Embassy of India, Berne, Switzerland : MAKE IN INDIA

MAKE IN INDIA - FOREIGN DIRECT INVESTMENT

SUMMARY

India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top 3 attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly.

RECENT POLICY MEASURES

Government eases FDI norms in 15 major sectors.
Townships, shopping complexes & business centres – all allow up to 100% FDI under the auto route. Conditions on minimum capitalisation & floor area restrictions have now been removed for the construction development sector.
India's defence sector now allows consolidated FDI up to 49% under the automatic route. FDI beyond 49% will now be considered by the Foreign Investment Promotion Board. Govt approval route will be required only when FDI results in a change of ownership pattern.
Private sector banks now allow consolidated FDI up to 74%.
Up to 100% FDI is now allowed in coffee/rubber/cardamom/palm oil & olive oil plantations via the automatic route.
100% FDI is now allowed via the auto route in duty free shops located and operated in the customs bonded areas.
Manufacturers can now sell their products through wholesale and/or retail, including through e-commerce without Government Approval.
Foreign Equity caps have now been increased for establishment & operation of satellites, credit information companies, non-scheduled air transport & ground handling services from 74% to 100%.
100% FDI allowed in medical devices
FDI cap increased in insurance & sub-activities from 26% to 49%
FDI up to 49% has been permitted in the Pension Sector.
Construction, operation and maintenance of specified activities of Railway sector opened to 100% foreign direct investment under automatic route.
FDI policy on Construction Development sector has been liberalised by relaxing the norms pertaining to minimum area, minimum capitalisation and repatriation of funds or exit from the project. To encourage investment in affordable housing, projects committing 30 percent of the total project cost for low cost affordable housing have been exempted from minimum area and capitalisation norms.
Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents.
Composite caps on foreign investments introduced to bring uniformity and simplicity is brought across the sectors in FDI policy.
100% FDI allowed in White Label ATM Operations.

TYPES OF INVESTORS

FVCI
Pension/Provident Fund
Financial Institutions

Foreign Trust
Sovereign Wealth Funds
NRIs / PIOs

Private Equity Funds
Partnership / Proprietorship Firm
Others

SECTORS WITH RESTRICTIONS

Lottery Business including Government /private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Chit funds
Nidhi company-(borrowing from members and lending to members only).
Trading in Transferable Development Rights (TDRs)
Real Estate Business (other than construction development) or Construction of Farm Houses
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 construction, operation and maintenance of
(i) Suburban corridor projects through PPP,
(ii) High speed train projects,
(iii) Dedicated freight lines,
(iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities,
(v) Railway Electrification,
(vi) Signaling systems,
(vii) Freight terminals,
(viii) Passenger terminals,
(ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and
(x) Mass Rapid Transport Systems.)
Services like legal, book keeping, accounting & auditing.

SECTORS WITH CAPS

Petroleum Refining by PSU (49%).
Teleports (setting up of up-linking HUBs/Teleports),Direct to Home (DTH), Cable Networks (Multi-system operators (MSOs) operating at national, state or district level and undertaking upgradation of networks towards digitalisation and addressability), Mobile TV and Headend-in-the-Sky Broadcasting Service (HITS) – (74%).
Cable Networks (49%).
Broadcasting content services- FM Radio (26%), uplinking of news and current affairs TV channels (26%).
Print Media dealing with news and current affairs (26%).
Air transport services- scheduled air transport (49%), non-scheduled air transport (74%).
Ground handling services – Civil Aviation (74%).
Satellites- establishment and operation (74%).
Private security agencies (49%).
Private Sector Banking- Except branches or wholly owned subsidiaries (74%).
Public Sector Banking (20%).
Commodity exchanges (49%).
Credit information companies (74%).
Infrastructure companies in securities market (49%).
Insurance and sub-activities (49%).
Power exchanges (49%).
Defence (49% above 49% to CCS).
Pension Sector (49%)

GLOSSARY OF DEFINITIONS

Under this route no Central Government permission is required.

Under this route applications are considered by the Foreign Investment Promotion Board (FIPB). Approval from Cabinet Committee on Security is required for more than 49% FDI in defence. The proposals involving investments of more than INR 30 billion are considered by Cabinet committee on economic affairs.
The Indian company receiving FDI either under the automatic route or the government route is required to comply with provisions of the FDI policy including reporting the FDI and issue of shares to the Reserve Bank of India. The details can be seen from Q.6 of Section I of the following link-

