring investors to get government clearance before investing in that industry. Some industries have been designated as automatic routes, which means that no government clearance is necessary for investments.
What Are the Several Ways of Foreign Investment in an Indian Company?
The following are the possibilities available to a foreign corporation looking to establish operations in India:
- By forming a company under the Companies Act of 1956
- Wholly owned subsidiaries or joint ventures
- Liaison Office / Representative Office Project Office Branch Office as a foreign entity’s office
- The Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000 allow such offices to engage in operations.
What Are the Several Eligible Foreign Institutions That Can Invest in India?
- FII: organizations that are based abroad but are willing to invest in securities in India.
- NRI: Non-resident Indians can also make Investments in India through the buying and selling of shares, and convertible debentures via a registered stockbroker on a registered stock exchange.
- QFI: QFI is the individuals and organizations that are a member of the Financial Action Task Force (FATF) and they are given the allowance of investing in mutual funds, equity shares, and government/corporate bonds. QFI
- Foreign venture capital investors: Foreign venture capital investors can make investments in a domestic venture capital fund or venture capital undertaking
How Does a Foreign Company Invest in India?
Regulations about the issue of shares by Indian companies to foreign collaborators/investors?
Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which requires prior approval of the government:
- i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.
- ii) where more than 24% foreign equity is proposed to be inducted for the manufacture of items reserved for the Small Scale Sector.
iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the government or the Reserve Bank of India.
- iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.
Government Route
FDI in activities not covered under the automatic route requires prior Government approval and is considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. The application can be made in Form FC-IL, which can be downloaded from www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
General Permission of RBI Under FEMA
Indian companies having foreign investment approval through the FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittances and issuing shares to non-resident investors. The companies are required to notify the concerned regional office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.
Conclusion
For foreign investors, it is very important to strategize their investments in India to get the best possible returns. Foreign investors who want to invest in India must contact FDI India for investment consultation and also their fully professional team will help foreign investors to collaborate with Indian projects who are seeking foreign investments. FDI India is one such financial institute that knows the pulse of foreign investments in India and is the best place for consultation in terms of foreign investors for projects. They make sure to understand the client’s requirements and tie them up with foreign investors who are willing to invest in the client’s venture.
