Foreign Direct Investments – Regulations & Policy

FDI is when a person or company from another country invests money

in a business in India,
either by:
 Buying a part of a private Indian company.
 Owning at least 10% of a publicly traded Indian company's
shares.

Government's objective:
Attract and promote FDI to supplement domestic capital, technology,
and skills and Accelerate economic growth and development
"Investment" means:
To subscribe (buy newly issued securities), Acquire (buy existing
securities) Hold (own or possess securities) and Transfer (sell or
assign securities)
This includes:
 Securities (like stocks, bonds, debentures) issued by an Indian
resident
 Units (like mutual fund units) issued by an Indian resident
 Depository receipts (like American Depository Receipts (ADRs) or
Global Depository Receipts (GDRs) issued outside India, as long
as the underlying security is issued by an Indian resident
Additionally, for Limited Liability Partnerships (LLPs):
 Capital contribution (putting in money or resources)
 Acquisition or transfer of profit shares (buying or selling shares
of the LLP's profits)
Department for Promotion of Industry and Internal Trade (DPIIT)
and its role in Foreign Direct Investment (FDI) policy in India. DPIIT plays
an active role in shaping FDI policy to promote India as an investment
destination.
 Formulates and reviews FDI policy
 Aims to make FDI policy more investor-friendly
 Liberalizes and rationalizes FDI policy to attract higher investments

FDI Policy:
 Reviewed regularly to make it more attractive
 Allows up to 100% FDI in most sectors/activities under the
automatic route
 Significant changes made recently to make India a more attractive
investment destination.
The main objective of the Foreign Exchange Management Act
(FEMA) is to:
 Regulate foreign exchange transactions.
 Facilitate foreign investment, external trade, and payments.
  Promote the orderly development and maintenance of the
foreign exchange market in India.

Main aim to provide a framework for foreign investment in India, aiming

to facilitate and regulate foreign exchange transactions, promote foreign
investment, and maintain a stable foreign exchange market.

The current FDI regime in India is governed by:

 Consolidated Foreign Direct Investment Policy Circular (2020)

 Press Notes issued by DPIIT (amending the FDI Policy)
 Sector-specific policies and regulations
 Foreign Exchange Management (Non-Debt Instruments) Rules
(2019)
 Notifications issued by the Department of Economic Affairs (DEA),
Ministry of Finance

Importance of FDI:
Major source of non-debt financial resource for economic
development
Consistently growing FDI flows into India since liberalization
Important component of foreign capital

General conditions on FDI

1. Restricted Investors
- Non-resident entities from countries sharing a land border with India or
with beneficial owners from such countries can only invest under the
Government route.
- Citizens of Pakistan or entities incorporated in Pakistan can invest only
under the Government route, except in defense, space, atomic energy,
and prohibited sectors.
- Any transfer of ownership resulting in beneficial ownership from
restricted countries/entities requires Government approval.

2. NRI/Foreign National Investments

If there's a transfer of ownership, directly or indirectly, that falls under

restricted categories, government approval is required. NRIs resident in
Nepal and Bhutan, and citizens of Nepal and Bhutan, can invest in Indian
companies on a repatriation basis.
- Investment amount must be paid through inward remittance in free
foreign exchange via normal banking channels. This means that
investors from Nepal and Bhutan have opportunities to participate in
India's economy, but with certain conditions to ensure regulatory
compliance.
3.Overseas Corporate Bodies (OCBs) means a company or
partnership incorporated outside India owned and controlled by Indian
citizen or person of Indian origin.

- OCBs are no longer recognized as investors in India (effective

September 16, 2003).
- Former OCBs can make fresh investments as incorporated non-resident
entities, subject to FDI Policy and Foreign Exchange Management (Non-
Debt Instrument) Rules, 2019.
these conditions outline restrictions and guidelines for foreign investors,
including those from neighboring countries, Pakistan, and OCBs, as well
as opportunities for NRIs and foreign nationals from Nepal and Bhutan to
invest in Indian companies.

OCB is: A company/Partnership firm/ Society/ Other corporate

body
Owned by;
Non-resident Indians (NRIs) directly or indirectly to the extent of at least
60% or An overseas trust with At least 60% beneficial interest held by
NRIs directly or indirectly/ Irrevocable beneficial interest/ In existence on
the date of commencement of the Foreign Exchange Management
(Withdrawal of General Permission to OCBs) Regulations, 2003/Eligible to
undertake transactions under general permission granted under FEMA
regulations prior to the commencement of the 2003 regulations.
NRI-owned entities

Companies, trusts, and partnership firms incorporated outside India and

owned/controlled by NRIs can invest in India with special dispensation
under the FDI Policy.

Foreign Portfolio Investors (FPIs)

FPIs can invest in India as per Schedule II of the Foreign Exchange

Management (Non-Debt Instruments) Rules, 2019.
Schedule II : Equity instruments, shares, convertible bonds, warrants.

Registered FPIs and NRIs

Can invest/trade in Indian companies' capital on recognized Indian Stock

Exchanges through a registered broker, as per the applicable Schedule
under the Foreign Exchange Management (Non-Debt Instruments) Rules,
2019.

Foreign Venture Capital Investors (FVCIs)

FVCIs can invest in India as per Schedule VII of the Foreign Exchange
Management (Non-Debt Instruments) Rules, 2019.
Schedule VII applies to:

1. Foreign Portfolio Investors (FPIs)

2. Non-Resident Indians (NRIs)
3. Overseas Citizens of India (OCIs)
4. Foreign Venture Capital Investors (FVCIs)
5. Foreign Direct Investment (FDI) entities

NRI/OCI investments in National Pension System

NRIs and Overseas Citizens of India (OCIs) can subscribe to the National
Pension System, administered by PFRDA.
Subscriptions must be made through normal banking channels, and the
person must be eligible to invest as per PFRDA Act provisions.
Annuity/accumulated savings will be repatriable.

Limited Liability Partnership (LLP) is considered "owned" by resident

Indians if over 50% of its investment comes from resident Indians or
entities controlled by them, and they hold most of the profit share.

Eligible investee entities for Foreign Direct Investment (FDI) in

India:

Indian Companies: Can issue capital against FDI.

Partnership Firms/Proprietary Concerns:

NRIs can invest on a non-repatriation basis.
Foreigners other than NRIs need prior approval from the Reserve
Bank.

Trusts: Investment is only permitted in '. Venture Capital Funds (VCFs)

registered and regulated by SEBI (VCF') registered and regulated by SEBI
and 'Investment Vehicle'.

Limited Liability Partnerships (LLPs)::

1. Automatic Route Eligibility: Foreign investment is allowed in LLPs

operating in sectors with 100% FDI permission through the automatic
route, with no FDI-linked performance conditions.

2. Downstream Investment and Conversion: Indian companies/LLPs

with foreign investment can make downstream investments in other
companies/LLPs in sectors with 100% FDI allowance. Conversions
between LLPs and companies are also permitted under the automatic
route.

3. Compliance Requirements: Foreign investment in LLPs must

comply with the LLP Act, 2008, and relevant FEMA regulations, ensuring
transparency and regulatory adherence.
Investment Vehicle:
Registered and regulated by SEBI or other designated authorities
- Includes:
- Real Estate Investment Trusts (REITs)
- Infrastructure Investment Trusts (InvIts)
- Alternative Investment Funds (AIFs)

Eligible Investors:

- Persons resident outside India (except citizens of or entities

registered/incorporated in Pakistan or Bangladesh)

Conditions:
Investment to be made in accordance with Schedule VIII of the Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019
- Terms and conditions specified in Schedule VIII to be followed
Startup Companies:
Startup companies recognized by DPIIT, Ministry of Commerce and
Industry, can issue convertible notes. Investors from outside India
(except Pakistan and Bangladesh) can purchase convertible notes.

Conditions:
 Minimum investment: ₹25 lakh in a single transaction.
 Government approval required for startups in sectors needing
approval.
 Inward remittance or debit to NRE/FCNR(B)/Escrow account.
 Escrow account to be closed within 6 months.
 NRIs can acquire convertible notes on a non-repatriation basis.
 Transfers allowed with applicable pricing guidelines and Government
approval (if needed).

Some elements regarding Indian start-ups issuing convertible notes to

non-residents:

- Eligible Investors: Start-ups can issue equity, equity-linked

instruments, or debt instruments to Foreign Venture Capital Investors
(FVCIs) against foreign remittances, as per Schedule VII of Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019 [3).

- Convertible Note Conditions:

 - Non-residents (excluding citizens of Pakistan and Bangladesh) can
purchase convertible notes for ₹25 lakh or more in a single tranche.
- Start-ups in sectors requiring government approval need approval
for issuing convertible notes.
- Consideration must be received through inward remittance or
debit to NRE/FCNR(B)/Escrow accounts [3).

- Reporting and Transfer:

- Start-ups must furnish reports as prescribed by RBI.
- Non-residents can transfer convertible notes to residents or non-
residents, adhering to FEMA pricing guidelines.

