‘FDI’ means investment by non-resident entity/person resident outside India in the capital of an Indian company as per FEMA Regulations. Investments can be made by non-residents in the equity shares/ fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route are considered by FIPB.

1. Foreign Direct Investment
Supplementing Indian Capital
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2. Primary Secondary
Market Market
Foreign
Investments
in India
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3. Foreign Investments in India
Foreign Investments
Non Repatriation
Repatriation Basis
Basis
Foreign Foreign
Foreign Direct Venture Capital Other NRIs, PIO
Portfolio
Investments Investments Investments
Investments
Automatic NRI,PIO SEBI regd. NRIs,PIO,Q
Govt Route FIIs FIIs
Route ,QFIs FVCIs FIs
PROI VCF, IVCUs
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4. What is FDI
FDI
Means investment by Non-resident Entity/Person
resident outside India in the capital of an Indian
Company under Schedule 1 of Foreign Exchange
Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations 2000.
Consolidated FDI Policy
Issued by Department of Industrial Policy and
Promotion(DIPP), Ministry of Commerce and
Industry annually along with Press Notes/Press
releases, rules and Regulations, A.P. Dir. (series)
Circulars determine the modalities of Foreign
Direct Investment in India
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5. Eligibility for FDI in India
A non-resident entity or PROI
NRIs resident in Nepal and
Qualified Foreign Investors Bhutan as well as citizens
of Nepal and Bhutan
SEBI registered Foreign Erstwhile Overseas
Venture Capital Investor Commercial Bodies
SEBI registered Foreign
Institutional Investor
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6. Eligibility for FDI in India
• It covers all persons resident outside India.
• Citizen of or an entity incorporated in Bangladesh can invest
only under the Government route.
Non Resident • *A citizen of or an entity incorporated in Pakistan can invest,
Entity only under the Government route, in sectors/activities other
than defence, space and atomic energy.
*Amended by Press Note No.3 (2012 Series) on August 1,
2012 issued by DIPP
NRIs or • Invest in the capital of Indian companies on repatriation basis,
Citizens of subject to the condition that the amount of consideration for
Nepal and such investment shall be paid only by way of inward remittance
Bhutan in free foreign exchange through normal banking channels.
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7. Eligibility for FDI in India
• Derecognized as class of investors in India w.e.f. September 16,
Erstwhile 2003.
Overseas • Can make fresh investments under FDI Policy as incorporated
non-resident entities, with the prior approval of GOI, if investment
Commercial is through Government route; and with prior approval of RBI, if
Bodies investment is through Automatic route. For those incorporated
outside India and are not under the adverse notice of RBI
• FII means an entity established or incorporated outside
India which proposes to make investment in India and
which is registered as a FII in accordance with the
Foreign SEBI (FII) Regulations 1995)
Institutional • SEBI registered FII can invest directly in Indian
Investors(FII) company under FDI Policy
• Can also invest though a registered broker on
recognized Exchange under
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8. Eligibility for FDI in India
• SEBI registered FVCIs are also allowed to invest under the
FDI Scheme, as non-resident entities subject to FDI Policy and
Foreign FEMA regulations in
Venture • SEBI registered IVCU
Capital Fund • SEBI registered IVCF
• Other companies as per FDI policy
• QFIs can invest through SEBI registered DP(for listed
Qualified companies), equity shares of other Indian companies which
Foreign are offered to public in India
Investors • Individual & aggregate investment limit is 5% and 10%
respectively of the paid up capital of an Indian company.
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9. Entities Into Which FDI Can Be Made
Partnership
Venture
Indian Firm/
Capital Trusts LLPs
Company Proprietorsh
Funds
ip Concern
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10. Indian Company
Indian Company
Can issue capital against FDI, i.e. Equity shares, Fully and
mandatorily convertible preference shares, Fully and
mandatorily convertible Debentures, ADRs/GDRS
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11. Partnership Firm/ Proprietary Concern
Non Repatriation Repatriation
NRI or PIO resident outside NRIs/PIO only with prior
India can invest approval of RBI
Investment by Inward
remittance or out of
NRE/FCNR/NRO account
Note:
1) 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.
2) Other than NRI/PIO can invest with prior approval of RBI
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12. Venture Capital Fund
FVCIs are allowed to invest in Indian Venture Capital
Undertakings (IVCUs) /Venture Capital Funds (VCFs) /other
companies.