SECTORS REQUIRING CENTRAL GOVERNMENT APPROVAL

Tea sector, including plantations – 100%.
Mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities -100%.
FDI in enterprise manufacturing items reserved for small scale sector – 100%.
Defence – up to 49% under FIPB/CCEA approval, beyond – 49% under CCS approval (on a case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country).
Teleports (setting up of up-linking HUBs/Teleports), Direct to Home (DTH), Cable Networks (Multi-system operators operating at National or State or District level and undertaking upgradation of networks towards digitalisation and addressability), Mobile TV and Headend-in-the Sky Broadcasting Service(HITS) – beyond 49% and up to 74%.
Broadcasting Content Services: uplinking of news and current affairs channels – 26%, uplinking of non-news and current affairs TV channels – 100%.
Publishing/printing of scientific and technical magazines/specialty journals/periodicals – 100%.
Print media: publishing of newspaper and periodicals dealing with news and current affairs- 26%, Publication of Indian editions of foreign magazines dealing with news and current affairs- 26%.
Terrestrial Broadcasting FM (FM Radio) – 26%.
Publication of facsimile edition of foreign newspaper – 100%.
Airports – brownfield – beyond 74%.
Non-scheduled air transport service – beyond 49% and up to 74%.
Ground-handling services – beyond 49% and up to 74%.
Satellites – establishment and operation - 74%.
Private securities agencies – 49%.
Telecom-beyond 49%.
Single brand retail – beyond 49%.
Asset reconstruction company – beyond 49% and up to 100%.
Banking private sector (other than WOS/Branches) – beyond 49% and up to 74%, public sector – 20%.
Insurance - beyond 26% and up to 49%.
Pension Sector - beyond 26% and up to 49%.
Pharmaceuticals – brownfield – 100%.

SECTORS UNDER AUTOMATIC ROUTE

All the items other than above are under the automatic route.

ENTRY STRUCTURES

It can be a private or public limited company. Both wholly owned & joint ventures are allowed. Private limited company requires minimum of 2 shareholders.

Allowed under the Government route in sectors which has 100% FDI allowed under the automatic route and without any conditions.

Under RBI approval. RBI decides the application in consultation with Government of India.

Liaison office, Branch office (BO) or Project Office (PO). These offices can undertake only the activities specified by the RBI. Approvals are granted under the Government and RBI route. Automatic route is available to BO/PO meeting certain conditions.

Foreign investment or contributions in other structures like not for profit companies etc. are also subject to provisions of Foreign Contribution Regulation Act (FCRA).

STEPS INVOLVED IN INVESTMENT

Identification of structure
Central Government approval if required
Setting up or incorporating the structure
Inflow of funds via eligible instruments and following pricing guidelines
Meeting reporting requirements of RBI and respective Act
Registrations/obtaining key documents like PAN etc.
Project approval at state level
Finding ideal space for business activity based on various parameters like incentives, cost, availability of man power etc.
Manufacturing projects are required to file Industrial Entrepreneur’s Memorandum (IEM), some of the industries may also require industrial license.
Construction/renovation of unit.
Hiring of manpower.
Obtaining licenses if any.
Other state & central level registrations.
Meeting annual requirements of a structure, paying taxes etc.

REPATRIATION

Dividends are freely repatriable without any restrictions (net after tax deduction at source or Dividend Distribution Tax.

AD Category-I bank can allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India, provided the security has been held on repatriation basis, the sale of security has been made in accordance with the prescribed guidelines and NOC / tax clearance certificate from the Income Tax Department has been produced.
Investments are subject to lock-in period of 3 years in case of construction development sector.

Interest on fully, mandatorily & compulsorily convertible debentures is also freely repatriable without any restrictions (net of applicable taxes).

ASPECTS OF TAXATION

The investor is required to pay tax on net income earned in India. The rates of taxes differ among structures.

The company incorporated in India is required to pay 30% tax+surcharge+education cess on net income earned. It is also required to deduct tax on profits distributed @15.5%+surcharge+education cess.

The fixed place of business in India is treated as a permanent establishment and is required to pay tax @40%+surcharge+education cess. There is no tax on profits distributed.

LLPs are required to pay tax @30%+surcharge+education cess. There is no tax on profits distributed.

18.5%+SC+EC- Indian tax law requires MAT to be paid by corporations in cases where the tax payable according to the regular tax provisions is less than 18.5% of their book profits. However MAT credit (MAT-actual tax) can be carried forward in next 10 years for set-off against regular tax payable during the subsequent years subject to certain conditions.

INCENTIVES

Investment allowance (additional depreciation) at the rate of 15 percent to manufacturing companies that invest more than INR 1 billion in plant and machinery available till to 31.3.2015.
Incentives available to unit’s set-up in SEZ, NIMZ etc. and EOUs.
Exports incentives like duty drawback, duty exemption/remission schemes, focus products & market schemes etc.
Areas based incentives like unit set-up in north east region, Jammu & Kashmir, Himachal Pradesh, Uttarakhand.
Sector specific incentives like M-SIPS in electronics.

Each state government has its own incentive policy, which offers various types of incentives based on the amount of investments, project location, employment generation, etc. The incentives differ from state to state and are generally laid down in each state’s industrial policy.
The broad categories of state incentives include: stamp duty exemption for land acquisition, refund or exemption of value added tax, exemption from payment of electricity duty etc.

SPECIAL DISPENSATION