- NRI Investment:
- Non-Resident Indians (NRIs) can acquire convertible notes on a
non-repatriation basis, following Schedule IV of Foreign Exchange
Management (Non-Debt Instruments) Rules, 2019.

- Escrow Account:
- Escrow accounts for convertible note transactions must be closed
within six months or immediately after requirements are completed,
whichever is earlier.( An Escrow Account refers to a temporary
financial account held by a third-party holder, where funds for
convertible note transactions are deposited until requirements are
completed or within six months, whichever is earlier.)

Entry Conditions on Investment for Non-Residents:

Sector-specific restrictions: Investments allowed in specific

sectors/activity with conditions.
Minimum capitalization: Minimum investment amount required.
Lock-in period: Investment cannot be withdrawn or sold for a
specified period.
Other conditions: May include additional requirements such as:
- Employment generation
- Technology transfer
- Export obligations
- Local content requirements
- Joint venture requirements

CONDITIONS ON INVESTMENT BESIDES ENTRY CONDITIONS

 Foreign investments in India must comply with various
regulations beyond initial entry conditions. This includes adhering
to sectoral laws, rules, security conditions, and state or local laws
 acquisition or transfer of immovable property by citizens of
specific countries is regulated by the Foreign Exchange
 Management (Non-Debt Instruments) Rules, 2019, which is
subject to amendments

FOREIGN INVESTMENT INTO/DOWNSTREAM INVESTMENT BY

ELIGIBLE INDIAN ENTITIES

Downstream investment refers to indirect foreign investment made by

an Indian entity, which has foreign investment, into another Indian
company or Limited Liability Partnership (LLP). This occurs when an
eligible Indian entity, with foreign investment, subscribes or acquires
capital instruments or capital in another Indian entity, effectively passing
on the foreign investment to the latter.

Indirect Foreign Investment:

Means investment received by an Indian entity from:

A. Another Indian Entity (IE) that has received foreign

investment, if:

1. IE is not owned and controlled by resident Indian citizens

2. IE is owned or controlled by persons resident outside India

B. An investment vehicle, if:

1. Sponsor or manager or investment manager is not owned and

controlled by resident Indian citizens
2. Sponsor or manager or investment manager is owned or controlled by
persons resident outside India

In essence, indirect foreign investment refers to investment in an Indian

entity that has a foreign connection through:

1. Another Indian entity with foreign investment that is ultimately

controlled or owned by with foreign ownership/control

Foreign investment in sectors/activities under the government

approval route will be subject to government approval where:

1. The investment is in a sector that is not open to automatic approval,

such as defense, media, or certain financial services.
2. The investment exceeds a certain threshold, such as 49% or more in
equity.
3. The investment involves a change in ownership or control of an
existing Indian entity.
4. The investment is from a country with which India has a sensitive
relationship or where national security concerns exist.
5. The investment is in a sector that has strategic or national security
implications.

These conditions may vary depending on the country's regulations and

policies..

Total Foreign Investment i.e. Direct and Indirect Foreign

Investment in eligible Indian entities

Direct Foreign Investment

- Made by non-resident entities (individuals or companies)

- Includes investments such as:
- Foreign Direct Investment (FDI)
- Foreign Portfolio Investment (FPI)
- National Retail Investment (NRI)
- American Depository Receipts (ADRs)
- Global Depository Receipts (GDRs)
- Foreign Currency Convertible Debentures (FCCBs)

Indirect Foreign Investment

- Made by resident Indian entities that have foreign investment

- Can be cascading through multi-layered structures
- Includes investments such as:
- Fully, compulsorily, and mandatorily convertible preference shares
- Fully, compulsorily, and mandatorily convertible debentures
- Units of Investment Vehicles

Calculation of Total Foreign Investment:

I. Direct Foreign Investment:

All investment directly by a non-resident entity into the Indian

company/LLP is counted towards foreign investment.

II. Indirect Foreign Investment:

A. Exclusion:

Investment through an Indian company/LLP "owned and controlled" by

resident Indian citizens is not considered indirect foreign investment.
All investments made directly by a non-resident entity into an Indian
company/LLP are counted towards foreign investment.

B. Inclusion:

If the investing company is not "owned and controlled" by resident

Indian citizens, the entire investment is considered indirect foreign
investment.

C. Exception:

For 100% owned subsidiaries of operating-cum-investing/investing

companies, indirect foreign investment is limited to the foreign
investment in the holding company.

Key Definitions:

- "Owned and controlled" is defined in Regulation 14 of the principal

Regulations (RBI Notification No.362/2015-RB dated February 15, 2016).
- SEBI determines whether a sponsor or manager or investment manager
is foreign-owned and controlled if they are organized in a form other
than companies or LLPs.

Downstream Investments:

1. Must conform to sectoral caps and conditions/restrictions applicable to

the company receiving the investment, as per FDI Policy.
2. Investments in LLPs must also conform to Schedule VIII of the Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019 and extant
FDI policy for foreign investment in LLPs.

Alternative Investment Funds (AIFs):

1. Category III AIFs with foreign investment can only make portfolio
investments in securities/instruments allowed for Registered Foreign
Portfolio Investors under the principal Regulations.

Reporting Requirements:

1. Investment Vehicles receiving foreign investment must submit reports

to RBI or SEBI in prescribed formats and timelines.

Transitional Provisions:
1. Foreign investments made prior to February 13, 2009, are exempt
from these guidelines.
2. All other investments (past and future) must comply with these
guidelines.

Foreign investment in Indian companies engaged in investing

activities:

Foreign Investment in Investing Companies:

1. NBFCs (Non-Banking Financial Companies): 100% automatic route for

foreign investment.
2. Core Investment Companies (CICs) and other investing companies:
Government approval route for foreign investment. CICs must also follow
RBI's regulatory framework.
3. Indian companies with no operations or downstream investments:
- Automatic route for foreign investment if activities are under
automatic route and without performance conditions.
- Government approval required for foreign investment if activities are
under Government route, regardless of amount or extent.

Additional Conditions:

- Comply with relevant sectoral conditions, entry routes, conditionalities,

and caps when:
- Commencing business
- Making downstream investments
- Foreign investment in other Indian companies/LLPs must comply with
relevant sectoral conditions.

Downstream Investment Conditions:

1. Notification:
- Notify RBI in Form DI within 30 days of investment
- Notify on Foreign Investment Facilitation Portal ((link unavailable))
within 30 days
2. Documentation:
- Board of Directors' resolution required for induction of foreign
investment in existing Indian Company
- Shareholders' agreement, if any, must be duly supported
3. Compliance with Guidelines:
- Issue/transfer/pricing/valuation of capital instruments must comply
with FEMA/SEBI guidelines
4. Funding:
 - Eligible Indian entities must bring in requisite funds from abroad (no
domestic market leverage)
- Downstream companies/LLPs can raise debt in domestic market for
operations
- Internal accruals (profits transferred to reserve account after tax
payment) are permissible for downstream investments

These conditions ensure transparency, compliance, and proper

documentation for downstream investments, while also clarifying funding
requirements and permissible sources.

apply for Government approval for FDI, follow these steps:

1. Check eligibility: Ensure the proposed investment requires

Government approval as per the Consolidated FDI Policy and Foreign
Exchange Management (Non-Debt Instrument) Rules, 2019.

2. Register on FIFP: Register on the Foreign Investment Facilitation Portal

(FIFP) at (link unavailable)

3. Submit proposal online: File the proposal online through FIFP as per
the guidelines and requirements prescribed under the Standard
Operating Procedure (SOP) for processing FDI proposals.

4. Attach required documents: Attach all necessary documents as

specified in the SOP, including:
- Company documents (e.g., Memorandum of Association, Articles of
Association)
- Shareholding pattern and ownership details
- Details of the proposed investment (e.g., amount, sector, activity)
- Business plan and financial projections
- Other relevant documents as specified in the SOP

5. Pay fees: Pay the prescribed fees for processing the proposal.

6. Wait for processing: Wait for the proposal to be processed by the

relevant authorities.

Documents required:

- Company documents (Memorandum of Association, Articles of

Association, etc.)
- Shareholding pattern and ownership details
- Details of the proposed investment (amount, sector, activity, etc.)
- Business plan and financial projections
- Other relevant documents as specified in the SOP
Foreign Investment in Investing Companies in India………….44

1. NBFCs (Non-Banking Financial Companies)

- Registered with RBI

- 100% automatic route for foreign investment

2. Core Investment Companies (CICs) & Other Investing Companies

- Engaged in investing in other Indian companies/LLPs

- Government approval route for foreign investment
- CICs must follow RBI's regulatory framework

3. Indian Companies without Operations or Downstream Investments

- Automatic route for foreign investment if:

- Activity is under automatic route
- No foreign investment linked performance conditions
- Government approval required if:
- Activity is under Government route
- Regardless of foreign investment amount/extent

Additional Conditions

- Compliance with sectoral conditions, entry routes, conditionalities, and

caps
- Applies to foreign investment in other Indian companies/LLPs

Key Points

- Foreign investment regulations vary based on company type and

activity
- Automatic route available for NBFCs and certain Indian companies
- Government approval required for CICs, other investing companies, and
certain activities
- Compliance with sectoral conditions and RBI regulations essential.

