FDI Regulations Overview

INTRODUCTION TO FDI

  • FDI Definition: Investment through equity instruments from a non-resident in an unlisted Indian company or at least 10% in a listed Indian company.

  • Fully Diluted Basis: Total outstanding shares if all possible sources of conversion are exercised.

  • Liberal FDI Policy: Government allows up to 100% FDI under the automatic route in most sectors.

ELIGIBLE INVESTORS

  1. Non-resident entities can invest in India, barring prohibited sectors. Entities from bordering countries require Government approval.

  2. NRIs from Nepal and Bhutan allowed repatriation investments.

  3. OCB status revoked; former OCBs may invest as non-resident entities if compliant with RBI policies.

  4. Types of Eligible Investors: OCBs, companies/trusts controlled by NRIs, FPIs, FVCIs.

ELIGIBLE INVESTEE ENTITIES

  1. Indian Companies: Can issue capital against FDI.

  2. Partnership Firms: NRIs may invest on non-repatriation basis; investment with repatriation may require RBI permission.

  3. Trusts: Investment is only allowed in VCFs registered by SEBI.

  4. LLPs: Foreign investment permitted under automatic route in compliant sectors.

  5. Investment Vehicles: VCFs, REITs, InvITs can receive foreign investments.

  6. Startups:Startups can issue convertible notes under certain conditions.

FDI ENTRY ROUTES

  • Automatic Route: No need for prior approval from RBI or Government.

  • Government Route: Requires prior Government approval; conditions specified in approval.

FOREIGN INVESTMENT AND DOWNSTREAM INVESTMENT

  • Downstream Investment: Investments made by an Indian entity with existing foreign investment.

  • Direct & Indirect Investment: Investors categorized based on control and ownership of investing entities.

PROHIBITED SECTORS FOR FDI

  • Includes lottery, gambling, chit funds, real estate (not development), and sectors like atomic energy.

FDI CAPS AND CONDITIONS

  • Mining, Health, Defence: Varies from 49% to 100% depending on sector.

  • Insurance: Up to 74% automatic, subject to conditions.

REPORTING AND REMITTANCE OF FDI

  • Reporting Requirements: Must follow outlined formats (FC-GPR, FLA, etc.) within specified timeframes.

  • Remittance of dividends and sale proceeds: Freely permitted (after tax deductions).

VIOLATION AND PENALTIES

  • Violations of FDI regulations can attract hefty penalties, including fines and administrative penalties.