foreign investment promotion board (fipb). introduction -national agency of government of india...

FOREIGN INVESTMENT

PROMOTION BOARD

(FIPB)

INTRODUCTION-National agency of Government of India -recommend (FDI) which does not come under the automatic route. -Attracted USD30.76 billion -14.13% increase compared to previous year

EVOLUTION AND COMPOSITION

FIPB under PMO(early 1990) 3-tier approval mechanism FIPB-committee of senior officials Empowered Committee on Foreign Investment

(ECFI) – Total investment upto Rs.300 crore Cabinet Committee on Foreign Investment (CCFI)-

Total investment more than Rs.300 crore

TRANSFER TO DIPP IN 1996FIPB approve by Industry Minister

of Rs.600 croreCabinet Committee on Foreign

Investment (CCFI) -above Rs.600 crore - rejected by Industry finance

UNDER DEPARTMENT OF ECONOMIC AFFAIRS IN 2003

Level of approval retained sameFIPB-Total investment less than

Rs.600 crore approved by Finance Minister

CCEA –Beyond Rs. 600 crore to Rs.2000 crore in FDI Policy.

I. Secretary to Govt., Dep. Of Eco. Affairs , of Finance- Chairman

II. Secretary to Govt., Dep. Of Industrial Policy & Promotion, Ministry of Comm. & Industry

III. Secretary to Govt., Dep. Of Comm., Ministry of Comm. & Industry

IV. Secretary to Govt., Eco. Relations, Ministry of External Affairs

V. Secretary to Govt., Ministry to Overseas Indian Affairs

Members of the Board:

ROUTES OF FOREIGN INVESTMENT

AUTOMATIC ROUTE

Intimate the Regional office concerned of Reserve Bank within 30 days of receipt of inward remittance.

File documents need to be filed with the RBI

- name of collaborators/promoters - details of allotment - copy of foreign collaboration agreement - original foreign inward remittance

GOVERNMENT APPROVAL ROUTE

Activities not covered in automatic route require Government approval

LIST OF ACTIVITIES REQUIRE GOVERNMENT APPROVAL: Banking NBFC’s activities in Financial Services Sector Civil Aviation Petroleum including exploration Housing and Real Estate Development Print Media Broadcasting Postal Services

ROLE OF FIPB Objective-promote inflow of FDI into India

CURENT FDI POLICY (2015)

INTRODUCTIONForeign Direct Investment (FDI) in India is

undertaken in accordance with FDI Policy which is formulated and

announced by the Government of India Foreign Exchange Management

Regulation 2000 And circulars of RBI

The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry , Government of India issues a “Consolidated FDI Policy Circular” on an yearly basis on March 31 of each year. The present policy applicable to FDI in India was issued on May 12, 2015.As per this policy following are the regulations governing FDI:

1.Who can invest in FDI in India2.Entry routes for investment in India3.Type of instruments that can be issued

under FDI

4.Entities into which FDI can be made

5.Various Entry Strategies for Foreign Investors in India

6.Modes of payment allowed for receiving Foreign Direct Investment in an Indian company

7.Issue price of shares8.Remittance and Repatriation9.Penalties

1.WHO CAN INVEST IN INDIA1. A non-resident entity2. A citizen or an entity incorporated in

Bangladesh3. A citizen or entity incorporated in

Pakistan4. NRIs in as well as citizens of Nepal

and Bhutan5. Overseas Corporate Bodies (OBCs)

have been derecognised as a class of investors in India with effect from September 16,2003

6.An FII/FPIs may invest in the capital may invest in the capital of an Indian company under Portfolio Investment Scheme.

7.Only registered FIIs/FPIs and NRIs • as per schedule 2,2A and 3 respectively of Foreign

Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)Regulations,2000,

• can invest /trade through registered broker in the capital of Indian companies on recognised Indian Stock Exchanges.

8. A SEBI registered FVCI may contribute up to 100% of capital of an IVCU and may also set up A domestic asset management company to manage the funds.

3.TYPE OF INVESTMENTS THAT CAN BE ISSUED UNDER FDI

1. Indian companies can issue • equity shares, • fully and mandatorily convertible debentures( As far as

debentures are concerned, only those which are fully and mandatorily convertible into equity, within a specified time, would be reckoned as part of equity under the FDI policy)

• fully and mandatorily convertible preference shares • and warrants subject to the pricing guidelines/ Valuation norms and reporting

requirements amongst other requirements as prescribed under FEMA Regulations.