Downstream investment by an eligible Indian entity which is not

owned and/or controlled by resident entity(ies)

Downstream investment by an eligible Indian entity that's not

owned or controlled by resident entities into another Indian
company must comply with sectoral conditions, entry routes,
conditionalities, and caps related to the sectors the latter company
operates in.
Key Considerations:
- Sectoral Conditions: Compliance with relevant sectoral conditions is
crucial.
- Entry Routes: Adherence to prescribed entry routes is necessary.
- Conditionalities and Caps: Observance of conditionalities and caps
applicable to the sector is mandatory.

Downstream investments made by banking companies, owned or

controlled by non-residents, under Corporate Debt Restructuring or other
loan restructuring mechanisms, don't count toward indirect foreign
investment. However, strategic downstream investments in subsidiaries,
joint ventures, and associates do qualify.

Construction Development: Townships, Housing, Built-up

Infrastructure

Key Points:

1. 100% Foreign Direct Investment (FDI) allowed through automatic

route.
2. Each project phase considered a separate project.
3. Exit permitted after completion or development of trunk infrastructure
(roads, water supply, etc.).
4. Lock-in period: 3 years for each tranche of foreign investment.
5. Transfer of stake between non-residents allowed without lock-in period
or government approval.

Conditions:

1. Conform to state government/municipal/local body norms and

standards.
2. Sell only developed plots with trunk infrastructure.
3. Obtain necessary approvals and comply with regulations.
4. State government/municipal/local body monitors compliance.

Exceptions:

1. FDI not permitted in real estate business, farm houses, or trading in

transferable development rights (TDRs).
2. Lock-in period doesn't apply to hotels, tourist resorts, hospitals, SEZs,
educational institutions, or old age homes.
3. 100% FDI allowed in completed projects for operation and
management.

Definitions:
1. "Real estate business" excludes development of townships,
residential/commercial premises, roads, bridges, educational institutions,
etc.
2. "Transfer" includes sale, exchange, relinquishment, extinguishment of
rights, compulsory acquisition, and possession transfer.

Industrial Parks: FDI Policy

1. 100% Foreign Direct Investment (FDI) allowed through automatic

route.
2. Applies to new and existing industrial parks.

Conditions:

1. Industrial park must have:

- Quality infrastructure (developed land or built-up space)
- Common facilities (roads, water supply, power, telecom, etc.)
2. Allocable area:
- Minimum 10 units
- No single unit occupies >50% of allocable area
- Minimum 66% of total allocable area for industrial activity

Definitions:

1. "Industrial Park": Project with developed infrastructure and common

facilities for industrial activity.
2. "Infrastructure": Roads, railways, water supply, power, telecom, etc.
3. "Common Facilities": Shared facilities for all units (power, roads, water
supply, etc.).
4. "Allocable Area": Net site area available for allocation to units.
5. "Industrial Activity": Manufacturing, electricity, gas, water supply,
software, R&D, consultancy, etc.

Exemptions:

FDI in industrial parks exempt from construction development project

conditionalities if conditions met.

Foreign investment in private security agencies

is allowed up to 49% through the automatic route and up to 74% through
the government route. This means that for investments beyond 49%,
you'll need to get approval from the government ¹ ² ³ ⁴.

- FDI Limit: 74% (automatic route up to 49% and government route

beyond 49% and up to 74%) ² ³ ⁴
- Compliance: Must comply with the Private Security Agencies
(Regulation) Act, 2005, as amended from time to time ¹ ⁵
- Definitions:
- Private Security Agency: Person or body providing private security
services, including training and guard services ¹ ⁵
- Private Security: Security provided by a person, other than a public
servant, to protect or guard any person or property ¹ ⁵
- Armoured Car Service: Service provided by deployment of armed
guards along with armoured cars and related services ¹ ⁵

It's also important to note that the increase in FDI limit to 74% will
require an amend.

ˇForeign investment in private security agencies is allowed up to 49%

through the automatic route and up to 74% through the government
route. This means that for investments beyond 49%, you'll need to get
approval from the government

To clarify, here are the Key Conditions for foreign investment in private
security agencies:

- FDI Limit: 74% (automatic route up to 49% and government route

beyond 49% and up to 74%) ² ³ ⁴
- Compliance: Must comply with the Private Security Agencies
(Regulation) Act, 2005, as amended from time to time ¹ ⁵
- Definitions:
- Private Security Agency: Person or body providing private security
services, including training and guard services ¹ ⁵
- Private Security: Security provided by a person, other than a public
servant, to protect or guard any person or property ¹ ⁵
- Armoured Car Service: Service provided by deployment of armed
guards along with armoured cars and related services ¹ ⁵

It's also important to note that the increase in FDI limit to 74% will
require an amendment in the Private Security Agencies (Regulation) Act,
2005 ⁴.

TRADINg

Cash & Carry Wholesale trading/Wholesale trading, would mean sale of

goods/merchandise to retailers, industrial, commercial, institutional or
other professional business users or to other wholesalers and related
subordinated service providers. Wholesale trading would, accordingly,
imply sales for the purpose of trade, business and profession, as
opposed to sales for the purpose of personal consumption. The yardstick
to determine whether the sale is wholesale or not would be the type of
customers to whom the sale is made and not the size and volume of
sales. Wholesale trading would include resale, processing and thereafter
sale, bulk imports with ex-port/ex-bonded warehouse business sales and
B2B e-Commerce.
Guidelines for cash & carry wholesale trading

Trading (Cash & Carry Wholesale Trading)

Definition: Wholesale trading means selling goods/merchandise to:

- Retailers
- Industrial users
- Commercial users
- Institutional users
- Other professional business users
- Other wholesalers

Key Features:

1. Sales for trade, business, and profession (not personal consumption)

2. Type of customers determines wholesale status (not sales volume)
3. Includes resale, processing, bulk imports, and B2B e-Commerce

Guidelines:

1. Obtain necessary licenses/registration/permits from State

Government/Government Body
2. Sales considered wholesale only when made to:
- Entities with tax registration
- Entities with trade licenses
- Entities with retail trade permits
- Institutions with certificate of incorporation/registration
3. Maintain daily records of sales (entity name, registration number,
amount, etc.)
4. Wholesale trading allowed among group companies (up to 25% of
total turnover)
5. Credit facilities permitted (subject to regulations)
6. Separate books of accounts required for wholesale and retail business
(if undertaken)

FDI Policy:

1. 100% FDI allowed through automatic route

2. Compliance with FDI policy conditions for wholesale/cash and carry
and retail business
E-commerce activities in India have specific guidelines for
foreign direct investment (FDI). E-commerce Definition: E-commerce
refers to buying and selling goods and services, including digital
products, over digital and electronic networks ¹.

Types of E-commerce Models:

- B2B (Business-to-Business): Involves the exchange of goods, services,

or information between businesses, such as Microsoft, Salesforce, and
IndiaMART.
- B2C (Business-to-Consumer): Involves the exchange of goods, services,
or information between businesses and consumers, such as Meta and
Walmart.

FDI Guidelines for E-commerce:

- 100% FDI allowed: Through the automatic route in the marketplace

model of e-commerce ² ³ ¹.
- No FDI allowed: In the inventory-based model of e-commerce ² ³ ¹.
- E-commerce Entity: Must be a company incorporated under the
Companies Act 1956 or 2013, or a foreign company covered under
section 2(42) of the Companies Act, 2013 ¹.

Marketplace Model: Provides an information technology platform to

facilitate transactions between buyers and sellers.

Here are the other conditions for e-commerce activities in India:

- Digital and Electronic Network: Includes networks of computers,

television channels, and other internet applications used in an
automated manner, such as web pages, extranets, and mobiles ¹.
- B2B Transactions: Marketplace e-commerce entities can enter into
transactions with sellers registered on their platform on a business-to-
business (B2B) basis ¹.
- Support Services: E-commerce marketplaces can provide support
services to sellers, including warehousing, logistics, order fulfillment, call
centers, payment collection, and other services ¹.
- No Inventory Ownership: E-commerce entities providing a marketplace
cannot exercise ownership or control over inventory, as this would
render the business an inventory-based model ¹.
- Inventory Control Limit: If more than 25% of a vendor's purchases come
from the marketplace entity or its group companies, the vendor's
inventory is deemed controlled by the marketplace entity ¹.
- Equity Participation Restriction: Entities with equity participation by e-
commerce marketplace entities or their group companies, or with
inventory control by these entities, cannot sell products on the platform
¹.
- Transparent Sales: Goods and services made available for sale
electronically on a website should clearly indicate their origin, price, and
other relevant details
cases that do not require fresh approval for foreign investment:

No Fresh Approval Required:

1. Shift from Government approval to Automatic Route:

- Entities that earlier required Government approval but are now
under the automatic route due to changes in sectoral policies.
2. Removal/Increase of Sectoral Caps:
- Entities that earlier had sectoral caps but are now under the
automatic route due to removal or increase of such caps.
- Additional investment, combined with initial investment, does not
exceed sectoral caps.
3. Prior approval under Press Notes 18/1998 or 1/2005:
- Additional foreign investment into the same entity where prior
approval was obtained earlier due to requirements of Press Notes
18/1998 or 1/2005, and no other reason requires Government approval.
4. Cumulative investment up to Rs 5000 crore:
- Additional foreign investment up to a cumulative amount of Rs 5000
crore into the same entity:
- Within an approved foreign equity percentage
- Into a wholly owned subsidiary

Prohibited Sectors for FDI:

- Lottery Business and online lotteries

- Gambling and Betting, including casinos
- Chit funds
- Nidhi companies
- Trading in Transferable Development Rights (TDRs)
- Real Estate Business (except development of townships, construction of
residential/commercial premises, roads, bridges, and REITs)
- Manufacturing of cigars, cheroots, cigarillos, and cigarettes
- Activities/sectors not open to private sector investment, including:
- Atomic Energy
- Railway operations (except permitted activities)
- Foreign technology collaboration is also prohibited for Lottery Business,
Gambling, and Betting activities.

