Doing Business in India - RSM Austria

2.4.1 Automatic route of FDI
The Government of India has substantially expanded the scope of foreign
investment under the Automatic Route to include all items/ activities, except
certain items, for investment under FDI. FDI up to 100 % is allowed under the
automatic route from foreign/NRI investor without prior approval in most of the
sectors including the services sector. FDI in sectors/activities under automatic
route does not require any prior approval either by the Government or RBI.
An Indian company receiving investments from outside India for issuing shares /
convertible debentures / preference shares under the FDI scheme, should report
the details of the amount of consideration to the RBI within 30 days from the date of
receipt of inward remittances.
Foreign investment coming as fully convertible preference shares would be treated
as part of share capital. This would be included in calculating foreign equity for
purposes of sectoral caps on foreign equity, where such caps have been prescribed.
Foreign investment coming as any other type of preference shares {nonconvertible,
optionally convertible or partially convertible) would be considered as
debt and shall require conforming to External Commercial Borrowings (ECB)
guidelines / ECB caps.
2.4.2 Investments in sectors where 100% FDI under automatic route is not available
i. The RBI’s Automatic Route is not available for Foreign investment in Indian
Company which is engaged in any activity, or in manufacturing of item
included in is given in the Annexure 1 of this note. An Indian company which
is not engaged in the activity or manufacture of items listed in Annexure 1
is permitted to issue shares or convertible debentures to a person resident
outside India upto the extent specified in Annexure 2 on repatriation basis,
subject to compliance with the provisions of the Industrial Policy and
Procedures, provided –
a. The issuer company does not require an industrial license;
b. The shares/ convertible debentures are not being issued for
acquiring existing shares of any Indian company;
c. If the person resident outside India to whom the shares are being
issued proposes to be a collaborator or proposes to acquire the
entire shareholding of a new Indian company, he should have
obtained Central Government’s approval if he had any previous
investment/ collaboration/ tie up in India (according to press
note number 1 (2005 series) dated 12 January 2005 previous
means prior to 13 January 2005) in the same field in which the
Indian company issuing the shares is engaged. This restriction is
not applicable for issue of shares of an Indian company engaged
in Information Technology sector or in the mining sector.
DOING BUSINESS IN INDIA 61