2. The inward remittance received by the Indian company vide issuance of DRS and FCCBs are treated as FDI and counted towards FDI.

3. Other type of preference shares/debentures for issue of which funds have been received on or after May 1,2007 are considered as debt.

4.ENTITIES INTO WHICH FDI CAN BE MADE

1. FDI IN AN INDIAN COMPANY : Indian companies can issue capital against FDI.

2. FDI IN AN PARTNERSHIP FIRM/PROPRIETORY CONCERN: A Non –Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis.

3. FDI IN VENTURE CAPITAL FIRM (VCF):FVCIs are allowed to invest in Indian Venture Capital Undertakings (IVCUs)/Venture Capital Funds(VCFs)/other companies, as stated in the RBI Circular of May 2015.

4.FDI IN TRUSTS:FDI in Trusts other than VCF is not permitted.

5.FDI IN LIMITED LIABILITY PARTNERSHIP(LLPS):FDI in LLPs is permitted, subject to the conditions in the RBI Circular of May 2015.

6.FDI IN OTHER ENTITIES:FDI in resident entities other than those mentioned above is not permitted.

7.FDI IN SMALL SCALE SECTOR (SSI)UNITS : An SSI unit cannot have more than 24% equity in its paid up capital from any industrial undertaking ,either foreign or domestic.

5.VARIOUS ENTRY STRATEGIES FOR FOREIGN INVESTORS IN INDIA

A international company can start its operations in India by

Setting up a company according to Companies Act. The total amount of FDI that is allowed in such companies is 100%

Forming joint collaboration with an Indian partner

Establishing a subsidy that is wholly owned in such sectors where FDI up to 100% is allowed

Setting up branch office , representative office ,project office and liaison office.

6.MODES OF PAYMENT ALLOWED FOR RECEIVING FDI IN AN INDIAN COMPANY

An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares/convertible debentures by:

1. Inward remittance through normal banking channels.

2. Debit to NRE/FCNR A/C of a person concerned maintained with an AD category 1 Bank

3. Conversion of royalty /lump sum/technical know how fee due for payment or conversion of ECB ,shall be treated as consideration for issue of shares.

4.Conversion of import payables/pre incorporation expenses/ shares swap can be treated as consideration for issue of shares with the approval of FIPB.

5.Debit to non-resident bearing Escrow account• in Indian Rupees in India• which is opened with approval from AD

Category -1 Bank • and is maintained with AD Category 1 Bank • on behalf of residents and non-residents• towards payment of share purchase

consideration.

7.ISSUE PRICE OF SHARES

Price issued to persons residing outside India under the FDI Policy, shall not be less than

a) The price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company are listed on any recognised stock exchange in India

b) The fair valuation of shares done by a SEBI registered Merchant Banker or a

Chartered Accountant as per any internationally accepted pricing

methodology on arm’s length basis , where the shares of the company are not listed on

any recognised stock exchange in India ;and

c) The price applicable to transfer of shares from resident to non –resident

• as per the pricing guidelines laid down by the RBI from time to time

• ,where the issue shares is on preferential allotment.

8.REMITTANCE AND REPATRIATION

Remittance of sale proceeds/Remittance on winding up/Liquidation of companies

A. Sale proceeds/remittance of shares and securities and their remittance is “remittance of asset” governed by the Foreign Exchange Management (Remittance of Assets)Regulation ,2000,under FEMA.

AD Category -1 Bank can allow the remittance of sale proceeds of a security (net of applicable taxes)to the seller of shares resident outside India

, provided the security has been held on repatriation basis ,

the sale of security has been made in accordance with the prescribed guidelines

and NOC/tax clearance certificate from the Income Tax Department has been produced.

Remittance on Winding up/Liquidation of Companies-AD Category 1 Bank have been allowed to remit winding up

proceed of companies in India ,which are under liquidation ,subject to payment of applicable taxes . Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act ,as applicable.

AD Category -1 Banks shall allow the remittance provided the applicant submits:

No objection or Tax Clearance Certificate from income Tax Department. For the remittance

• Auditor’s certificate confirming that all liabilities in India have been either fully or adequately provided

• Auditor’s certificate to the effect that the winding up is in accordance with the provisions of the Companies Act , as applicable.

• There is no legal impediment in permitting remittance in case of winding up otherwise than by a court.