In these cases, companies can bring in additional foreign investment

without requiring fresh Government approval, as the activities/sectors
are now under the automatic route or have relaxed sectoral caps.

permitted sectors and conditions for FDI:

Permitted Sectors:

- FDI up to the indicated limit is allowed in specified sectors, subject to

applicable laws, regulations, security, and conditionalities.
- In unlisted sectors, FDI is permitted up to 100% on the automatic route,
subject to applicable laws and regulations.

Conditionalities:

- Minimum capitalization includes share premium received, but not

amount paid during post-issue transfer of shares.
- Sectoral cap includes all types of foreign investments, direct and
indirect.
- FCCBs and DRs with underlying debt instruments are not treated as
foreign investment, but equity holding resulting from conversion is
reckoned as foreign investment.
- Transfer of ownership/control from resident Indian citizens to non-
resident entities requires Government approval or compliance with
conditionalities.
- Portfolio investment up to the aggregate foreign investment level is
exempt from Government approval and sectoral conditions if it doesn't
result in transfer of ownership/control.
- Total foreign investment, direct and indirect, cannot exceed the
sectoral/statutory cap.
- Existing foreign investments made according to previous policies do not
require modification to conform to new amendments.
- Foreign investors can specify a particular auditor/audit firm for joint
audit, with one auditor not part of the same network.
- Investee companies are responsible for compliance with these
provisions.

Other Conditions:
- "Under controlled conditions" refers to the practice of cultivation where
environmental factors are artificially controlled, including:
- Rainfall
- Temperature
- Solar radiation
- Air humidity
- Culture medium
- This control can be achieved through:
- Protected cultivation under greenhouses, net houses, poly houses, or
other improved infrastructure facilities
- Regulation of micro-climatic conditions through human intervention
(anthropogenically)
- This applies to the categories of:
- Floriculture
- Horticulture
- Cultivation of vegetables
- Cultivation of mushrooms

Mining and Exploration:

- Allowed for metal and non-metal ores, including:

- Diamond
- Gold
- Silver
- Precious ores
- Excludes titanium bearing minerals and its ores
- Subject to the Mines and Minerals (Development & Regulation) Act,
1957
- 100% Automatic route, meaning no government approval is required
for foreign investment up to 100% in this sector.

Note: The Mines and Minerals (Development & Regulation) Act, 1957 is a
regulatory framework that governs the mining industry in India, and
compliance with this act is mandatory for companies engaged in mining
and exploration activities.

Coal & Lignite:

1. Captive Mining:
- Allowed for captive consumption by:
- Power projects
- Iron & steel units
- Cement units
- Other eligible activities
- Subject to:
 - Coal Mines (Special Provisions) Act, 2015
- Mines and Minerals (Development and Regulation) Act, 1957
2. Coal Processing Plants:
- Allowed for setting up coal processing plants like washeries
- Conditions:
- Company shall not engage in coal mining
- Shall not sell washed or sized coal in the open market
- Shall supply washed or sized coal only to parties supplying raw
coal for processing
3. Automatic Route:
- 100% foreign investment allowed under automatic route

Note: The automatic route means that no government approval is

required for foreign investment up to 100% in this sector, subject to
compliance with the specified conditions and regulations.

mining and mineral separation of titanium bearing minerals and

ores:

Titanium Bearing Minerals & Ores:

- Permitted Activities:
- Mining and mineral separation of titanium bearing minerals and ores
- Value addition and integrated activities
- Conditions:
- Subject to sectoral regulations
- Subject to the Mines and Minerals (Development and Regulation) Act,
1957
- Automatic Route:
- 100% foreign investment allowed under automatic route

additional conditions for FDI in titanium bearing minerals and ores in a

concise and easy-to-read format:

Additional Conditions for FDI in Titanium Bearing Minerals &

Ores

1. Value Addition & Technology Transfer

- Set up value addition facilities in India
- Transfer technology
2. Disposal of Tailings
- Follow Atomic Energy Regulatory Board rules:
- Radiation Protection Rules, 2004
- Safe Disposal of Radioactive Wastes Rules, 1987
3. Prohibited Activities
 - No FDI in mining of "prescribed substances" (listed in Notification No.
S.O. 61(E), dated 18.1.2006)
4. Associated Processing Infrastructure
- Includes coal washery, crushing, coal handling, and separation
(magnetic and non-magnetic)
5. Value Addition Clarification
- Manufacture of titanium dioxide pigment and titanium sponge
constitutes value addition
- Processing Ilmenite to produce Synthetic Rutile or Titanium Slag is an
intermediate value-added product
6. Objective
- Utilize raw material for downstream industries
- Introduce international technology for setting up industries in India
- Technology transfer can fulfill FDI Policy objectives

Petroleum & Natural Gas Sector:

- Allowed Activities:
- Exploration of oil and natural gas fields
- Infrastructure related to marketing of petroleum products and
natural gas
- Marketing of natural gas and petroleum products
- Petroleum product pipelines
- Natural gas/pipelines
- LNG Regasification infrastructure
- Market study and formulation
- Petroleum refining in the private sector
- Conditions:
- Subject to existing sectoral policy and regulatory framework in the oil
marketing sector
- Subject to Government policy on private participation in exploration
of oil and discovered fields of national oil companies
- FDI Cap:
- 100% foreign investment allowed
- Entry Route:
- Automatic route, meaning no government approval is required for
foreign investment up to 100% in this sector.

Note: The automatic route means that foreign investment up to 100% is

allowed in this sector without requiring government approval, provided
that the activities comply with the specified conditions and regulatory
framework.

Manufacturing and Defence sectors:

Manufacturing Sector:

- FDI Policy:
- Foreign investment in manufacturing is under the automatic route
- Manufacturing Activities:
- Self-manufacturing by the investee entity
- Contract manufacturing in India through a legally tenable contract
(Principal to Principal or Principal to Agent basis)
- Sales:
- Manufacturer can sell products manufactured in India through:
- Wholesale
- Retail
- E-commerce
- Without government approval

Retail Trading:

- Food Products:
- 100% FDI allowed under government approval route for retail
trading, including through e-commerce, for food products manufactured
and/or produced in India

Defence Sector:

- Subject to:
- Industrial license under the Industries (Development & Regulation)
Act, 1951
-

mandatory requirements for key executives and security

clearance:

Mandatory Requirements:

1. Indian Citizenship:
- Majority of Directors on the Board must be Indian citizens
- CEO, Chief Officer in-charge of technical network operations, and
Chief Security Officer must be resident Indian citizens
2. Security Clearance:
- Company, Directors, key executives (MD/CEO, CFO, CSO, CTO, COO,
etc.), and shareholders holding 10% or more paid-up capital require
security clearance
- Security clearance required for foreign personnel deployed for more
than 60 days in a year
 - Security clearance must be obtained every two years
3. Prior Permission:
- Required for appointment of Directors and key executives
- Required for changes in the Board of Directors
4. Permission and Security Clearance:
- Permission holder/licensee must remain security cleared throughout
the currency of permission
- If security clearance is withdrawn, permission is liable to be
terminated
5. Consequences of Denied/Withdrawn Security Clearance:
- Concerned person must resign or services terminated forthwith
- Failure to comply may result in permission/license revocation and
disqualification for 5 years

Infrastructure/Network/Software Requirements:

1. Lawful Interception:
- Officers/officials dealing with lawful interception must be resident
Indian citizens
2. Infrastructure/Network Details:
- Technical details can be shared with equipment
suppliers/manufacturers and affiliate companies on a need-to-know basis
- Clearance from the licensor required to share with anyone else
3. Data Transfer:
- Subscribers' databases cannot be transferred outside India unless
permitted by law
4. Subscriber Identity:
- Company must provide traceable identity of subscribers

These requirements aim to ensure the security and privacy of

subscribers' data, as well as the integrity of the network and
infrastructure.

