An Overview - Foreign Direct Investment in India by Poorvi Chothani , Esq. LawQuest

1. An Overview - Foreign Direct Investment in India by Poorvi Chothani, Esq. LawQuest www.lawquestinternational.com May 23, 2012 An Overview on Doing Business in India

2. FDI Inflows into India FDI equity inflows in the period US$ 28,403 million between April 2011 and February 2012; The cumulative amount of FDI equity inflows from April 2000 to Feb 2012 stood at US$ 162,307 million Financial and non-financial 21% of the total FDI with FDI worth US$ 5.06 billion between April 2011 and February 2012 Construction activities US$ 2.52 billion Housing and realestate FDI worth US$ 0.71 billion Telecommunications - US$ 2 billion between April 2011 and February 2012 The automobile industry US$ 0.79 billion Power US$ 1.62 billion between April 2011 and February 2012 FDI inflows during the April 2011 to February 2012 according to data released by DIPP: Mauritius US$ 9.426 billion comprising 39 per cent of the total FDI equity inflows into the country. Singapore US$ 5.1 billion The United States US$ 0.98 billion Source : India Brand Equity Foundation www.ibef.com An Overview on Doing Business in India

3. Investments in India in February 2012 (data released by DIPP ) in US$ from: Mauritius US$ 507 million Singapore US$ 763 million Japan US$ 115 million In Feb 2012, 22 foreign investment proposals, worth US$ 112.5 million were approved. These include: Shantha Biotechnic’s proposal of US$ 97.26 million to increase its foreign equity in brownfield pharmaceutical sector to facilitate activities of R&D, Manufacturing and marketing of Biotech Products. M&M’s proposal of US$ 4.92 million to set up a JV for developing, manufacturing, and providing service support for radars and several defence related electronic systems. Source : India Brand Equity Foundation www.ibef.org Investment Scenario for FDI Inflows into India An Overview on Doing Business in India

4. ForeignInvestmentsinIndia FOREIGN INVESTMENTS Foreign Direct Investments Foreign Portfolio Investments FIIs SEBI regd. NRIs, PIO QFIs Automatic Route Government Route Foreign Venture Capital Investments Other Investments (G-Sec, NCDs, etc) Investments on Repatriable / Non-Repatriable basis SEBI regd. FVCIs Persons Resident Outside India Direct Investments in Equities & MFs VCF, IVCUs An Overview on Doing Business in India

5. Entry Options Direct Investments; Indirect Investments; Liaison Office/Representative Office; Branch Office; Project Office; Company; Agent; Distributor; Franchise; Acquisition of Shares under Scheme of Merger/Demerger/Amalgamation An Overview on Doing Business in India

6. An Individual resident outside India who is a citizen of India (Non-Resident Indian) or is a person of Indian origin; Foreign Institutional Investors; Qualified Foreign Investors; Foreign Venture Capital Investors; A Company; A Firm; An Association of Persons or a Body of Individuals whether incorporated or not; Every artificial juridical person, not falling within any of the preceding sub-clauses, and Any agency, office, or branch owned or controlled by such person. Types of Investors An Overview on Doing Business in India

7. Indian Companies can issue: Equity shares; Fully, compulsorily & mandatorily convertible Debentures; Fully, compulsorily & mandatorily convertible Preference shares; ADRs / GDRs; FCCBs. Preference Shares/Debentures i.e. Non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are treated as Debt. OCBs are derecognised as class of investors w.e.f. September 16, 2003 but can invest with prior approval of RBI through Government Route. Bonus/Rights shares can be issued without RBI approval but in accordance with Companies Act, 1956/SEBI(ICDR) Regulations, 2009, etc. Types of Instruments An Overview on Doing Business in India

8. Retail Trading (except single brand product retailing, subject to conditions); Lottery Business including Government /private lottery, online lotteries, etc.; Gambling and Betting including casinos etc.; Business of chit fund; Nidhi Companies; Trading in Transferable Development Rights (TDRs); Real Estate Business or Construction of Farm Houses; Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes; Activities / sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems). Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for the Lottery Business and Gambling and Betting activities. Prohibition on Investment in India An Overview on Doing Business in India

