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FOREIGN DIRECT INVESTMENT (Part-1 Automatic Route)

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FOREIGN DIRECT INVESTMENT (Part-1 Automatic Route)

Ø INTRODUCTION:

Foreign Direct Investment (FDI) is an investment made by a Company or individual in one country, in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a Foreign Company.

FDI  in India, is the major monetary source of its Economic Development. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment of India

Ø ROUTES FOR FDI:

There are two routes through which India receives FDI :

v    AUTOMATIC ROUTE:  FDI transactions falling in the ambit of this route do not require any prior approval of Government or the Reserve Bank of India.

v    APPROVAL ROUTE:  FDI transactions falling in the ambit of this route mandatorily require any prior approval of Government or the Reserve Bank of India.

Both these routes have so much to be discussed about them, that I would prefer to discuss one of them at a time. Therefore, today we’ll be learning about the Automatic Route of FDI. The RBI has bifurcated and notified various FDI transactions on the basis of the sector they are occuring in.

One of the major FDI transactions being witnessed by the Indian Companies is investment (FDI) in their equity share capital.  Once an Indian Company receives  a FDI itr is bound to intimate the Reserve Bank of India about such a transaction in the prescribed manner, irrespective of the fact that the transaction falls under the automatic route.

Ø FDI: Action Plan

The RBI issues an FDI guideline every year in the month of July. Every Company receiving an FDI has to plan up the intimation mechanism according to the issued guidelines.

Following is the action plan a Company needs to follow in case of an FDI transaction occuring under Automatic Route:

  1. An Indian Co. receiving investment (FDI), should report the details of the amount of consideration (including each upfront/ call payment) to the concerned Regional Office of RBI through AD Category I Bank, within 30 days from the date of receipt in the Advance Reporting Form, together with a copy of FIRC (evidencing the receipt) and KYC report on the NRI from the overseas bank remitting the amount.
  2. The report would be then acknowledged by the concerned RO, which will further allot a Unique Identification Number (UIN) for the amount reported.
  3. Annual Return on FLA: Indian Co.(s) receiving or making FDI in the previous year(s) including current year, shall file the annual return on Foreign Liabilities and Assets in soft form to RBI, Department Of Statistics & Information Management, Mumbai by July 15 every year.
  4. Equity instrument should be issued within 180 days from the receipt of inward remittance/ by debit of NRE/FCNR (B)/ Escrow A/c of NRI.
  5. Form FC-GPR (reporting the issue of shares), duly signed by the MD/ Director/ Secretary of the Company should be filed by the Indian Co., through its AD Category-I Bank to the concerned RO, within 30 days from the issue of shares along with the report of receipt of consideration. 
  6. The following document have to be submitted along with FC-GPR:
  •       Certificate from the CS of the Company, certifying that:
  1. All requirements of the Companies Act, 1956/2013 have been complied with.
  2. Terms & conditions of the Govt.’s approval, if any, have been complied with;
  3. The company is eligible to issue shares under these Regulations; and
  4. The company has all original certificated issued by AD banks in India evidencing receipt of amount f consideration.
  •       Certificate from SEBI registered Merchant Banker or CA indicating the manner of arriving at the price of the shares issued to the NRI.

Here,

  1. Concerned RO: – Concerned Regional Office of RBI.
  2. NRI: – Non- Resident investor.
  3. Concerned regional office is the office under whose jurisdiction the registered office of the company is situated.
  4. AD:- Authorised Dealers

 

-Author is a Company Secretary

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