A person resident outside India can invest in Domestic VCF
set up as a trust, subject to approval of the FIPB.
A person resident outside India can invest in a domestic
VCF is set-up as an incorporated company under the
Companies Act, 1956 under the automatic route.
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13. Trusts and Limited Liability Partnerships
Limited Liability
Trusts
Partnerships
FDI in Trusts other than VCF is not FDI is permitted, subject to certain
permitted conditions
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14. Entry routes for FDI in India
Automatic
Approval Route
Route
Foreign investor or the Foreign investor or the
Indian company should Indian company doesn't
obtain prior approval of require any approval from
Foreign Investment RBI or GOI
Promotion Board (FIPB)
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15. Types of Instruments
Fully &
Fully &
Compulsorily ADRs/GDRs/
Compulsorily
Equity Shares convertible
convertible FCCBs
preference
debentures
Shares
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16. Pricing Guidelines
• Listed Companies- SEBI guidelines
Fresh Issue of • Unlisted Companies- Not less than fair value
determined by SEBI registered Merchant
shares Banker or a Chartered Accountant as per
DFCF
Preferential • Issue Price shall not be less that the price as
applicable to transfer of shares from resident
Allotment to non-resident
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17. Pricing Guidelines
• Company listed on recognised stock exchange - At a price as
determined by the company
Right Shares
• For others- At a price which is not less than the price at which the
offer on right basis is made to the resident shareholders
• Companies listed on recognized stock exchange- negotiated
price for shares, which shall not be less than the price at which the
preferential allotment of shares can be made under the SEBI
Acquisition/ guidelines, as applicable.
transfer of existing • Price per share arrived at certified by a SEBI registered Merchant
shares (private Banker or a Chartered Accountant.
arrangement) • Companies not listed on recognized stock exchange-
negotiated price for shares, which shall not be less than the fair
value to be determined by a SEBI registered Merchant Banker or a
Chartered Accountant as per DFCF
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18. Total Foreign Investment in Indian Company
Indirect Foreign
Direct Foreign
Investment by Total Foreign
Investment by
Resident Indian Investment in
non resident
entity, having Indian
entity into
Foreign Company
Indian company
Investment
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19. Direct Foreign Investment in Indian Company for
further Investment
Direct Foreign
Investment in Indian
Company for further
Investment
Operating cum Investing
Investing Company Non Operating Company
Company
Sectoral Caps and Pricing
Approval of FIPB for
Guidelines etc. to be
formation of investing Approval of FIPB is required
complied with, as per FDI
company with FDI
Policy
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20. Calculation of Direct and Indirect Foreign Investment
Direct Foreign Investment
All investment directly by a non-resident entity into the Indian
company.
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21. Calculation of Direct and Indirect Foreign Investment
Indirect foreign Investment
Investment by Indian companies owned and controlled by resident Indian
citizens and/or Indian Companies which are owned and controlled by
resident Indian citizens- This would not be considered for calculation of the
indirect foreign investment.
Cases where condition (a) above is not satisfied or if the Indian investing
company is owned or controlled by ‗non resident entities- the entire
investment would be considered as indirect foreign investment.