9. Indian Company Partnership Firm – only permitted for NRIs and PIOs subject to certain limitations Proprietary concern – only permitted for NRIs and PIOs subject to certain limitations Prohibited in trusts other than VCF Limited Liability Partnerships – permitted only where 100% automatic investment is allowed and such investment is not subject to restrictions. Permitted Entities for Foreign Direct Investment An Overview on Doing Business in India

10. Company Structure in India Private Limited Company Minimum 2 shareholders and 2 directors Minimum Capital US$ 2000 Public Company Minimum 7 members and 3 directors Minimum Capital US$ 9100 Indian director and shareholder not mandatory An Overview on Doing Business in India

11. Process for Foreign Direct Investments INVESTING IN INDIA Automatic Route Government Route General Rule • Inform RBI within 30 days from the date of Receipt of Funds / Issue of shares • Pricing: FEMA Regulations • Unlisted – Discounted free Cash Flow Valuation • Listed – SEBI Guidelines By Exception Approval of Foreign Investment Promotion Board is required (Decision generally within 4-6 weeks) An Overview on Doing Business in India

12. All items/activities for FDI investment up to 100% fall under the Automatic Route except: In Banking ventures. Where an Indian company already has foreign investors. All proposals relating to acquisition of existing shares in an existing Indian Company by a foreign investor. Where sectoral policy or caps apply Where it is prohibited (list provided later in the presentation). The Entry Process: Automatic Route An Overview on Doing Business in India

13. FIPB Approval / Ministry of Finance or SIA / DIPP For all activities, which are not covered under the Automatic Route and have investment exceeding sectoral caps; E.g.: Defence, Mining, Air Transport, Broadcasting, Infrastructure, Petroleum, Telecom Composite approvals involving foreign investment / foreign technical collaboration; Downstream Investment. The Entry Process: Government Route An Overview on Doing Business in India

14. Capital instruments be issued within 180 days from date of receipt of inward remittance. If shares are not issued as required, funds to be refunded immediately. Shares may be freely transferred subject to sectoral caps and prior RBI permission wherever applicable Issue and Transfer of Shares An Overview on Doing Business in India

15. is an Indian citizen who has migrated to another country, is a person of Indian origin who is born outside India, or is a person of Indian origin who resides permanently outside India. Other terms with the same meaning are overseas Indian and expatriate Indian. In common usage, this often includes Indian-born individuals (and also people of other nations with Indian ancestry) who have taken the citizenship of other countries. Non Resident Indian (NRI) An Overview on Doing Business in India

16. Invest in shares of listed companies under PIS on repatriation and non-repatriation upto 5% of paid-up capital and aggregate of all NRIs cannot exceed 10% but can be increased to 24% with special permission in the company. Short selling is not permitted and has to take delivery of shares. Payments from NRE/FCNR(B) account if purchase of shares and/or debentures on repatriation basis. Payments from NRO account if purchase of shares and/or debentures on non-repatriation basis. Allowed to invest in Exchange Traded Derivative Contracts. Investments by NRIs An Overview on Doing Business in India

17. Shareholders Agreements Liability of Board of Directors Employment Laws Dispute Resolution IP Protection Tax Critical Issues in Foreign Investments An Overview on Doing Business in India

18. Persons of Indian Origin (PIO) Persons of Indian Origin (up to the fourth generation) qualify for PIO Registration Visa free entry and the right to residence and employment Registration card is valid for fifteen years Renewed for additional 15-year periods Eligible spouse of an Indian national or person of Indian origin may also qualify for a PIO card. FRRO registration required in some cases An Overview on Doing Business in India

19. Overseas Citizenship of India (OCI) Eligibility - an individual* who was eligible to become a citizen of India on 26.01.1950; or was a citizen of India on or at any time after 26.01.1950; or belonged to a territory that became part of India after 15.08.1947;or is a child or grand child of a person described above. Life time validity Permits one to live and work in India No travel restrictions No FRRO registration required * Individuals who have ever been citizens of Pakistan or Bangladesh are not eligible for OCI. An Overview on Doing Business in India

20. Thank You An Overview on Doing Business in India