OVERSEAS INVESTMENT BY INDIAN ENTITY

Direct Investment outside India

It means investment by way of contribution to the  capital or subscription to the Memorandum of Association  of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or through stock exchange (But Does Not Include portfolio investment).

Following direct investments are permitted without permission of RBI, if investment is as per prescribed conditions.

·         Direct investment in JV/WOS abroad.

·         Investment in Agricultural operations overseas directly or through overseas office.

·         Portfolio investment in equity or rated bonds of registered overseas. Such investment shall not exceed 50% of Indian Company’s net worth.

·         Investment in Financial Service Sector, subject to prescribed conditions.

In other cases prior approval of RBI will be required. Investment in real estate business or banking business abroad is prohibited, without prior approval of RBI.

Investment in JV/WOS abroad

Investment through Special purpose Vehicle (SPV) in JV/WOS abroad is permitted under automatic route if Indian party is not under RBI’s caution list or in list of defaulters of Banks or under investigation.

AUTOMATIC ROUTE FOR INVESTMENT IN JV/WOS

·         The total financial commitment of the Indian party can be upto 400% of the net worth of India party as on the date of last audited balance sheet.

·         The limit does not apply for investment made from balances in EEFC account or out of proceeds of ADR/GDR.

·         Investment in excess of 400% of net worth is permitted in energy and natural resources with prior approval of RBI.

·         No investment is permitted in Pakistan under automatic route. The direct investment should be made in bonafide business activity. And the ceiling of 400% would include contribution to capital of JV/WOS, loans to JV/WOS and 100% of value of guarantee issued to or on behalf of JV/WOS by promoter Group Company.

IF INDIAN ENTITY DOES NOT FULFILL ABOVE REQUIREMENTS, IT HAS TO APPLY TO RBI FOR PERMISSION IN FORM ODI part I.

·         Proprietorship firm or unregistered partnership firm can invest in JV/WOS abroad if it is recognized as Star Export House, with prior approval of RBI.

·  Navaratna PSU, ONGC and Oil India Ltd. Are allowed to invest in overseas unincorporated entities in oil sector which are approved by the Government of India, without any limit of 400% of net worth. This facility has been extended to the other Indian entities also, but with prior approval of RBI and not under automatic route, reporting in form ODI is required.

·         Registered trust and societies engaged in manufacturing/educational/hospital sector can make investment in same sector in JV/WOS outside India, with prior approval of RBI. The application should be forwarded in form ODI – Part I through Authorized Dealer, to CGM, RBI Mumbai.

Investment in Bhutan in convertible currencies but not in Nepal.

Investment in Bhutan in freely convertible currencies is permitted in existing facility of making investment in Indian rupees. Subject to all dues receivable on such investments, as well as sale proceeds should be repatriated to India in freely convertible currency only. Investment in Nepal can be on Indian rupees only.

Investment in Agriculture operations overseas can be done by resident corporate and registered partnership including purchase of land incidental to this activity either directly or through their overseas office with the overall limit available for investment overseas under automatic route.

The software companies can receive 25% of value of their export to an overseas start-up software company in form of shares, without entering in to JV.

FUNDING OF INVESTMENT

The investment under this regulation may be funded out of one or more of the following sources.

1.       Drawl of foreign exchange from an authorized dealer in India not exceeding 100% of net worth of Indian entity.

2.       Capitalization of exports and other dues.

3.       Swap of shares.

4.       Utilization of proceed of ECB/FCCB

5.       In exchange of ADR/GDR issued to foreign company as per guidelines.

6.       Balance held in EEFC account

7.       Utilization of proceeds of foreign currency funds raised through ADR/GDR.

8.       ECB in conformity with parameters of ECB.

·         If the investment is entirely funded out of balance in EEFC account and/or proceeds of foreign currency funds raised through ADR/GDR issue, there is no monetary limit for investment abroad.

OTHER CONDITIONS FOR DIRECT INVESTMENT

1.       Party should not be defaulter or on caution list.

2.       The Indian entity should route all transactions relating to investment through one branch of authorized dealer.

3.       The Indian party should receive share certificate within six months from date of remittance of date when amount is capitalized. RBI can extend this period.

4.       All dues like dividend, royalty, technical know-how fee etc. shall be received within 60 days from which they fall due.

5.       The Indian entity should submit ANNUAL PERFORMANCE REPORT (APR) in form ODI part III. The report should be submitted within 60 days from date of expiry of statutory period within which annual accounts of JV/WOS are to be submitted in the host country.

REPORTING REQUIREMENT

The Indian party should submit form ODI Part 1&II, duly completed, to the designated branch of an authorized dealer for onward transmission to RBI. On receipt of form ODI form AD Category I Bank, RBI will issue Unique Identification Number (UIN) to each JV/WOS. This should be quoted in all correspondence with RBI.