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India is today a land of business
opportunities and a perfect destination for new ventures. New
business opportunities in India are enormous and ever growing.
India is emerging market and among the hottest destinations in
the World today. For starting a business in India or starting a
new company in India, it is mandatory for foreign investors to
obtain government of India approval. Foreign investors can start
a new company or business in the form of Company incorporation
in India, or forming a joint venture in India. Major laws that
affect the growth of foreign investments in India are Foreign
Exchange Management Act 1999 (FEMA), the Companies Act 1956, the
Industrial Act 1951, the New Industrial Policy of 1991 (NIP).
Business set up in India requires proper legal advice to
ascertain the eligibility and applicable restrictions. The
foreign investors can start a business in India in various forms
such as Branch office, Liaison office, or Project office.
Branch office
Foreign companies engaged in trading or manufacturing activities
abroad are allowed to set up a branch office in India for the
purpose of trade with the approval of the government of India
and may remit outside India the profit of the branch, subject to
the RBI rules after payment of applicable Indian taxes.
Liaison office
Liaison office could be established with the approval of the
government of India but cannot undertake any commercial activity
either directly or indirectly. The scope of a liaison office is
limited.
Project office
Foreign companies planning to execute some project in India can
start a project offices in India to carry out the activities
related to the project. A general permission from the government
of India can be obtained.
Introduction to Foreign Direct Investments (FDI)
Foreign Direct Investment (FDI) IN India has increased due to
the efforts of the Indian government. The government of India
has made several changes in its economic policies to direct the
huge flow of FDI in India to boost the economic growth of the
country. Foreign capital in India flows in the form of NRI
deposits, investments in commercial banks, investments in debt
and stock market. India has the most liberal and transparent
policies on FDI. FDI up to 100% is allowed under the automatic
route in all the activities except those which require approval
of the government. India has continually sought to attract FDI
from the World’s major investors. Currently FDI is allowed in
financial services also including the Credit card business. FDI
investments are permitted through financial collaborations,
private equity or preferential allotments, in joint ventures.
FDI is not permitted in arms, nuclear, railway, coal& mining
industries. FDI play a significant role in the developing
economy like India.
The following are the advantages of FDI in India:
• Booming factor for the growth of economic life of the country.
• Opened a wide spectrum of trading activities in India.
• Ensures employment opportunities in a developing economy like
India.
• Increased technological advancement in India.
• Achievement of financial stability, growth and development.
1) Investment under automatic route
FDI in sectors to the extent permitted under automatic route
does not require any prior permission either by FDI and RBI
regulations for company incorporation:
Since 1991-92 India has been trying to attract foreign capital
to bridge the gap between intended investment and actual saving
of the country. A developing country like India prefers FDI to
bridge this gap. It increases the capital for investment
automatically. FDI in green ventures bring new technology and
modern management techniques. FDI flows in the region where the
infrastructure is better. The role of government is very
important in the development of the economy. There is a
government control in directing FDI but too much control is not
liked by foreign investors. India’s foreign trade policy has
been formulated with a view to invite and encourages FDI in
India. The process of regulation is liberalized. The RBI has
prescribed the administration and compliance aspects of FDI. The
flow of FDI can be broadly categorized into two:
the government of India or the Reserve Bank of India. Investors
only need to notify the regional office within 30 days of
receipt of inwards remittances.
2) Investment through Approval of the Government
FDI in activities not covered under automatic route needs prior
government approval and are considered by the Foreign Investment
Promotion Board (FIPB). Application to all FDI cases, except NRI
investments, should be submitted to the FIPB UNIT, Department of
Economic Affairs (DEA), and Ministry of Finance.
RBI has granted general permission under Foreign Exchange
Management Act (FEMA) in respect of proposals approved by the
government of India. Those companies having approval through
FIPB do not require any further clearance from RBI for receiving
inward remittances and issue of shares to the foreign investors.
Such companies are required to notify the concerned regional
office of the RBI of the receipt of the inward remittances
within 30 days of such receipt and within 30 days of the issue
of shares to the foreign investors.
Foreign Exchange Management Act (FEMA)
The Foreign Exchange Management Act (FEMA) 1999 was introduced
to consolidate and amend law relating to the foreign exchange
with the objective of facilitating external trade and payments
and for promoting the orderly development and maintenance of
foreign exchange market in India. It extends to the whole of
India. It shall also apply to all branches, offices and agencies
outside India owned by or controlled by a person resident in
India. FEMA has been introduced as a replacement of the earlier
Foreign Exchange Regulation Act (FERA). FEMA head office is
situated in New Delhi and is also known as the Enforcement
Directorate and is headed by a Director. If any person
contravenes any provision of this Act or contravenes any
condition subject to which an authorization is issued by RBI, he
shall, upon adjudication, be liable for penalty upto thrice the
sum involved in such contravention where such amount is
quantifiable or upto Two Lac rupees where the amount is not
quantifiable and where such contravention is continuing one,
further penalty may extend to Five Thousand rupees every day
after the first day during which the contravention continues.
Filing Fc-Trs For Transfer Of Shares
In order to capture the details of Investment received by way of
transfer of the existing shares or compulsorily Preference
shares or Debentures of an Indian company, by way of sale, in a
more comprehensive manner, the form FC-TRS has been revised.
Accordingly, the preformed for reporting of inflow or outflow on
account of remittances received or made in connection with the
transfer of equity by way of sale, branch of the AD category -1
bank to the RBI has also been modified. In order to ensure that
the form FC-TRS is submitted within a reasonable timeframe, it
has been decided that henceforth, the form FC-TRS should be
submitted to the AD category -1 bank within 60 days from the
date of the receipt of the amount of consideration. In case of
transfer of equity instruments where the Non – Resident acquirer
proposes deferment of payment of the amount of consideration,
prior approval of the RBI would be required. Further, in case
approval is granted for a transaction, the same should be
reported in form FC-TRS, duly certified by the AD- category -1
bank, within 60 days from the date of the receipt of full and
final amount of consideration. These directions will become
operative with immediate effect. AD- category -1 bank may bring
the contents of the notice of their constituents or customers
concerned. The decisions contained have been issued under
section 10(4) and 11(1) of the Foreign Exchange Management Act
(FEMA), 1999 and is without prejudice to permissions or
approvals if any, required under any other laws. |
