foreign direct investment consolidated policy 2010 direct investment consolidated policy 2010 - fdi...
TRANSCRIPT
4/21/2010
1
21 April 2010 Suresh & Co., 2010 1
Foreign Direct Investment
Consolidated Policy 2010 -
FDI
D S Vivek
ICAI Bangalore Branch
14th April 2010
21 April 2010 Suresh & Co., 2010 2
FDI background
Controlled economy to Open
economy
Industrial policy liberalized-July 91
Scrapping of Industrial licensing
Liberalization of controls on forex
Allowing FDI and Technical
collaborations
4/21/2010
2
21 April 2010 Suresh & Co., 2010 3
FDI- Agencies Involved
FEMA- Administered by RBI (FED)-
Notifications / AP (DIR) Circulars
DIPP , Min. of Industry & Commerce-
Regulates and Supervises FDI
through press notes
FIPB/ SIA – approves FDI requiring
Govt. approval
SEBI –listed company, FII and FVCI
21 April 2010 Suresh & Co., 2010 4
Consolidated Circular on FDI
Need due to scattered Press Notes
Regulated by FEMA notifications/AP
Dir
RBI-Master Circulars
Consolidated at one place
Bring Transparency in FDI
4/21/2010
3
21 April 2010 Suresh & Co., 2010 5
Legal Basis of Consolidated
Circular
Circular No.1 of 2010 of DIPP dt 31-3-2010
Valid till Sept 30, 2010 fresh updated
circulars very 6 months
Subsumes all previous Press Notes/ Press
Releases/ Clarifications on 31st March
2010
Legal effect through FEMA notification
Notification Prevails over Circular/PN
21 April 2010 Suresh & Co., 2010 6
Structure of Cir No.1
Intent & Objective
Definitions
Origin,Type,Eligibility,Conditions and
Issue/Transfer of Investment
Calculations, Entry Routes, Caps, Entry
Conditions of Investment
Policy on Route, Caps and Entry
Conditions-Sector wise
Remittance, Reporting and Violation
4/21/2010
4
21 April 2010 Suresh & Co., 2010 7
Intent & Objective
Financial Contribution by Non Residents –
FDI and Portfolio Investments
FDI is long term and strategic – degree of
influence on entity
Portfolio –for gain through appreciation in
value and dividend
Policy of Govt to attract FDI
Only consolidates and not to bring changes
Earlier actions valid
21 April 2010 Suresh & Co., 2010 8
Definitions
Capital : Equity shares, Fully, compulsorily
and mandatory convertible preference
shares and debentures
Warrants and partly paid shares or any
other instrument cannot be issued
FDI- investment by NR entity / NR person
in capital of Indian company as per Sch-1
of FEMA
4/21/2010
5
21 April 2010 Suresh & Co., 2010 9
Definitions
PIO- citizen of any country other than
Bangladesh or Pakistan –held Indian
passport, parents or grand parents
were citizens, spouse of Indian citizen
or of a PIO as per above 2 conditions
21 April 2010 Suresh & Co., 2010 10
Origin
A NR entity/Person –other than citizen of Pakistan or entity incorporated in Pakistan can invest in India –subject to FDI policy
Bangladesh citizen or entity can invest only through Govt. approval
NRI’s and Citizens in/of Nepal or Bhutan can also do on repatriation basis if done through convertible forex
4/21/2010
6
21 April 2010 Suresh & Co., 2010 11
Origin-Cont.
OCB’s- either through govt route or
RBI approval
FII through FDI or Portfolio scheme -
10% or 24% would be applicable
even under FDI
NR other than FII/NRI/PIO through
PIS can invest through secondary
market
21 April 2010 Suresh & Co., 2010 12
Types of Instruments
Equity Shares, CCPS,CCD-pricing
Guidelines to be determined upfront
Other Types of PS/ debentures would
be treated as ECBs
FCCB/ Depository Receipts as per
respective guidelines
4/21/2010
7
21 April 2010 Suresh & Co., 2010 13
Eligibility of FDI in Resident Entities
Indian companies including micro and small enterprises
NRI/PIO can invest in Firm / Proprietary concern on non –repatriation basis (Not In Agri /plantation /real estate /print media)
On repatriation basis with RBI approval
Other NRs with approval of RBI in consultation with Govt.
FDI in Trusts other than VCF not allowed
FDI in other entities not allowed. LLP?