Exception: 100% owned subsidiaries of operating-cum-investing/investing
companies, will be limited to the foreign investment in the operating-cum-
investing/ investing company
Note: A company is considered as Controlled by resident Indian citizens if the resident Indian citizens and Indian companies,
which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company
A company is considered as 'Owned‘ by resident Indian citizens if more than 50% of the capital in it is beneficially owned by
resident Indian citizens and / or Indian companies, which are ultimately owned and controlled by resident Indian citizens
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22. Down Stream Investment
Invests 49% in Y
Ltd
Y Ltd, Indian Company
Foreign Company
Total Indirect
X Ltd, Indian Company Foreign Investment
Less than 50%
Investment in X Ltd is NIL
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23. Down Stream Investment
Invests 15% in Y
Ltd
Y Ltd, Indian Company
Foreign Company
Total Indirect
X Ltd, Indian Company Foreign Investment
More than 50%
Investment in X Ltd is 15%
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24. Down Stream Investment
Invests 90% in Y
Ltd
Y Ltd, Indian Company
Foreign Company
X Ltd, Indian Company Total Indirect
More than 50% Foreign Investment
Investment in X Ltd is 90%
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25. Down Stream Investment
Invests 100% in Y
Ltd
Y Ltd,
Foreign Company Wholly Owned Subsidiary of X Ltd
X Ltd, Indian Company Total Indirect
75% Investment in Foreign Investment
X Ltd is 75%
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26. Modes of Investment under FDI
Modes of Investment
Conversion of
ECB /
Lumpsum Fee /
Transfer of Royalty / Import Acquisition of
existing shares of capital shares under
Issue of fresh Issue of Rights
by Person goods by SEZs Scheme of
shares / Bonus shares
resident in or into Equity/ Merger /
outside India Import Amalgamation
payables / Pre
incorporation
expenses
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27. Issue of Fresh Shares & Swap
• Indian company may issue fresh shares /convertible
Issue of Fresh debentures under FDI Scheme to PROI (who is eligible for
Shares investment in India) subject to compliance with FDI policy
and FEMA Regulations
• Issue can be done in lieu for the consideration which has to
Issue of shares to a be paid for shares acquired in the overseas company, with
non-resident prior approval of FIPB and in compliance of pricing
against shares swap guidelines
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28. Issue of Rights / Bonus shares
An Indian company may issue Rights / Bonus shares to existing non-resident shareholders, subject to
adherence to sectoral cap, reporting requirements, etc.
Issue of Right • Right Shares- Specific prior permission from RBI.
/Bonus shares to • Bonus shares- Without prior approval of RBI. Should not
Erstwhile OCBs be in the adverse list of RBI.
Additional • Investee company can allot the additional rights shares
allocation of rights out of unsubscribed portion, subject to the condition that
the overall issue of shares to non-residents in the total
share by residents paid-up capital of the company does not exceed the
to non-residents sectoral cap.
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29. Conversion of ECB / Lumpsum Fee / Royalty /
Import of capital goods by SEZs into Equity/ Import
payables / Pre incorporation expenses
Conversion of
Lump-sum Import of Import of Pre-operative /
ECB into
technical capital goods capital goods / pre –
shares /
know-how by units in machinery / incorporation
convertible
fee/royalty SEZs equipment expenses
debentures
General Can issue equity
permission shares to non Allowed under Allowed under
General
under automatic residents, Government Government
Permission
route or SIA / subject to route route
FIPB route valuation
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30. Acquisition of shares under Scheme of Merger /
Amalgamation
Mergers & Amalgamations of companies in India are usually
governed by an order issued by a competent Court. The transferee
company or new company is allowed to issue shares to the
shareholders of the transferor company resident outside India, subject
to following conditions
Percentage of shareholding of persons
resident outside India in the transferee or
new company does not exceed the sectoral
cap, and
Transferor company or the transferee or the
new company is not engaged in activities
which are prohibited under the FDI policy
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31. Transfer of Shares
Transfers of
Transfer where Transfers where
existing shares by
FIPB Approval RBI Approval is
PRI to PROI or vice
required required
versa
By Gift By Sale
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32. Transfers of existing shares by PRI to PROI or
vice versa by way of Gift
By Gift
Non Resident to Non Non Resident to Resident to Non
Resident Resident resident
Comply with
Sectoral
General Approval of RBI
General Caps/Pricing
Permission is with specific
Permission Guidelines/
granted conditions
Reporting
formalities
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33. Transfers of existing shares by way of Sale
Non Resident to Non
Non Resident to Resident
Resident
General
General Permission, if sale through
Permission
recognised Stock Exchange
granted
Where transfer is under SEBI guidelines and
pricing guidelines are not met, provided
following conditions are met
Comply with Pricing Compliance
FDI policy and complies with CA certificate is with reporting
FEMA relevant SEBI obtained and other
regulations regulations guidelines
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34. Transfers of existing shares by way of Sale
Resident to Non
Resident
General Certain
Permission Adhere to conditions to be
FIPB approval NOC from
granted, if sale SEBI(SAST) fulfilled if pricing
where required regulators
through Stock Regulations guidelines are
Exchange not met
Comply with Pricing is CA Certificate of
FDI Policy and compliant with compliance of
FEMA specific SEBI
regulations regulations regulations
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35. Transfer of Shares by Resident to Non
Resident requiring FIPB approval
Transfer of shares from residents to
non-residents by way of sale or
otherwise
Transfer of shares resulting in
Transfer of shares of companies
foreign investments in the Indian
engaged in sector falling under the
company, breaching the sectoral
Government Route.
cap applicable.