B . Repatriation of dividend-Dividends are freely reparable• without any restrictions (net after Tax deduction at source or Dividend Distribution Tax , if any , as the case may be).•The repatriation is governed by the provisions of the Foreign Exchange Management(Current Account Transactions)Rules,2000,as amended from time to time

C . Repatriation of interest-interest on fully ,mandatorily and compulsory convertible debentures •Is also freely repatriable without any restrictions•The repatriation is governed by the provisions of Foreign Exchange Management(Current Account Transactions)Rules,2000,as amended from time to time.

9.PENALTIES Any violation of FDI regulations are

covered by the penal provisions of the FEMA.

RBI administers the FEMA. Directorate of Enforcement under the

Ministry of Finance is the authority for the enforcement of FEMA .The Directorate takes up investigation any contravention of FEMA.

A . If a person violates /contravenes any FDI regulations ,he shall upon adjudication Be liable to a penalty up to thrice the sum involved in such contraventions where such amount is quantifiableOr up to two Lakh Rupees where the amount is not quantifiable And where such contravention is a continuing one, further penalty may extend to five thousand Rupees for every day after the first day during which the contraventions continues.

B . Where a person committing a contravention of any provisions of •this act or any rule, direction or order made there under

•is a company ,•every person who , at the time the contravention was committed , was in charge of , and was responsible to , the company for the conduct of the business of the company as well as the company •,shall be deemed to be guilty of the contravention •and shall be liable to be proceeded against and punished accordingly.

C . Any Adjudicating Authority adjudging any contraventions under (A),• may, if he thinks fit in addition to any penalty which he

may impose for such contravention• direct that any currency ,security or any other money

or property in respect of which the contravention has taken place

• shall be confiscated to the Central Government .

FUNCTIONS OF FOREIGN INVESTMENT PROMOTION BOARD

• To quickly approve the foreign investment proposal.

• To review FDI polices and communicate to other

agencies.

• To look over the implementation of various proposals.

• To take up such activities that encourage FDI into the country.

To communicate with govt., non-govt. and other industry bodies to increase FDI.

To communicate with FIPC.

To identify various sectors that require FDI.

To take up all other activities that will increase FDI.

COMPOSITION OF FIPB Secretary to govt., Department of Economic Affairs,

Ministry of Commerce & Finance-Chairperson Secretary to govt. ,Department of commerce ,Ministry to

Commerce & Industry Secretary to govt. , Department to industrial Policy &

Promotion, Ministry of Commerce & Industry Secretary to govt. Economic Relations , Ministry of

External Affairs Secretary to Govt. ,Ministry of Overseas Indian Affairs

FIPB APPROVAL PROCEDURE

THREE different levels of approval- FRESH CASES1. Minister of Finance – foreign equity inflow of Rs 2000 &

below.

2. Cabinet Committee on Economic Affairs -- more than Rs 2000.

3. CCEA – if referred to it by Minister of Finance.

COMPANIES WHICH DO NOT REQUIRE PRIOR APPROVAL FOR BRINGING IN ADDITIONAL FOREIGN INVESTMENT INTO SAME EQUITY

Entities which earlier required prior approval of FIPB/CCEA/CCFI- in case of sectoral caps.

ENTITIES which earlier obtained prior approval for their initial foreign investment but such activities have been placed under automatic route.

Additional foreign investment into the same entity –within approved foreign equity %age.

THE PROCEDURE TO BE FOLLOWED AFTER

INVESTMENT IS MADE UNDER THE AUTOMATIC ROUTE OR WITH GOVT.

APPROVAL

a. On receipt of share application money:

Within 30 days –receipt of share application money-non-resident investor

Indian company-report Foreign Exchange Department ( Regional office concerned of the RBI)

Advance Reporting Form: Name & address of the foreign investor Date of receipt of funds & the rupee equivalent Name & address of the dealer through whom the

funds have been received

Details of the Govt. approval if any KYC report on the non-resident investor from the

overseas bank remitting the amt. of consideration

B. UPON ISSUE OF SHARES TO NON-RESIDENT INVESTORS

Within 30 days - date of issue of shares-report in Form FC-GPR-PART A & the following documents-

filed with the Foreign Exchange Department(concerned regional office):

Certificate from the CS of the company accepting investment from non-resident-complied with the procedure

Investment - within sectoral cap( Automatic Route)-fulfills all the conditions.

Certificate from Statutory Auditors/SEBI registered Merchant Banker/CA –manner of arriving at the price of the shares (issued to non-resident investors)

Foreign Investment Promotion

council

•Established by government of India•Aim was to increase FDI in India through various marketing and investment promotion activities•Acc to government of India common minimum program the country has requirement of around $10 BILLION

COMPOSITION

Chairman of FIPC ha been given to Chairman of ICICIPresidents of business associations like FICCI ,CII etc are the members of FIPC..The member secretary of FIP is personnel from INDUSTRY MINISTRY ..

