Investments in Small Scale Industrial (SSI) units
SSI is an undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs 10 million.
A company which is a SSI unit and which is not engaged in any activity under the prohibited category may issue equity / preference shares or fully convertible debentures to a foreign investor, to the extent of 24% of its paid-up capital. Such a company may issue such shares / debentures in excess of 24% of its paid-up capital if:
• It has given up its small scale status;
• It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector; and
• It complies with the sector specific guidelines.
A SSI unit which is an Export Oriented Undertaking (EOU), or a unit in a Free Trade Zone (FTZ) or in an Export Processing Zone, or in a Software Technology Park (STP) may issue equity / preference shares or fully convertible debentures, in excess of 24% of it’s paid up capital, in compliance with the sector specific guidelines.
Investments for setting up Special Economic Zones (SEZ) / Free Trade Warehousing Zones (FTWZs)
With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced.
100% FDI is permitted under the Automatic route for setting up SEZs and FTWZs subject to Special Economic Zones Act and the Foreign Trade Policy.
Investments in Export Oriented Units (EOU) / Free Trade Zone (FTZ) / Export Processing Zone (EPZ)
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965.
Automatic approval for FDI is permitted in units in EOUs/FTZs/EPZs to the extent of the sectoral caps. Automatic approval is granted where:
• Activity proposed does not attract compulsory licensing or falls in the services sector except Research and Development, software and IT enabled services;
• Location is in conformity with the prescribed parameters;
• Units undertake to achieve positive net foreign exchange earnings;
• An EOU may be shifted to a SEZ with due approval provided the EOU unit has achieved pro-rata obligation under the EOU scheme.
If the unit is amenable to bonding by customs authorities, conversion of existing Domestic Tariff Area (DTA) units into EOU is also permitted under the Automatic route, if the necessary parameters are satisfied.
Proposals not covered by the Automatic route are considered on a case to case basis by the Board of Approval, Department of Commerce.
Investments in Asset Reconstruction Companies (ARCs)
Persons / entities resident outside India are permitted to invest up to 49% of the equity capital of ARCs registered with the Reserve Bank, subject to the approval of the FIPB.
Investments by FIIs are not permitted in ARCs
However, general permission has been granted to FIIs registered with the SEBI to invest in Security Receipts (SRs) issued by ARCs registered with the Reserve Bank. FIIs can invest up to 49% of each tranche of scheme of SRs subject to the condition that investment of a single FII in each tranche of scheme of SRs shall not exceed 10% of the issue.
Investment in Infrastructure companies in the securities market
Foreign investment is permitted in infrastructure companies in the securities markets, in compliance with SEBI Regulations, subject to the following conditions:
• Foreign investment up to 49% of the paid up capital with a separate cap for FDI of 26% and FIIs cap of 23%;
• FDI permitted with specific prior approval of the FIPB;
• FIIs can invest only through purchases in the secondary market.
Investment in Credit Information companies
Foreign investment in credit information companies is permitted in compliance with the Credit Information Companies (Regulations) Act and subject to the following:
• The aggregate foreign investment in Credit Information companies is permitted up to 49% of the paid up capital, with the prior approval of the FIPB and regulatory clearance from the Reserve Bank;
• Investment by FIIs registered with the SEBI is permitted only through purchases in the secondary market to an extent of 24% within the overall limit of 49% for foreign investment;
• No FII can individually hold directly or indirectly more than 10% of the equity.
Investment in Commodity exchanges
Foreign investment in Commodity exchanges is permitted subject to the following conditions:
• There is a composite ceiling of 49% for foreign investment, with a FDI limit of 26% and an FII limit of 23%;
• FDI is allowed with specific approval of the FIPB;
• Foreign investment in Commodity exchanges is also subject to compliance with the regulations issued in this regard by the Forward Market Commission.
Investment in Public Sector banks
FDI and Portfolio investment in public sector (nationalised) banks are subject to overall statutory limits of 20% as provided by the Banking Companies (Acquisition & Transfer of Undertakings) Act. The same ceiling would also apply in respect of such investments in State Bank of India and its associate banks.
Investments under a scheme of amalgamation / merger
Where the scheme of merger, amalgamation or reconstruction by way of demerger has been approved by a court in India, the transferee company or the new company as the case may be may issue shares to the shareholders of the transferor company resident outside India, subject to the following conditions:
• The percentage of shareholding of a non-resident in the transferee or new company does not exceed the sectoral cap;
• The transferor company or the transferee company or the new company is not engaged in any activity prohibited under the FDI policy.