21 April 2010 Suresh & Co., 2010 14
Conditions on issue of shares
Issue with in 180 days of receipt
Issue price as per SEBI guidelines for
listed companies
Unlisted company-based on CA
valuation as per CCI guidelines
Can open Foreign Currency account
with RBI approval to retain share
subscription
4/21/2010
8
21 April 2010 Suresh & Co., 2010 15
Conditions for transfer of shares
NR (other than NRI/OCB) can sell /
gift shares to any NR (including NRI)
NRI can sell/ gift to another NRI
Existing Venture/Tie Up condition to
be satisfied in above cases
NR can gift to resident
NR can sell shares through exchange
through broker
21 April 2010 Suresh & Co., 2010 16
Conditions for transfer of shares
Resident can sell to NR (including
subscription shares ) by private
arrangement , other than shares in
financial services sector subject to
Ann-2
NR can sell to resident by private
arrangement subject to Ann-2
Ann-2 –pricing, documentation
4/21/2010
9
21 April 2010 Suresh & Co., 2010 17
Conditions for transfer of shares
Also covers transfer of shares earlier
under approval and now under
Automatic
Also covers buy back and capital
reduction
Above not applicable for Finance
sector (R to NR)
21 April 2010 Suresh & Co., 2010 18
RBI approval for transfers btw
Residents to Non Residents
In finance services sector
Transactions attracting takeover code
Activity of Indian company not under automatic route and FIPB approval has been obtained
Outside pricing guidelines prescribed by RBI
Deferred payment transactions
Shares of sectors under Govt Route –Govt approval and RBI approval
4/21/2010
10
21 April 2010 Suresh & Co., 2010 19
RBI approval for gift to NR
Documents in Ann3 to be given
Eligibility of the donee
Does not exceed 5% of paid up capital
Sectoral cap is complied with
Relatives
Not exceeding USD 25K per calendar year
21 April 2010 Suresh & Co., 2010 20
Other Conditions for issue
Conversion of ECB/Lump sum fee/Royalty to equity
Rights/Bonus shares subject to sectoral cap-right price not lower than that offered to residents
Rights to OCB require RBI approval
Additional shares on rights if not breaching sectoral cap
ESOP-employees of JV/WOS, not exceeding 5%, report with in 30 days
4/21/2010
11
21 April 2010 Suresh & Co., 2010 21
Calculation of FDI
FDI = Direct + Indirect Holdings
Indirect Holdings – by Indian
company owned or controlled by NR
Investment by Indian company not
considered if ‘owned and controlled”
by Resident citizens or by Indian
company owned and controlled by
Resident citizens
21 April 2010 Suresh & Co., 2010 22
Calculation of FDI
Investment in X India by Y India
Company Y has FDI less than 50%, then investment in X is not FDI
Where company Y has 75% FDI and- Y invests 26% in X, FDI is 26%-Y Invests 80% in X, FDI is 80%-Y invests 100% in X, FDI is only 75% (exception)
To be calculated at every stage of investment
4/21/2010
12
21 April 2010 Suresh & Co., 2010 23
Entry Routes for Investment
Automatic Route
Government Route-FIPB approval required
Existing venture/ Tie Up Condition-Jan 12,2005 – conflict of interest clause
Not applicable for VCF, JV interest less than 3%, Defunct/Sick, IT or mining sector
21 April 2010 Suresh & Co., 2010 24
Other Conditions for Investments
Caps on Investments
Entry conditions like minimum
capitalization , lock in period etc.
Others like – relevant sectoral laws,
national security , mandatory
transfers etc.
