KNOW ABOUT FOREIGN DIRECT INVESTMENT IN INDIA

FOREIGN DIRECT INVESTMENT IN INDIA

www.carajput.com; FDI

www.carajput.com; FDI

Introduction

FDI is the process whereby the residence of one country acquires the ownership of assets to control the production and other activities of the firm in another country (host country).

By FDI host country get valuable investment and the host country get cheaper access to the product.

It is an important factor to grow the local market by foreign investment. The company should do good market research before investing.

BASIC REQUIREMENT – FDI

  • The minimum requirement, a firm will have to keep itself abreast of global trends in the industry. From a competitive perspective, it is important to be aware of the competitors are entering into the foreign market and how do they do that.
  • A business decision also depends upon various key factors-
  • Assessment of internal and other resources, competitiveness, and market analysis.
  • Market expectations
    • It is also important to see how globalization is currently affecting the domestic industry.
    • Seek the answer to these questions before investing-
  • has the company done enough market research in domains?
  • is there a judgment in place of what level of resource utilization the investment will offer?
  • if applicable, have all the relevant government agencies and concurred?

ROUTE OF FDI

www.carajput.com; FDI

www.carajput.com; FDI

  1. Automatic route – In this route, this is no approval from anybody is required. An investor can invest without any approval according to his need.
  2. Approval routeapproval of government is required before investing by this route.

FDI IN SMALL SCALE SECTOR  UNITS

Not more than 24 percent in its paid-up capital from any industrial undertaking, whether it is foreign or domestic is accepted by a small-scale industry. If the equity from another company (including foreign equity) exceeds 24 percent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses at its small-scale status and requires an industrial license to manufacture items reserved for small-scale sector.

LIST OF LIMIT FOR DIFFERENT SECTORS FOR ROUTE OF FDI

Air Travel Services

1.Non-scheduled and other civil aviation sector services

2. Scheduled services for air transport, Regional services for air transport

 

100%

Up to 49%

 

 

Above 49%

Print media

1.Publication / Printing of Science and Professional Magazines / Specialized Journals / Reviews and International Newspaper Facsimile Edition

2. Publishing foreign magazines dealing with news and current affairs in newspapers, periodicals and Indian editions

 

100%

 

 

26%

Some Civil Aviation services

1. Maintenance and Repair Organizations, Flying Training Institutions, Technical Training Institutions, etc.

2. subject to sectoral legislation and security clearance for ground handling facilities

 

100%

 

100%

Airports (Greenfield & Brownfield) 100%
Biotechnology

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Motorists(Automobile) 100%
Components of Automobile 100%
Mining and mineral isolation of minerals and ores containing titanium, its addition of value and integrated operations 100%
Pharmaceuticals

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Exploration and extraction of metal and non-metal minerals 100%
Carriage Services Broadcasting 100%
Content Broadcasting systems 49%
Financial Items(Capital Goods) 100%
 Healthcare

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Chemical 100%
Lignite & Coal 100%
Development of Hospitals 100%
Defense Up to 74% Above 74%
Digital Media 26%
 Duty Free Shops 100%
 E-commerce Operations 100%
Processing of Food 100%
Retail Trading for food products 100%
(Manufacturing) Crystals & Jewellery 100%
BPM and IT 100%
Telecom service Up to49% Above 49%
Garments & Textiles 100%
Thermal Power 100%
Accommodation & Tourism 100%
Retail Trading for Single Brand Product 100%
Railways Infrastructure 100%
Energy from renewable sources 100%
Expressways & Roads 100%
Natural Gas & Petroleum 100%
Petroleum Refining(by PSUs) 49%
Wholesale Cash & Carry Trading / Wholesale Trading (including MSEs sourcing) 100%
Leather 100%
Shipping and Terminals 100%
Broadcast information services (Up-linking of TV Channels from Non-‘News & Current Affairs/ Down-linking of TV Channels) 100%
Electronic systems 100%
Development of construction: townships, houses, built-up infrastructure 100%
Medical Equipment 100%
Multi Brand Trading for Retail 51%

Sectoral Limited under FDI 

Liberalization of FDI in India (Industries permitted)

FDI is allowed in certain jurisdictions with a ceiling on the overall allowable foreign holdings. Information of the same sectors in which FDI is subject to sector-specific caps are available at the various link:

Strictly prohibited Industries for FDI

The new policy forbids FDI in the following categories:

  • Gaming and Betting
  • Lottery sector (including government / private lottery, online lottery, etc.)
  • Activities/sectors not available to private sector investment (e.g. nuclear energy/railways)
  • Agricultural production (excluding floriculture, horticulture, apiculture, and cultivation of vegetables and mushrooms under controlled circumstances, growth and processing of seeds and planting materials, animal husbandry including dog breeding, wine-growing and aquaculture under controlled conditions and related services to the agro-and allied sectors)
  • Trade-in retail (expected retailing of single-brand products)
  • Chit fund Company
  • Nidhi Company
  • Real estate company or farmhouse construction
  • Trade-in transferable development rights (TDRs)
  • Production and Manufacture of tobacco, cigars, cheroots, cigarillos, cigarettes, and other tobacco substitutes

REASON FOR FOREIGN INVESTMENT DECISION

    • The cost of production of that product will be less in that country.
    • For avoiding transportation costs the foreign direct investment is also made.
    • The product gets the international image by foreign direct investment.
    • For business expansion, foreign direct investment is also made.

IMPACT OF FOREIGN INVESTMENT DECISION 

POSITIVE IMPACT TO HOST COUNTRY  –

  • It brings an important factor of production for the host country.
  • There is a transfer of technology by the FDI.
  • Human resource development is possible by
  • Employment generation is possible by FDI.
  • Improvement in the balance of payment by FDI.

POSITIVE IMPACT TO HOME COUNTRY

  • Increase in income of a home country.
  • FDI helps in the learning skills of the employees.
  • Good establishment of political relationship by FDI.
  • There is an increase in export by FDI.

NEGATIVE IMPACT TO HOST COUNTRY  –

  • Lack of technology can be an issue for the host country.
  • Increase in the competition by FDI
  • Possibility of conflict in the decision.

NEGATIVE IMPACT TO HOME COUNTRY  –

  • The exploitation of resources of the home country.
  • The outflow of a factor of production by FDI.
  • There is a loss of small industry by FDI.

FAQ On FDI

Q1.  Is 100% FDI is possible in any sector?

Ans. yes, RBI has allowed 100% FDI in almost every sector.

Q2. Is FDI is allowed in any industry without restriction?

Ans. No, there is a restriction for FDI in some sectors not even with approval.

Q3.  Is there any compliance required to be made by Company receiving FDI?

Ans Yes, the company is required to file Form FCGPR for reporting FDI in India.

Q 4 Can anyone bring FDI under the Approval route without prior approval of the concerned authority?

AnsNo, the FDI must be brought into India after obtaining approval from the concerned authority.

Rajput Jain & Associates

Conclusion

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