Monitoring, Inspection, and Submission of Information:

1. Lawful Interception:
- Company must provide necessary hardware/software for lawful
interception and monitoring from a centralized location
2. Monitoring Facilities:
- Company must provide equipment, services, and facilities for
continuous monitoring by the Government or its authorized
representative
3. Inspection Rights:
 - Government or its authorized representative has the right to inspect
broadcasting facilities without prior permission/intimation
- Inspection will be confined to security-related aspects, including
screening of objectionable content
4. Notice for Inspection:
- Inspection will ordinarily be carried out after reasonable notice,
except in circumstances where giving notice will defeat the purpose of
the inspection
5. Submission of Information:
- Company must submit information about its services as required by
the Government or its authorized representative
- Company must furnish reports, accounts, estimates, returns, or other
relevant information to the Government, TRAI, or its authorized
representative as required
6. Training:
- Service providers must familiarize/train designated officials of the
Government, TRAI, or its authorized representative(s) in respect of
relevant operations/features of their systems

These requirements aim to ensure that the Government or its authorized

representative can monitor and inspect the company's activities and
operations to ensure compliance with regulations and security standards.

National Security Conditions:

1. Restriction on Sensitive Areas:

- Licensor can restrict Licensee Company from operating in sensitive
areas for national security reasons
2. Temporary Suspension:
- Government of India, Ministry of Information and Broadcasting can
temporarily suspend permission in public interest or for national security
3. Compliance with Directives:
- Company must immediately comply with directives issued by the
Government
4. Consequences of Non-Compliance:
- Failure to comply may result in:
- Revocation of permission
- Disqualification from holding permission for 5 years

These conditions prioritize national security and public interest, allowing

the Government to take necessary measures to protect them.

additional conditions and regulations for foreign direct

investments in the print media sector:
Additional Conditions:

1. Modification of Conditions:
- Licensor reserves the right to modify or add new conditions for
national security, public interest, or proper provision of broadcasting
services
2. Safety and Compliance:
- Licensee must ensure that broadcasting service installation does not
become a safety hazard and complies with all statutes, rules,
regulations, and public policy

Print Media FDI Regulations:

1. Publishing of Newspapers and Periodicals:

- 26% FDI allowed through government route for publishing of
newspapers and periodicals dealing with news and current affairs
2. Publication of Indian Editions of Foreign Magazines:
- 26% FDI allowed through government route for publication of Indian
editions of foreign magazines dealing with news and current affairs

The government route means that foreign investment up to 26% is

allowed in these sectors, but it requires prior government approval.

Other Conditions:

1. Definition of Magazine:
- A magazine is defined as a periodical publication, brought out on a
non-daily basis, containing public news or comments on public news
2. Guidelines for Foreign Magazines:
- Foreign investment in publication of Indian editions of foreign
magazines dealing with news and current affairs will be subject to the
Guidelines issued by the Ministry of Information & Broadcasting on
4.12.2008, as amended from time to time

Air Transport Services:

1. Scheduled Air Transport Services:

- Domestic Scheduled Passenger Airline
- Regional Air Transport Service
- FDI Cap: 100% (Automatic up to 49%, Government route beyond
49%)
 - Note: Up to 100% FDI allowed for NRIs (Non-Resident Indians)
through
2. Non-Scheduled Air Transport Services:
- FDI Cap: 100% (Automatic)
3. Helicopter/Seaplane Services:
- FDI Cap: 100% (Automatic)
- Note: Requires DGCA (Directorate General of Civil Aviation) approval

Requirements for Air Operator Certificate:

1. Registration and Principal Place of Business:

- The company or body corporate must be registered in India and have
its principal place of business within India.
2. Citizenship of Chairman and Directors:
- The Chairman and at least two-thirds of the Directors must be
citizens of India.
3. Substantial Ownership and Effective Control:
- The substantial ownership and effective control of the company or
body corporate must be vested in Indian nationals.

Note: These requirements are specified in Schedule XI of the Aircraft

Rules, 1937, and are necessary for obtaining an Air Operator Certificate
to operate Scheduled air transport services, including Domestic
Scheduled Passenger Airline or Regional Air Transport Service.

Civil Aviation Sector:

1. Airports: Landing and taking off areas for aircraft, including runways,
maintenance facilities, and passenger facilities.
2. Scheduled and Non-Scheduled Domestic Passenger Airlines: Airlines
operating on fixed schedules or charter flights within India.
3. Helicopter/Seaplane Services: Aviation services using helicopters or
seaplanes for transportation or other purposes.
4. Ground Handling Services: Services providing support for aircraft
operations, including passenger and cargo handling.
5. Maintenance and Repair Organizations: Facilities and services for
maintaining and repairing aircraft.
6. Flying Training Institutes: Institutions providing training for pilots and
other aviation personnel.
7. Technical Training Institutions: Institutions providing technical training
for aviation maintenance and other support staff.

Note: The definition of "Airport" includes aerodrome as defined in the

Aircraft Act, 1934.

1. Aerodrome: A defined area for aircraft landing and departure,

including buildings and structures.
2. Air Transport Service: A service for transporting people, mail, or goods
by air for remuneration.
3. Air Transport Undertaking: A business that carries passengers or cargo
by air for hire or reward.
4. Aircraft Component: A part essential to an aircraft's airworthiness and
safety.
5. Helicopter: A rotor-powered aircraft supported by air reactions on a
vertical axis.
6. Scheduled Air Transport Service: A service operated according to a
published timetable or regular flights.
7. Non-Scheduled Air Transport Service: Any service that is not
scheduled.
8. Seaplane: An aircraft capable of taking off and landing solely on water.
9. Ground Handling: Includes:
- Ramp handling
- Traffic handling
- Activities specified by the Ministry of Civil Aviation
Other activities specified by the Central Government

These definitions provide clarity on the various aspects of the Civil

Aviation sector, including infrastructure, services, and operations.

Other conditions for foreign investment in the Civil Aviation

sector:

Additional Conditions:

1. Technical Equipment Import: All technical equipment imported into

India as a result of foreign investment requires clearance from the
relevant authority in the Ministry of Civil Aviation.
2. Air India Ltd. Specific Conditions:
 - Foreign investment in Air India Ltd. shall not exceed 49% (except for
NRIs, who can invest up to 100% under the automatic route).
- Substantial ownership and effective control of Air India Ltd. must
remain with Indian Nationals, as per Aircraft Rules, 1937.
3. FDI in Civil Aviation: FDI in Civil Aviation is subject to the provisions of
Aircraft Rules, 1937, as amended from time to time.

FDI Regulations for Construction Development:

1. Eligible Activities: Development of townships, residential/commercial

premises, roads, bridges, hotels, resorts, hospitals, educational
institutions, recreational facilities, and city/ regional level infrastructure.
2. FDI Cap and Entry Route: 100% Automatic
3. Exit Conditions:
- Investor can exit on completion of project or after development of
trunk infrastructure.
- Foreign investor can exit and repatriate investment after a 3-year
lock-in period for each tranche of investment.
- Transfer of stake between non-residents without repatriation is
allowed without lock-in period or government approval.
4. Project Requirements:
- Conform to state government/municipal/local body norms and
standards.
- Provide community amenities and common facilities as per
regulations.
5. Sale of Developed Plots:
- Indian investee company can sell only developed plots with trunk
infrastructure.

Conditions for Industrial Parks:

1. Definition of Industrial Park: A project providing quality infrastructure

and common facilities for industrial activity.
2. Infrastructure: Includes roads, railway lines, water supply, sewerage,
common effluent treatment, telecom network, power generation and
distribution, and air conditioning.
3. Common Facilities: Includes power, roads, railway lines, water supply,
common effluent treatment, telecom services, air conditioning, and other
facilities for common use.
4. Allocable Area:
- Developed land: Net site area available for allocation, excluding
common facilities.
- Built-up space: Floor area and built-up space utilized for common
facilities.
 - Combination: Net site and floor area available for allocation,
excluding common facilities.
5. Industrial Activity: Includes manufacturing, electricity, gas and water
supply, post and telecommunications, software publishing, and other
specified activities.
6. FDI Conditions:
- Minimum of 10 units in the Industrial Park.
- No single unit shall occupy more than 50% of the allocable area.
- Minimum of 66% of the total allocable area shall be allocated for
industrial activity.

FDI Regulations for Private Security Agencies:

1. FDI Cap and Entry Route:

- 74% Automatic
- Up to 49%: Automatic route
- Beyond 49% and up to 74%: Government route
2. Other Conditions:
- FDI is subject to compliance with the Private Security Agencies
(Regulation) (PSAR) Act, 2005, as amended from time to time.
- Definitions:
- "Private Security Agency" means a person or body providing
private security services, including training and deployment of guards.
- "Private Security" means security provided by a person (other
than a public servant) to protect or guard individuals, property, or both.
- "Armoured Car Service" means the service provided by
deployment of armed guards along with armoured cars and related
services.

