Doing Business in India - RSM Austria

CHAPTER 5
FOREIGN INVESTMENT IN INDIA
1.0 INTRODUCTION
1.1 The liberalization process started in India in 1991 and second-generation reform
st
started in the first decade of 21 century has virtually opened out Indian economy
for foreign investment in all the sectors, barring few sensitive sectors. The
liberalization process has thrown open opportunities for inbound investment
(foreign companies investing in India) as well as outbound investment (Indian
companies investing out of India) in almost every field of business from the
consumer durables sector to core infrastructure sector. The World Bank has
appreciated the Indian liberalization reforms in one of its Annual Report stating
“India is moving rapidly towards closer integration with the global economy and the
reform process, which has been brought about in such a short time, represents an
irreversible movement towards a vibrant economy.” In this process of liberalization,
India has taken various measures like de-licensing, permitting foreign institutions to
invest in shares and securities under portfolio investment, current account
convertibility, liberalizing exchange control regulations, drastically reducing the
rates of customs duty and direct taxes, permitting Indian companies to list on
foreign stock exchanges and set up overseas operations, permitting resident
Indians to buy shares and securities listed abroad etc.
1.2 Accordingly, Foreign Investment in India is still regulated among other legislations,
by the Exchange Control Regulations although under new regulations, the focus has
been shifted on managing foreign exchange instead of regulating the same. In this
note, we have restricted our discussion on Foreign Investments in India.
2.0 EXCHANGE CONTROL REGULATIONS – FOREIGN
INVESTMENTS
2.1 Introduction
In India, till 31 May 2000, exchange control transactions were regulated by Foreign
Exchange Regulation Act, 1973 (‘FERA’). FERA has been repealed by the Foreign
Exchange Management Act, 1999 (‘FEMA’), which has come into force with effect
from 1 June 2000. The provisions under FEMA are liberal compared to provisions
under FERA. The analysis of FEMA provisions contained herein is updated as on 30
April 2010.
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DOING BUSINESS IN INDIA