Foreign Direct Investment Policy, 2017

Foreign Direct Investment Policy, 2017

D/o IPP F. No. 5(1)/2017-FC-1 Dated the August 28, 2017

Eligible Investors

·      Non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited*. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

* Agriculture (excluding floriculture, horticulture, apiculture and cultivation of vegetables and mushrooms under controlled conditions, the development and production of seeds & planting materials etc.)

Gambling and Betting

Lottery business, including government or private lottery, online lotteries etc.

 Retails trading (expect single-brand product retailing)

Business of chit fund

Nidhi Company

Real estate business or construction of farm houses

Trading in transferable development rights (TDRs)

Manufacturing of tobacco, cigars, cheroots, cigarettes and other tobacco substitutes

·       NRI resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

·         A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.

·     According to Schedule 2 and 2A of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, FII/FPI can invest in the capital of an Indian company under the Portfolio Investment Scheme, below 10% by an Individual of the capital of the Indian Company and the aggregate limit for FII/FPI investment upto 24% of the capital of the company. This aggregate limit of 24% can be increased to the sectorial cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI. The aggregate FII/FPI investment, individually or in conjunction with other kinds of foreign investment, will not exceed sectorial/statutory cap.

Note: An Indian company which has issued shares to FIIs/FPIs under the FDI Policy for which the payment has been received directly into company’s account should report these figures separately under item no. 5 of Form FC-GPR.

·         A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian company engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000, including start-ups irrespective of the sector in which it is engaged, under the automatic route.

Eligible Investee

1.      Indian Company

2.      Partnership Firm/Proprietary Concern

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided;

a.      Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks.

b.      The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.

c.       Amount invested shall not be eligible for repatriation outside India.

(ii) Investments with repatriation option: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option. The application will be decided in consultation with the Government of India.

(iii) Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

(iv) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.

3.      Trust

FDI is not permitted in Trusts other than in ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle.

4.      Limited Liability Partnerships (LLPs)

FDI in LLPs is permitted subject to the following conditions:

(i)                 FDI is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.

(ii)               An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

(iii)             Conversion of an LLP having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into a company is permitted under automatic route. Similarly, conversion of a company having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into an LLP is permitted under automatic route.

(iv)              FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.

5.      Start-up Companies: (New Concept)

Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation. In addition, start-ups can issue convertible notes to person resident outside India subject to the following conditions:

1.      A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered / incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian start-up company for an amount of twenty 5 Lakh rupees or more in a single tranche.

Note: Explanation: For the purpose of this Regulation, a ‘start-up company’ means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated February 17, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, and as amended from time to time.

2.      A start-up company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government.

3.      A start-up company issuing convertible notes to a person resident outside India shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

Note: Provided that an escrow account for the above purpose shall be closed immediately after the requirements are completed or within a period of six months, whichever is earlier. However, in no case continuance of such escrow account shall be permitted beyond a period of six months.

4.      The start-up company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank of India.