Wholesale Trading Guidelines:

1. Definition: Wholesale trading refers to the sale of goods/merchandise

to:
- Retailers
- Industrial users
 - Commercial users
- Institutional users
- Professional business users
- Other wholesalers
- Related subordinated service providers
2. Purpose: Sales for the purpose of:
- Trade
- Business
- Profession
- (As opposed to sales for personal consumption)
3. Yardstick to determine wholesale sale:
- Type of customers to whom the sale is made
- (Not the size and volume of sales)
4. Wholesale trading includes:
- Resale
- Processing and thereafter sale
- Bulk imports with ex-port/ex-bonded warehouse business sales
- B2B e- Commerce

Cash & Carry Wholesale Trading/Wholesale Trading:

Guidelines for Cash & Carry Wholesale Trading/Wholesale

Trading:

1. Licensing and Registration:

- Obtain requisite licenses/registration/permits from State
Government/Government Body/Government Authority/Local Self-
Government Body.
2. Eligible Customers:
- Sales to valid business customers, including:
- Entities holding tax registration
- Entities holding trade licenses
- Entities holding permits/license for retail trade
- Institutions having certificate of incorporation or registration
3. Record Maintenance:
- Maintain full records of sales, including customer details,
registration/license/permit number, amount of sale, etc.
4. Wholesale Trading among Group Companies:
- Allowed, but not exceeding 25% of total turnover of the wholesale
venture.
5. Credit Facilities:
- Can be extended as per normal business practice, subject to
applicable regulations.
6. Retail Trading:
 - Can be undertaken, subject to conditions applicable to retail
business.
- Separate books of accounts must be maintained for wholesale and
retail business, audited by statutory auditors.
7. FDI Policy Compliance:
- Conditions for wholesale/cash and carry business and retail business
must be separately complied with.

FDI Cap and Entry Route:

- 100% Automatic for Cash & Carry Wholesale Trading/Wholesale

Trading, including sourcing from MSEs.

Foreign Direct Investment (FDI) in E-Commerce:

Guidelines for FDI in E-Commerce:

1. FDI Cap and Entry Route:

- 100% Automatic for marketplace model of e-commerce
- FDI not permitted in inventory-based model of e-commerce
2. Definitions:
- E-commerce: Buying and selling of goods and services, including
digital products, over digital and electronic networks
- E-commerce entity: A company or foreign company, or an office,
branch, or agency in India, conducting e-commerce business
- Inventory-based model: E-commerce activity where inventory is
owned by the e-commerce entity and sold directly to consumers
- Marketplace-based model: Providing an information technology
platform to facilitate transactions between buyers and sellers
3. Other Conditions:
- Digital and electronic network includes computers, TV channels,
internet applications, and mobiles
- Marketplace e-commerce entities can enter into B2B transactions
with sellers on their platform
- E-commerce marketplaces can provide support services like
warehousing, logistics, and payment collection
 - E-commerce entities cannot exercise ownership or control over
inventory (more than 25% of purchases from the marketplace or its
group companies)
- Entities with equity participation or control from e-commerce
marketplace entities or their group companies cannot sell products on
the platform

Clarifications and Conditions for FDI in Construction

Development:

1. Prohibited Activities:
- Real estate business (dealing in land and immovable property for
profit)
- Construction of farm houses
- Trading in transferable development rights (TDRs)
2. Exemptions from Lock-in Period:
- Hotels & Tourist Resorts
- Hospitals
- Special Economic Zones (SEZs)
- Educational Institutions
- Old Age Homes
- Investment by NRIs
3. Project Completion:
- Determined as per local bye-laws/rules and regulations of State
Governments
4. Completed Projects:
- 100% FDI under automatic route permitted for operation and
management of:
- Townships
- Malls/shopping complexes
- Business centers
- Transfer of ownership/control permitted, but with a 3-year lock-in
period
5. Definition of Transfer:
- Sale, exchange, or relinquishment of assets
- Extinguishment of rights
- Compulsory acquisition
- Possession taken/received in part performance of a contract
- Any transaction enabling enjoyment of immovable property

FDI in E-Commerce:

1. FDI Cap and Entry Route:

- 100% Automatic for marketplace model of e-commerce
 - FDI not permitted in inventory-based model of e-commerce
2. Definitions:
- E-commerce: Buying and selling of goods and services, including
digital products, over digital and electronic networks
- E-commerce entity: A company or foreign company, or an office,
branch, or agency in India, conducting e-commerce business
- Inventory-based model: E-commerce activity where inventory is
owned by the e-commerce entity and sold directly to consumers
- Marketplace-based model: Providing an information technology
platform to facilitate transactions between buyers and sellers
3. Other Conditions:
- Digital and electronic network includes computers, TV channels,
internet applications, and mobiles
- Marketplace e-commerce entities can enter into B2B transactions
with sellers on their platform
- E-commerce marketplaces can provide support services like
warehousing, logistics, and payment collection
- E-commerce entities cannot exercise ownership or control over
inventory (more than 25% of purchases from the marketplace or its
group companies)
- Entities with equity participation or control from e-commerce
marketplace entities or their group companies cannot sell products on
the platform

Note: These guidelines clarify the FDI policy for e-commerce, allowing
100% automatic FDI in the marketplace model while prohibiting FDI in
the inventory-based model.

Foreign Direct Investment (FDI) in Single Brand Product Retail Trading

(SBRT):

Guidelines for FDI in SBRT:

1. FDI Cap and Entry Route:

- 100% Automatic
2. Objectives:
- Attract investments in production and marketing
- Improve availability of goods for consumers
- Encourage sourcing of goods from India
- Enhance competitiveness of Indian enterprises
3. Conditions:
- Products must be of a 'Single Brand' only
- Products must be sold under the same brand internationally
- 'Single Brand' product-retail trading only covers products branded
during manufacturing
 - Non-resident entities can undertake SBRT for a specific brand, either
directly or through a legally tenable agreement with the Indian entity
4. Examples:
- Adidas, Nike, Apple, etc.

Foreign Direct Investment (FDI) in Single Brand Product Retail

Trading (SBRT):

Local Sourcing Requirements:

1. 30% Domestic Sourcing:

- 30% of the value of goods purchased must be sourced from India,
preferably from MSMEs, village and cottage industries, artisans, and
craftsmen.
2. Self-Certification and Audit:
- Companies must self-certify their domestic sourcing, which will be
checked by statutory auditors.
3. _Initial 5-Year Average:**
- The 30% sourcing requirement will be met as an average of the total
value of goods procured over the first 5 years, starting from the
commencement of SBRT business.
4. _Annual Sourcing Requirement:**
- After the initial 5 years, the 30% sourcing requirement must be met
on an annual basis.
5. _Global Sourcing Set-Off:**
- SBRT entities can set off sourcing of goods from India for global
operations against the mandatory 30% sourcing requirement.
6. _E-commerce:**
- SBRT entities operating through brick and mortar stores can also
undertake retail trading through e-commerce.
- E-commerce can be undertaken prior to opening brick and mortar
stores, but the entity must open physical stores within 2 years from the
start of online retail.

Foreign Direct Investment (FDI) in Multi-Brand Retail Trading

(MBRT):

Guidelines for FDI in MBRT:

1. FDI Cap and Entry Route:

- 51% Government
2. Conditions:
- Fresh agricultural produce can be unbranded
- Minimum FDI of $100 million
- 50% of FDI to be invested in back-end infrastructure within 3 years
 - 30% of manufactured/processed products to be sourced from Indian
MSMEs
- Self-certification and maintenance of accounts for compliance
- Retail sales outlets only in cities with a population of over 10 lakh
- Government has the first right to procurement of agricultural
products
- State Governments/Union Territories can decide on implementation
- E-commerce retail trading not permitted for companies with FDI in
MBRT

Note: These guidelines outline the conditions for FDI in Multi-Brand Retail
Trading, including investment requirements, sourcing from MSMEs, and
restrictions on e-commerce retail trading.

Foreign Direct Investment (FDI) in Duty Free Shops:

Guidelines for FDI in Duty Free Shops:

1. FDI Cap and Entry Route:

- 100% Automatic
2. Definition:
- Duty Free Shops are shops set up in custom bonded areas at:
- International Airports
- International Seaports
- Land Custom Stations
- Where there is transit of international passengers
3. Conditions:
- Compliance with the Customs Act, 1962 and other laws, rules, and
regulations
- Duty Free Shop entity cannot engage in retail trading activity in the
Domestic Tariff Area of the country

Note: These guidelines outline the conditions for FDI in Duty Free Shops,
including compliance with customs regulations and restrictions on retail
trading in the domestic market.