Downstream investment allowed-
Indirect FDI
4/21/2010
13
21 April 2010 Suresh & Co., 2010 25
Guidelines for FIPB approval
Should be put up with in 15 days
Decision to be communicated with in
30 days
Presentation may be called if further
clarification or deliberations are
required
Sectoral requirements and policies
Requirement of licensing
21 April 2010 Suresh & Co., 2010 26
Guidelines for FIPB approval
Export projections
Strategic or defense related considerations
Priority to be given to - Infra-export potential- employment opportunity- linkage to agri / farm sector- induction of technology or capital
4/21/2010
14
21 April 2010 Suresh & Co., 2010 27
Guidelines for FIPB approval
Upto 1200 Cr –Minister of Finance in
charge of FIPB approval required
Above 1200 Cr- CCEA
21 April 2010 Suresh & Co., 2010 28
FDI Prohibition
Retail Trade
Atomic energy
Lottery
Gambling (even franchise and technology collaboration not allowed)
Chit Fund
TDR
Real Estate or Construction of Farm houses
Activities not opened to Private Sector
4/21/2010
15
21 April 2010 Suresh & Co., 2010 29
Agriculture Sector
100% under Automatic in floriculture, horticulture, development of seeds ,cultivation of vegetables etc, services related to agro and allied sector
FDI not allowed in any other Agri sector –cereals, pulses
For seed development- safety requirements as per Environment Protection Act on genetically modified organism
21 April 2010 Suresh & Co., 2010 30
Manufacturing Sector
Require Govt Approval for
manufacture of items reserved for
MSE sector and investment above
24%. Also require industrial license
4/21/2010
16
21 April 2010 Suresh & Co., 2010 31
Cigars & Cigarettes
Currently with Govt Approval subject
to Industrial license
Proposal to ban FDI even with Govt
Approvals
21 April 2010 Suresh & Co., 2010 32
Defence Sector
FDI upto 26% under Govt approval
Industrial License required
Approval in consultation with Ministry
of defence
Management in Indian hands
Chief Executives to be resident Indian
4/21/2010
17
21 April 2010 Suresh & Co., 2010 33
Power sector
100% under automatic allowed in
generation, non conventional,
distribution and power trading
FDI not allowed in atomic power plant
/ atomic energy reserved for public
sector
21 April 2010 Suresh & Co., 2010 34
Advertising & Film
100% FDI under Automatic route
4/21/2010
18
21 April 2010 Suresh & Co., 2010 35
Civil aviation Sector
Greenfield airports 100% automatic, existing airports – automatic upto 74% and above with Govt Approval upto 100%
Scheduled passenger service : FDI upto 49% and NRI upto 100% under Automatic
Non Scheduled : upto 49% automatic, from 49% to 74% with Govt Approval
21 April 2010 Suresh & Co., 2010 36
Business Services
100% FDI under automatic
Data processing, software
development and consultancy,
business and management
consultancy services, market
research , technical testing and
analytical services
4/21/2010
19
21 April 2010 Suresh & Co., 2010 37
Construction –Development
Projects
FDI upto 100% under automatic
Serviced housing plots- min 10 hecters-24.71 acres
Construction – development projects – min 50,000 sq mtr ( 50 lac sq.ft)
Combined projects-one of the above criteria
Min Cap USD 10mil for WOS and USD 5 Mil for JV
Conditions not applicable for NRIs, Tourism and Hospital projects and SEZ
21 April 2010 Suresh & Co., 2010 38
NBFC sector
Merchant Banking, Under writing, PMS, Investment Advisory services, Financial Consultancy, Stock Brokers, Venture capital, Forex broking, Housing finance etc-100% FDI Automatic
USD .5 Mil for 51% to be brought upfront
USD 5 Mil upto 75% -upfront
USD 50 Mil for more than 75%, 7.5Mil upfront and balance with in 24 month
For Non Fund based .5Mil irrespective of %
4/21/2010
20
21 April 2010 Suresh & Co., 2010 39
Venture capital Fund
Registered FVCI can invest 100% in
Indian VC undertaking and can also
set up Asset management Company
FVCI can also invest in domestic
Venture capital Fund
If it is a Trust then Govt. approval
required
Domestic Fund to be registered SEBI
21 April 2010 Suresh & Co., 2010 40
R & D Services
100% allowed under automatic route
Excludes Basic Research and Setting
up of R & D ?
Excludes Academic institutions which
would award degrees/ diplomas/
certificates ( Foreign Universities?)
4/21/2010
21
21 April 2010 Suresh & Co., 2010 41
Trading
100% Automatic in Cash Carry Whole sale / Whole sale trading
Whole sale Trading defined
Sale to group companies less than 25%
To have daily sales data to whom sold
Ecommerce only in B2B
Credit sales allowed
Single Brand retailing allowed upto 51% under Govt Approval
Test marketing allowed for 2 yrs with set up of manufacturing facility
21 April 2010 Suresh & Co., 2010 42
Repatriation
AD can allow if sold as per prescribed
guidelines and NOC/tax clearance
certificate has been obtained
AD can allow remittance on winding
up or liquidation of company
4/21/2010
22
21 April 2010 Suresh & Co., 2010 43
Penalty
Upto 3 times the amount involved if
amount involved can be determined
Upto 2 lacs if it can not be determined
Compounding of offence is allowed
only if the amount is quantified
Only 1 allowed in 3 years