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36. Prior permission of the Reserve Bank in certain
cases for acquisition / transfer of security
Deferment of payment PRI who intends to
Transfer of shares from
of the amount of transfer any security,
NRI to NR
consideration by way of gift to PROI
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37. Investments other than FDI
Investments
other than FDI
Foreign Venture Other Investments on
Foreign Portfolio
Capital investments (G- non-repatriable
Investments
Investments Sec, NCDs, etc) basis
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38. Foreign investments under Portfolio Investment
Scheme (PIS)
Transfer of
shares Prior
Investment in
acquired intimation to
Entities listed Indian
under PIS Reserve Bank
companies
under private of India
arrangement
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39. Entities
• Eligible to purchase shares and convertible debentures
FIIs registered with SEBI issued by Indian companies.
• Eligible to purchase shares and convertible debentures , if
permitted by designated branch of any AD Category - I
NRIs bank (which has been authorized by RBI to administer the
PIS)
SEBI approved sub
accounts of FIIs (sub • General permission granted
accounts)
• Not permitted to invest.
Erstwhile Overseas • OCBs which have already made investments under the PIS
Commercial Bodies are allowed to continue holding such shares / convertible
debentures till such time these are sold on stock exchange
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40. Investment in Listed Companies
FIIs
An Individual FII/ SEBI approved sub Total holdings of all FIIs /
accounts SEBI approved sub accounts
of FIIs
Limit of 24% can be
The limit would increased to the
Maximum 10% include shares held Shall not exceed 24 sectoral cap /
investment of paid- by SEBI registered % of paid-up capital statutory limit, by
up capital or paid-up FII/ sub accounts of or paid-up value of passing a Board
value of each series FII under PIS as well each series of resolution followed
of convertible as shares acquired convertible by a special
debentures by SEBI registered debentures. resolution and
FII subject to prior
approval from RBI.
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41. Reporting of FDI By Company
Conversion of Equity
Fresh issue of Shares Transfer of Shares
into equity
ESOPs for allotment of
ADRs/GDRs
equity shares
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42. Fresh Issue of Shares
Reporting of Inflow
• Details of amount of consideration within 30 days from the date of receipt in Advance
Reporting Form.
• Equity instruments shall be issued within 180 days, and have to file Form FC-GPR
within 30 days from the date of issue
• FC-GPR for Issue of bonus/rights shares or shares on conversion of stock options
issued under ESOP to persons resident outside India directly or on amalgamation /
merger with an existing Indian company, as well as issue of shares on conversion of
ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in
SEZs
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43. Transfer of shares
Reporting of FDI for Transfer of shares route
• Reporting of transfer of shares between residents and non-residents and vice- versa is to be made
in Form FC-TRS
• It should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the
amount of consideration.
• Onus of submission of the Form FC-TRS within the given timeframe would be on the transferor /
transferee, resident in India.
• The sale consideration in respect of equity instruments purchased by a person resident outside
India, remitted into India through normal banking channels, shall be subjected to a KYC check by
the remittance receiving AD Category – I bank at the time of receipt of funds.
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44. Conversion of ECB into equity
Reporting of conversion of ECB into equity
• Details of issue of shares against conversion of ECB has to be reported to concerned
Regional Office of RBI
• In case of full conversion of ECB into equity, the company shall report the conversion in
Form FC-GPR as well as in Form ECB-2.
• In case of partial conversion of ECB, converted portion in Form FC-GPR well as in
Form ECB-2 clearly differentiating the converted portion from the non-converted
portion.
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45. ESOPs
Reporting of ESOPs for allotment of equity shares
• The issuing company is required to report the details of issuance of ESOPs to its
employees within 30 days from the date of issue of ESOPs.
• At the time of conversion of options into shares in FC-GPR, within 30 days of allotment
of such shares.
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46. ADRs/GDRs
Reporting of ADR/GDR Issues
• Indian company issuing ADRs / GDRs has to furnish full details of such issue in the
Form DR, within 30 days from the date of closing of the issue.
• Company should also furnish a quarterly return in the Form-DR Quarterly, within 15
days of the close of the calendar quarter.