Foreign Direct Investment (FDI) in Asset Reconstruction

Companies (ARCs) and Railway Infrastructure:

Guidelines for FDI in ARCs:

1. FDI Cap and Entry Route:

- 100% Automatic
2. Eligibility:
- Persons resident outside India can invest in ARCs registered with
Reserve Bank of India
3. Investment Limit:
- Governed by Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002

Guidelines for FDI in Railway Infrastructure:

1. FDI Cap and Entry Route:

- 100% Automatic
2. Permitted Activities:
- Construction, operation, and maintenance of:
- Suburban corridor projects
- High-speed train projects
- Dedicated freight lines
- Rolling stock manufacturing and maintenance facilities
- Railway Electrification
- Signaling systems
- Freight terminals
- Passenger terminals
- Infrastructure in industrial parks
- Mass Rapid Transport Systems

Foreign Direct Investment (FDI) in Private Sector Banking:

Guidelines for FDI in Private Sector Banking:

1. FDI Cap:
- 74% of paid-up capital (including investment under Portfolio
Investment Scheme)
2. Resident Holding:
- At least 26% of paid-up capital must be held by residents (except for
wholly owned subsidiaries of foreign banks)
3. _Aggregate Foreign Investment: **
- Maximum of 74% of paid-up capital from all sources
4. _Applicability: **
- Guidelines apply to all investments in existing private sector banks
5. _Other Conditions: **
- Permissible limits under portfolio investment schemes for FPIs and
NRIs
- Setting up of a subsidiary by foreign banks
- Limits on voting rights
Foreign Direct Investment (FDI) in Banking and Credit
Information Companies:

Guidelines for FDI in Banking:

1. Private Sector Banking:

- 74% Automatic (up to 49%)
- Government route (beyond 49% and up to 74%)
2. Public Sector Banking:
- 20% Government (subject to Banking Companies (Acquisition &
Transfer of Undertakings) Acts 1970/80)
- Applies to State Bank of India and its associate banks

FDI in Credit Information Companies:

1. FDI Cap and Entry Route:

- 100% Automatic
2. _Regulatory Clearance:**
- Subject to regulatory clearance from RBI
3. _Other Conditions:**
- Foreign investment subject to Credit Information Companies
(Regulation) Act, 2005

FDI in Infrastructure Companies in Securities Market

- Subject to:
- Securities Contracts (Regulations) (Stock Exchanges and Clearing
Corporations) Regulations 2012
- SEBI (Depositories and Participants) Regulations, 1996
- Guidelines/Regulations from Central Government, SEBI, and RBI
- Definitions:
- Refer to Companies Act, 2013, Securities Contracts (Regulation) Act,
1956, SEBI Act, 1992, Depositories Act, 1996, and SEBI Regulations
- Commodity Exchanges:
- Regulated under Forward Contracts (Regulation) Act, 1952
- Allowed foreign investment for best practices, modern management,
and latest technology

Direct Investment (FDI) in Insurance:

Guidelines for FDI in Insurance:

1. FDI Cap:
 - 74% Automatic
2. _Conditions:**
- Aggregate foreign investment in an Indian Insurance company
cannot exceed 74% of paid-up equity capital
- Foreign investment subject to approval/verification by Insurance
Regulatory and Development Authority of India (IRDAI)
- Compliance with Insurance Act, 1938 and necessary
licenses/approvals from IRDAI
- Majority of Directors, Key Managerial Persons, and at least one
among Chairperson, MD, and CEO must be resident Indian citizens
- Foreign portfolio investment governed by FEMA Regulations and SEBI
Regulations
- Increase in foreign investment subject to RBI pricing guidelines
3. _Intermediaries and Insurance Intermediaries:**
- 100% foreign equity investment allowed
- Same terms as above, except for Indian ownership and control
condition
- Foreign investment governed by Indian Insurance Companies
(Foreign Investment) Rules, 2015
4. _Entry
Note: These guidelines outline the conditions for FDI in insurance,
including caps on foreign investment, approval requirements, and
governance norms.

types of instruments allowed under FDI:

1. Equity-related instruments:

- Equity shares
- Fully, compulsorily, and mandatorily convertible debentures
- Fully, compulsorily, and mandatorily convertible preference shares

Route:**
- Automatic route subject to verification by IRDAI
Pricing guidelines:

- Determined upfront at the time of issue

- Must not be lower than fair value worked out at the time of issuance

Optionality clauses:

- Allowed subject to minimum lock-in period of one year

- Non-resident investor can exit without assured return after lock-in
period
2. Debt-related instruments:

- Non-convertible, optionally convertible, or partially convertible

preference shares/debentures
- Treated as debt and subject to ECB norms
- Rupee interest rate based on LIBOR plus spread

3. Other instruments:

- Depository Receipts (DRs)

- Foreign Currency Convertible Bonds (FCCBs)
- Warrants and partly paid shares (subject to RBI terms and conditions)

FDI treatment:

- Inward remittance received via DRs and FCCBs treated as FDI

- Acquisition of warrants and partly paid shares allowed subject to RBI
guidelines

provisions relating to the issue/transfer of shares:

Timeframe for issuing capital instruments:

- Must be issued within 60 days from the date of receipt of inward

remittance or debit to NRE/FCNR(B) account

Refund of consideration:

- If capital instruments not issued within 60 days, consideration must be

refunded within 15 days from the date of completion of 60 days
- Refund to be made by outward remittance or credit to NRE/FCNR(B)
account

Non-compliance:

- Considered a contravention under FEMA

- Attracts penal provisions

Exceptional cases:

- Delay in refund may be considered by RBI on a case-by-case basis

issue Price of Shares

- Must not be less than:
- SEBI-guided price for listed companies
- Fair valuation by SEBI-registered Merchant Banker or Chartered
Accountant for unlisted companies
- Price applicable to transfer of shares from resident to non-resident as
per RBI guidelines for preferential allotment

Foreign Currency Account

- Indian companies can retain share subscription amount in a Foreign

Currency Account, as per RBI guidelines

Transfer of Shares and Convertible Debentures

- Non-resident investors can acquire existing shares from Indian

shareholders or other non-resident shareholders, subject to FDI sectoral
policy and other conditions
- General permission granted for transfer of shares by way of sale or gift,
subject to the following:
- Non-residents can transfer shares to other non-residents (except in
sectors under Government approval route)
- NRIs can transfer shares to other NRIs
- Non-residents can transfer securities to residents in India by way of
gift
- Non-residents can sell shares and convertible debentures on a
recognized Stock Exchange in India through a registered stock broker or
merchant banker

Transfer of Shares

- Resident can transfer shares to non-resident under private

arrangement, subject to guidelines
- Non-resident can transfer shares to resident under private
arrangement, subject to guidelines
- Transfer of shares by resident to non-resident in companies moving
from Government Route to Automatic Route allowed
- Transfer of shares by non-resident to Indian company under
buyback/capital reduction scheme allowed

Reporting Requirements

- Form FC-TRS to be submitted to AD Category-I Bank within 60 days of

transfer or receipt/remittance of funds
- Onus of submission on resident transferor/transferee or non-resident
holder
KYC Check

- Sale consideration for equity instruments purchased by non-resident to

be subjected to KYC check by remittance receiving AD Category-I bank

Acquisition of Shares

- Non-resident can acquire shares of listed Indian company on stock

exchange through registered broker under FDI scheme, subject to FDI
policy and FEMA regulations

Escrow Accounts

- AD Category-I banks can open Escrow accounts and Special accounts

for non-resident corporate for open offers/exit offers and delisting of
shares
- Escrow accounts can be opened for payment of share purchase
consideration and securities to facilitate FDI transactions
- SEBI authorised Depository Participants can also open and maintain
Escrow accounts for securities

Deferred Payment for Transfer of Shares

- In transfers between resident buyer and non-resident seller (or vice-

versa), up to 25% of total consideration can be paid on a deferred basis
within 18 months from the transfer agreement date
- Escrow arrangement or indemnity can be made for up to 25% of total
consideration for 18 months
- Total consideration must comply with applicable pricing guidelines

_No RBI Approval Required**

- Transfer of shares from Non-Resident to Resident under FDI scheme,

even if pricing guidelines under FEMA, 1999 are not met, provided:
1. Original and resultant investment comply with extant FDI policy and
FEMA regulations (sectoral caps, conditionalities, reporting requirements,
documentation, etc.)
2. Pricing is compliant with relevant SEBI regulations/guidelines (IPO,
Book building, block deals, delisting, exit, open offer/substantial
acquisition/SEBI SAST, buy back)
3. Chartered Accountant's certificate confirming compliance with SEBI
regulations/guidelines is attached to Form FC-TRS filed with AD bank

Transfer of Shares from Resident to Non-Resident: No RBI

Approval Required**
- In the following cases:
1. Government approval required under extant FDI policy:
- Government approval obtained
- Adherence to RBI pricing guidelines and documentation
requirements
2. Transfer attracts SEBI (SAST) Regulations:
- Adherence to RBI pricing guidelines and documentation
requirements
3. Pricing guidelines under FEMA, 1999 not met:
- Resultant FDI complies with extant FDI policy and FEMA
rules/regulations
- Pricing compliant with relevant SEBI regulations/guidelines
- Chartered Accountant's certificate attached to Form FC-TRS
4. Investee company in financial sector:
- 'Fit and proper/due diligence' requirements complied with
- FDI policy and FEMA rules/regulations complied with

terms and conditions for transfer of shares/convertible

debentures between residents and non-residents in India:

Pricing Guidelines

1. Transfer from resident to non-resident: Price not less than SEBI-guided

price (for listed shares) or fair value certified by a SEBI-registered
Merchant Banker/Chartered Accountant (for unlisted shares).
2. Transfer from non-resident to resident: Price not more than the
minimum price at which transfer can be made from resident to non-
resident.

