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In Foreign Direct Investment (FDI), there is a
parent enterprise & a foreign associate. Explore Foreign Direct
Investments Policy in India.
Home » Foreign Direct Investment
Foreign Direct Investment
Foreign Direct Investment (FDI) is normally defined
as a form of investment made in order to gain unwavering and
long-lasting interest in enterprises that are operated outside of the
economy of the shareholder/ depositor. In FDI, there is a parent
enterprise and a foreign associate, which unites to form a Multinational
Corporation (MNC). In order to be deemed as a FDI, the investment must
give the parent enterprise power and control over its foreign affiliate.
Foreign Direct Investment in India
In India, Foreign Direct Investment Policy allows for investment only in
case of the following form of investments:
- Through financial alliance
- Through joint schemes and technical alliance
- Through capital markets, via Euro issues
- Through private placements or preferential allotments
Foreign Direct Investment in India is not allowed
under the following industrial sectors:
- Arms and ammunition
- Atomic Energy
- Coal and lignite
- Rail Transport
- Mining of metals like iron, manganese, chrome, gypsum, sulfur,
gold, diamonds, copper, zinc
Foreign Investment through GDRs (Euro Issues)
Foreign Investment made through Global Depository Receipt (GDR) is
considered as Foreign Direct Investment. GDR (in dollars) is issued to
help Indian companies raise equity capital in the global market.
Moreover, a company should have a good brand image in the form of good
performance (financial or otherwise), for a minimum period of 3 yr, to
get the approval of the Indian Government.
Infrastructure projects, like power generation, petroleum refineries,
airports, ports, roads and telecommunication, however, enjoy certain
amount of relief in such cases. Income from the GDRs can be used for
making investments on capital goods imports, capital expenditure,
software development, equipment and building, prepayment or repayment of
earlier external borrowings and equity investment in JV/WOSs in India.
Financing in stock markets and real estate is not permitted.
FIBP Clearance
No limitation exists on the number of Euro issues to be proposed by a
company or a group of companies in the fiscal year. A company which
manufactures items covered under Annex III of the New Industrial Policy
and whose direct foreign investment after a proposed Euro issue is
likely to increases more than 51%, or a company which is operating a
project not mentioned in Annex III, would require a prior FIPB clearance
before getting final approval from the Indian Ministry of Finance.
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