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47. Prohibited Sectors
Lottery Business including Government /private
lottery, online lotteries, etc.
Retail Trading (except single brand product retailing)
Real Estate Business or Construction of Farm
Houses
Trading in Transferable Development Rights (TDRs)
Nidhi company
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48. Prohibited Sectors
Chit funds
Gambling and Betting including casinos etc.
Manufacturing of Cigars, cheroots, cigarillos and
cigarettes, of tobacco or of tobacco substitutes
Activities / sectors not open to private sector
investment e.g. Atomic Energy and Railway
Transport (other than Mass Rapid Transport
Systems).
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49. Foreign Investment Promotion Board
FIPB
Secretaries to
Government
Department of
Chairperson- Department of
Industrial Policy Economic
Department of Commerce, Ministry of
& Promotion, Relations,
Economic Ministry of Overseas Indian
Ministry of Ministry of
Affairs, Ministry Commerce & Affairs
Commerce & External Affairs
of Finance Industry
Industry
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50. Levels of Approvals for cases under Government
Route
Cabinet Committee on Economic
Minister of Finance
Affairs (CCEA)
Would consider recommendations of
FIPB on proposals with total foreign
In-charge of FIPB
equity inflow of more than Rs. 1200
crore
Would consider the recommendations of
It would also consider proposals which
FIPB on proposals with total foreign
may be referred to it by the FIPB/ the
equity inflow of and below Rs.1200
Minister of Finance
crore.
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51. Cases which do not require Fresh Approval
(For bringing in additional foreign investment into the same entity)
Required FIPB/CCFI/CCEA approval was obtained at the time of initial foreign
investment, and the activity was subsequently came under automatic route
Prior approval of FIPB/CCFI/CCEA was obtained for activities with sectoral caps at the
time of initial foreign investment, and the caps were removed/increased and the activities
placed under the automatic route. Additional investment alongwith the initial/original
investment shall not exceed the sectoral caps
Prior approval of FIPB/CCFI/CCEA had been obtained at the time of original foreign
investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior
approval of the Government under the FDI policy is not required for any other
reason/purpose
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52. Compounding of Offences under FEMA
Compounding • Under Section 13(1) of the FEMA, 1999, an applicant
under FEMA can seek compounding voluntarily
• Contravention of any provision of FEMA, 1999,or any
What can be rule, regulation, notification, direction or order issued in
exercise of the powers under this Act, or contravenes
compounded any condition subject to which an authorization is
issued by RBI
• RBI empowered to compound contraventions of all
sections of FEMA, 1999, except Section 3(a) of the Act
Powers of
• Directorate of Enforcement empowered to compound
Compounding contraventions under Section 3(a) of FEMA, 1999
(dealing essentially with Hawala transactions).
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53. Type of Contravention
Technical and/or
Material Serious/ Sensitive
minor
Money Laundering,
Needs only an National and Security
Compounding of the
administrative concerns involving
contravention
cautionary advice serious infringement of
regulatory framework
Note: Master Circular dated July 2, 2012 issued by RBI reserves the right to classify
the contraventions as stated above and neither the contravener nor others have any right
to classify any contravention as technical suo- moto.
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54. Process of Compounding
• To be submitted with Compounding Authority on being advised of a contravention
under FEMA, 1999, either through a memorandum or suo moto on being made or on
becoming aware of the contravention
Application
• After completion of proceedings, order to be issued by the authority within 180 days
from the date of the receipt of application
Order
• Authority may call for any additional information, to be submitted within specified
period
Additional
Information
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55. Process of Compounding
• Application will be examined to assess whether the contravention is
compoundable and the amount of contravention is quantified.
Examination &
Assessment
• Penalty up to thrice the sum involved in such contravention where the amount is
quantifiable or up to Rupees Two lakh, where the amount is not quantifiable
• If contravention is a continuing one, further penalty which may extend to Rs.
5000/-for every day after the first day during which the contravention continues.
• FE (Compounding Proceedings) Rules, 2000, prescribes the power to compound
the contravention with regard to the sum involved in such contravention.
Penalty
• No contravention shall be compounded unless the amount involved in the
contravention is quantifiable
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56. Thank You!
Arun Gupta
Corporate Professionals, D-28, South Ex-Part-1, New Delhi - 110 049, India, (B):
09810275571, +91 11 40622214
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