Documentation

1. Consent Letter
2. Power of Attorney Document (if applicable)
3. Shareholding pattern of investee company
4. Certificate indicating fair value of shares (from Chartered Accountant)
5. Broker's note (if sale on Stock Exchange)
6. Undertaking from buyer (on FDI policy compliance)

Reporting Requirements

1. Form FC-TRS to be submitted to AD Category-I bank within 60 days

2. AD bank to forward Form FC-TRS to link office and submit monthly
report to RBI
3. Investee company to record transfer in books on receipt of certificate
from AD bank
Other Conditions

1. Payment and remittance through normal banking channels

2. Compliance with FDI policy and sectoral limits
3. Taxes to be paid as applicable
4. Reporting of inflows/outflows in R-returns

Specific Requirements for FPIs/NRIs/OCBs

1. FPIs: Special Non-Resident Rupee Account

2. NRIs: NRE/FCNR(B)/NRO accounts
3. OCBs: Blocked accounts (if applicable)

Prohibited Transactions

1. Transfer of shares purchased under Portfolio Investment Scheme by

NRIs/OCBs

Miscellaneous

1. RBI may call for additional details or give directions as required.

These guidelines ensure that transfers of shares/convertible debentures

between residents and non-residents in India are conducted in a
transparent and compliant manner.

 transfer shares from a resident in India to a non-resident as

a gift, the following documents are required:

- Transferor and Transferee Details: Name and address of the transferor

(donor) and the transferee (doneee) [user query].
- Relationship and Purpose: Relationship between the transferor and the
transferee and reasons for making the gift [user query].
- Security Valuation:
- Certificate from a Chartered Accountant on the market value of
Government dated securities and treasury bills and bonds [user query].
- Certificate from the issuer on the Net Asset Value of units of
domestic mutual funds and units of Money Market Mutual Funds [user
query].
- Certificate from a Chartered Accountant on the value of shares and
convertible debentures according to SEBI guidelines or internationally
accepted pricing methodology [user query].
- Company Certification: Certificate from the concerned Indian company
ensuring the transfer doesn't breach sectoral cap/ FDI limit and the non-
resident transferee's shares don't exceed 5% of paid-up capital [user
query].
- Transferor's Undertaking: Undertaking from the resident transferor that
the value of security transferred, along with any previous gifts to non-
residents, doesn't exceed RBI's prescribed limit [user query].
- Donee's Declaration: Declaration from the donee acknowledging
liability for calls in arrear and consequences for partly paid shares or
warrants [user query).

issuing rights/bonus shares to non-resident shareholders in

India:

Issue of Rights/Bonus Shares

- Indian companies can issue rights/bonus shares to existing non-

resident shareholders, subject to sectoral caps ¹.
- The issue must comply with the Companies Act and SEBI regulations.

Pricing

- Listed companies: price determined by the company.

- Unlisted companies: price not less than the offer made to resident
shareholders.

Prior Permission

- Required for rights issue to erstwhile Overseas Corporate Bodies

(OCBs), which were de-recognized as a class of investors from
September 16, 2003.

Additional Allocation

- Existing non-resident shareholders can apply for additional shares,

convertible debentures, or preference shares.
- The investee company can allot additional rights shares from
unsubscribed portions, subject to sectoral caps.

Acquisition of Shares under Merger/Demerger/Amalgamation

- Mergers, demergers, or amalgamations require court approval.

- The transferee or new company can issue shares to non-resident
shareholders, subject to:
- Sectoral caps.
- Compliance with FDI policy.

SPECIFIC CONDITIONS IN CERTAIN CASES

Indian companies can issue rights/bonus shares to non-resident

Pledge of Shares in India:

Conditions for Pledge by Promoters

1. Purpose: Securing external commercial borrowing (ECB) raised by the

borrowing company.
2. Conditions:
- Pledge period co-terminus with ECB maturity.
- Invocation of pledge: Transfer as per RBI rules and directions.
- Statutory auditor certification: ECB proceeds used for permitted end-
use.
- No-objection certificate from authorized dealer bank.

Conditions for Pledge by Non-Resident Investors

1. Permitted pledgees:
- Indian bank (for credit to Indian company).
- Overseas bank (for credit to non-resident promoter or group
company).
- Non-banking financial company (NBFC) registered with RBI (for credit
to Indian company).
2. Conditions:
- Authorized dealer bank ensures compliance with RBI conditions.

Invocation of Pledge

1. Transfer in accordance with:

- Entry routes.
- Sectoral caps.
- Investment limits.
- Pricing guidelines.
- Attendant conditions at the time of pledge creation.

Remittance, reporting, and violation regulations in India are governed by

the Foreign Exchange Management Act (FEMA) ¹. Here's a breakdown of
the key aspects:

Remittance and Repatriation

- Remittance of Sale Proceeds: The sale proceeds of shares and

securities are considered 'remittance of asset' under FEMA ¹.
- Remittance on Winding Up/Liquidation: AD Category-I banks can remit
winding-up proceeds to non-resident shareholders, subject to applicable
taxes and necessary certificates.
Repatriation

- Dividend Repatriation: Dividends are freely repatriable without

restrictions, net of taxes.
- Interest Repatriation: Interest on convertible debentures is also freely
repatriable, net of taxes.

Reporting of FDI

- Reporting Requirements: The Reserve Bank of India (RBI) specifies

reporting requirements for investments in India under the Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019.
- Single Master Form (SMF): Reporting is done through the SMF on the
Foreign Investment Reporting and Management System (FIRMS)
platform.

Violations

- Penalties: Failure to comply with FEMA regulations can result in

penalties and fines.

It's essential to consult the RBI's Master Directions for Foreign

Investment in India and relevant FEMA regulations for detailed
information

Violating Foreign Direct Investment (FDI) regulations in India

can result in severe penalties. If someone breaches or doesn't
comply with any rule, regulation, or order under the Foreign Exchange
Management Act (FEMA), they may face a penalty of up to three times
the amount involved in the contravention, or up to ₹2 lakh if the amount
isn't quantifiable ¹.

Additionally, if the contravention continues, there's an extra penalty of

₹5,000 for each day after the first day of the contravention. Companies
found guilty of contravention will also be held liable, and every person in
charge of the company's business at the time of the contravention will
be deemed guilty and punished accordingly.

Penalty Breakdown:
- Quantifiable contraventions: Up to three times the sum involved
- Non-quantifiable contraventions: Up to ₹2 lakh
- Continuing contraventions: Extra ₹5,000 per day after the first day
Adjudication and Appeals:
The Ministry of Finance appoints Adjudicating Authorities to investigate
contraventions and impose penalties. A reasonable opportunity is given
to the accused to be heard before any penalty is imposed. Appeals
against the Adjudicating Authority's orders can be made to the Appellate
Authority or Appellate Tribunal.

Compounding Proceedings:
The Central Government may appoint a Compounding Authority to settle
contraventions. This authority can compound the amount involved in the
contravention, but only if it's quantifiable. Repeat contraventions within
three years of a previous compounding will be treated as a first
contravention.

Permissible Limits under Portfolio Investment Schemes for FPIs

and NRIs:

FPIs (Foreign Portfolio Investors)

1. Individual holding limit: Less than 10% of total paid-up capital on a

fully diluted basis.
2. Aggregate limit for all FPIs: 24% of total paid-up capital (or sectoral
cap, effective April 1, 2020).
3. Indian company can decrease aggregate limit to 24%, 49%, or 74%
with board and shareholder approval.
4. Once increased, aggregate limit cannot be reduced.

NRIs (Non-Resident Indians)

1. Individual holding limit: 5% of total paid-up capital on fully diluted

basis (or 24% with special resolution).
2. Total NRI and OCI holding limit: 10% of total paid-up capital (or 24%
with special resolution).

Additional Conditions

1. FDI in private banks with insurance joint ventures/subsidiaries requires

RBI and IRDAI approval.
2. Transfer of shares under FDI requires RBI and/or Government
approval.
3. RBI guidelines apply to non-resident investors acquiring 5% or more of
a private bank's paid-up capital.
4. Policies and procedures of RBI, SEBI, Ministry of Corporate Affairs, and
IRDAI apply.

Setting up Subsidiaries by Foreign Banks

(No specific details provided)

Key points:

- FPIs and NRIs have distinct investment limits.

- Indian companies can adjust aggregate limits with shareholder
approval.
- Regulatory approvals are required for certain transactions.
- Various guidelines and policies govern portfolio investments.

For detailed information, refer to the Reserve Bank of India (RBI) and
Securities and Exchange Board of India (SEBI) guidelines.