Sethuraman Sathappan

Agm, operations

Scotiabank, Mumbai.

 

 

 

In this article, I have covered the investment opportunities available to NRIs to invest in business in India other than bank deposits, shares, mutual funds, bonds, company deposits, NCDs, and government securities.

In recent times, India has been rated as the third most preferred investment country across the globe. The investment rules have been liberalized to attract Foreign Direct Investment (FDI) and release of a comprehensive FDI policy has eased and expedited the investment processes in India.

Every NRI at one point of time or the other would have thought of investing some money in India in business. For doing the same, one should know the basic rules governing investments in India which will help in managing investments smoothly and not getting into trouble.

Investment Opportunities

Several national priority level and state-specific projects are being implemented across the country. These offer huge potential for investors willing to invest in India. There are opportunities available in sector like infrastructure, education, and healthcare.

Foreign Investment in India is governed by the FDI Policy (―Consolidated FDI Policy Circular‖ dated March 31, 2010) and by the provisions of the Foreign Exchange Management Act (FEMA) 1999 .

For the detailed FDI circular, you can refer to the website, http://siadipp.nic.in/policy/fdi_circular/fdi_circular_1_2010.pdf and for the FEMA provisions, www.rbi.org.in. Note that both of the above are amended from time to time.

Entry Routes

FDI is freely permitted in almost all sectors. Under the FDI scheme, investments can be made by NRIs through two routes: either the Automatic Route or the Government Route.

The primary difference between the two routes is that under the automatic route, a foreign investor or an Indian company does not require any approval from the RBI or Government of India for the investment, while under the government route, prior approval is required.

Some important sectors under automatic route / government route (with FIPB approval) are furnished here below and there are detailed guidelines for investment and also sometimes approvals are required from different authorities.

Under Automatic Route

 Agriculture 100%

 Mining 100%

 Coal & Lignite mining 100%

 Alcohol Distillation & Brewing 100%

 Coffee & Rubber Processing & Warehousing 100%

 Hazardous Chemicals 100%

 Industrial Explosives manufacture 100%

 Drugs and Pharmaceuticals 100%

 Power 100%

 Airports – Greenfield 100%

 Scheduled Transport Services /Domestic Scheduled Passenger Airline 100% (for NRIs)

 Development of townships, Housing, Built Up infrastructure and construction development projects

 Insurance 26%

 Industrial Parks 100%

 Non Banking Finance Companies 100%

 Wholesale cash & carry trading 100%

 Trading for exports 100%

 Manufacture of telecom equipment 100%

With FIPB approval

 Tea Sector 100%

 Courier Services 100%

 Investing in Companies in Infrastructure / services sector except telecom sector 100%

 Publishing of newspaper and periodicals dealing with news and current affairs 26%

 Publishing of scientific magazines / specialty journals / periodicals 100%

 Single Brand Product retailing 51%

Prohibition

Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as, trusts) which is engaged in or proposes to engage in the following activities:

1. Business of chit fund, or

2. Nidhi company, or

3. Agricultural or plantation activities, or

4. Real estate business, or construction of farm houses, or

5. Trading in Transferable Development Rights (TDRs).

  However, item no. 4 does not include development of townships, construction of residential/ commercial premises, roads or bridges educational institutions, recreational facilities, city and regional level infrastructure, townships.

Partnership firms or proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector.

In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as

 Retail Trading (except single brand product retailing)

 Atomic Energy

 Lottery Business including Government / private lottery , online lotteries etc.

 Gambling and Betting including casinos, etc

 Activities / sectors not opened to private sector investment

 Agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture, and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and plantations (other than tea plantations)

 Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

 Foreign investment in trusts other than investment by SEBI registered FVCIs in domestic VCF is not permitted.

 

 Eligibility Criteria

A person resident outside India (other than a citizen of Pakistan) or an entity incorporated outside India, (other than an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy of the Government of India.

Erstwhile OCBs (Overseas Corporate Body) who are not under adverse notice under FDI scheme under both the routes with prior approval of Govt of India (government route) and Reserve Bank of India (under automatic route) may also invest in India.

OCB means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by NRIs and includes overseas trust in which not less than sixty per cent beneficial interest is held by NRIs, directly or indirectly, but irrevocably. OCBs have been de-recognized as a class of investors in India as of September 2003.

Instrument Types

Indian companies may issue equity shares, fully and mandatorily convertible debentures, and fully and mandatorily convertible preference shares subject to pricing guidelines / valuation norms prescribed under FEMA (Foreign Exchange Management Act) Regulations.

Other than the above, they may also issue preference shares, and debentures subject to the guidelines.

Investment in Proprietorship and Partnership Firms

Now, there may be a question arising in your mind. Whether NRIs can make investments in Proprietorship or Partnership firms in India? The answer is yes and the provisions are as follows:

An NRI or PIO resident outside India can invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided:

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

 Investment cannot be made in the prohibited sectors

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

NRIs / PIO may seek prior permission of RBI for investment in sole proprietorship concerns / partnership firms with repatriation benefits. The application will be decided in consultation with the Government of India.