RBI's Draft Master Circular on Foreign Investment in India
RBI has issued a Draft Master Circular on Foreign Investments. This master circular is for public comments.
Foreign investment in India is governed by sub-section (3) of section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA 20/2000- RB dated May 3, 2000, as amended from time to time. The regulatory framework and instructions issued by the Reserve Bank of India have been compiled in this Master Circular . This Master Circular also covers the following areas.
1. Acquisition of immovable property which is regulated in terms of Foreign Exchange Management Act, 1999.
2. Establishment of Branch/Liaison Office in India , which is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 read with Notification No. FEMA 22/ 2000- RB dated May 3, 2000 ;
3. Investment in capital of partnership firms or proprietary concern which is regulated in terms of Section 2(h) of Section 47 of Foreign Exchange Management Act, 1999, read with Notification No. FEMA 24/2000- RB dated May 3, 2000 .
Foreign Investment in India
Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA) 1999. Reserve Bank has issued Notification No. FEMA 20/2000- RB dated May 3, 2000 which contains the Regulations in this regard.
Entry routes for investments in India
Foreign investment is freely permitted in almost all sectors. Foreign Direct Investments ( FDI ) can be made under two routes-- Automatic Route and Government Route . Under the Automatic Route , the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. Under the Government Route , prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board ( FIPB ) is required.
Prohibition on investment in India :
Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as Trusts) which is engaged or proposes to engage in the following activities
( i ) Business of chit fund, or
(ii) Nidhi Company , or
(iii) Agricultural or plantation activities, or
(iv) Real estate business, or construction of farm houses
(v) Trading in Transferable Development Rights ( TDRs ).
It is clarified that Real Estate Business does not include development of townships, construction of residential/commercial premises, roads or bridges. It is further clarified that partnership firms/proprietorship concerns having investments as per FEMA regulations are not allowed to engage in Print Media sector .
In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as
( i ) Retail Trading
(ii) Atomic Energy
(iii) Lottery Business
(iv) Gambling and Betting
(v) Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisiculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations).
Eligibility for Investing in India
A person resident outside India (other than a citizen of Pakistan ) or an entity incorporated outside India, (other than an entity incorporated in Pakistan ) can invest in India , subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme, with prior approval of FIPB .
Overseas Corporate Bodies ( OCBs ) are entities established outside India, and predominantly owned by NRIs (at least 60% of the paid up capital). Erstwhile OCBs, who have converted themselves into companies incorporated outside India can make fresh investments in India under the FDI Scheme provided they are not under the adverse notice of Reserve Bank / SEBI . The onus to confirm that the erstwhile OCB is not in the adverse list will lie with the investee Indian company.