Objectives Of FIPC

Get in touch with potential investors to encourage FDI into the country.

Efforts in promoting marketing & investment in the country.

Identify various sectors in country that require FDI

To take promotional activities such as, conference &seminars in order to promote FDI in the country.

FUNCTIONS OF FIPC

1. To ensure that the foreign investment proposals are cleared quickly.

2. To continuously look over FDI policies & communicate with agencies such as the Administrative Ministries to order to est. transparent guidelines that help in promoting FDI in various sectors of the economy.

3. To review that the proposal that have been approved by the board are being implemented.

4. To communicate with non government, government and industry board Bodies in order to promote the flow of FDI into the country.

6. To take up activities that encourage investment such as getting in touch & inviting foreign countries to invest in the country.

7. To communicate with FIPC which has been set up in the ministry of Industry.

8. To identify various sectors that require FDI.

9. To take up various other activities that require FDI

10. To give it recommendations to the Indian govt. in order to encourage FDI into the country.

FDI & SECTORAL LIMITS

Prohibited Sectors : FDI is prohibited through automatic route or through the government route in the following sectors:

a) Lottery business including Government/private lottery, online lotteries, etc.

b) Gambling & Betting including casinos etc.c) Chit fundsd) Nidhi companye) Trading in Transferable Development Rights (TDRs)f) Real Estate Business or Construction of Farm Houseg) Manufacturing of cigars, cheroots, cigarillos & cigarettes, of

tobacco or of tobacco substitutes h) Activities/sectors not open to private sector investment e.g.

(I) Atomic energy & (II) Railways operationsi) Foreign technology collaboration in any form including

licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business & Gambling & Betting activities.

Permitted Sectors :

a) FDI in any agricultural activity is not permitted. However 100% FDI under automatic route is allowed in Floriculture, Horticulture, Apiculture & cultivation of vegetables & mushrooms under controlled conditions.

b) FDI in plantations is not allowed. Exception to the rule is tea plantation where 100% FDI under automatic route is allowed.

c) 49% FDI under automatic route is allowed in petroleum refining by the PSUs subject to no dilution or disinvestment of the domestic equity. 100% FDI under automatic route is allowed in exploration activities, oil and natural gas fields, infrastructure related to marketing of which is nonpetroleum products & natural gas, marketing of petroleum products pipelines, LNG Degasification infrastructure, market study & formulation & petroleum refining in the private sector, subject to the existing sectoral policy & regulatory framework in the oil marketing sector.

d) FDI in Micro & Small Enterprises will be subject to sectoral caps, entry route & other relevant sectoral regulations. Any industrial undertaking which is not a MSE but is manufacturing an article reserved for this sector & having FDI more than 24% will require government approval.

FDI limits & Route for Service Sector

Service/Activity %age of cap Route

Broadcasting &carriage 74% Automatic 49%Services

Cable Network 49% Automatic

Terrestrial Broadcasting &up linking of news 26% Government

Up linking of non news TV Channels 100% Government

Print Media 26% Government

Publishing & printing ofScientific magazines/news-Papers 100% Government

Service/Activity %age of cap Route

In airportsa. Greenfield 100% Automatic b. Existing 100% Automatic

<74% Govt > 74%

Scheduled air transport 49%(100% NRIs) AutomaticTransport services

Non Scheduled air transport 74%(100% NRIs) Automatic 49%

Services Govt >49%<74%

Helicopter services 100% AutomaticRequiring DGCA approval

Satellite establishment & 74% GovernmentOperation

Primary Security Agencies 49% Government

Service/Activity %age of cap Route

Telecom 100% Automatic <49%

Govt. <49%

Multi Brand Product 51% Government Government Retailing

Asset Reconstruction Comp 100% paid up capital Automatic <49%(ARC) of ARC Govt.>49%<74%

Banking 74% including investments Automatic <49%

by FIIs & FPIs Govt. >49%<74%

Commodity Exchange 49% (FDI+FPI+FII) Automatic Government

Credit Information 74% (FDI+FPI+FII) Automatic

FDI limits & Route for Service Sector

Service/Activity %age of cap Route

Insurance 49% ((FDI+FPI(FII,QFI) Automatic <26%+ NRI+FVCI+DR Govt. >26%<49%

NBFCs 100% Automatic

Power Exchange 49%(FDI+FPI/FII) Automatic

THANK YOU