The Foreign Exchange Management Act, 1999 (FEMA) deals with cross border investments, foreign exchange transactions and transactions between residents and non-residents. It has come into force from June 1, 2000.

The operation of FEMA is akin to any other commercial law. However as compared to most other commercial laws FEMA is one of the smallest, having only 49 Sections. If guidelines, rules, etc. are followed, the person can undertake most transactions without any approvals. If proposed transactions fall outside the guidelines, one will have to obtain necessary prior approvals. The consequence of any violation is a penalty. If penalty is not paid within the specified time, then there can be prosecution.

FEMA extends to the whole of India. It also applies to all branches, offices and agencies outside India, which are owned or controlled by a person resident in India.

2.1 Capital Account Transaction means a transaction which:

• Alters foreign assets and foreign liabilities (including contingent liabilities) of Indian residents.

• Alters Indian assets and Indian liabilities of non-residents.

• Is a Specified transaction listed in section 6(3).

Essentially this is an economic definition and not an accounting or legal definition. It is intended to cover cross border investments, cross border loans and transfer of wealth across borders. RBI has been empowered to regulate capital account transactions. Unless the transaction is permitted as per regulations, Foreign Exchange (FX) cannot be drawn for the same.

Capital account transactions though liberalized to a great extent, continue to be regulated by RBI. Unless RBI permits by way of notifications and rules or specific approvals, transactions cannot be undertaken. But there are two very important purposes for which RBI cannot impose any restrictions viz.

(a) drawing of foreign exchange for the repayment of any loans and;

(b) for replenishing depreciation of direct investments in the ordinary course of business. (Section 6)

2.2 Current Account Transaction means all transactions, which are not capital account transactions. Specifically it includes:—

• Business transactions between residents and non-residents.

• Short-term banking and credit facilities in the ordinary course of business.

• Payments towards interest on loans and by way of income from investments.

• Payment of expenses of parents, spouse or children living abroad or expenses on their foreign travel, medical and education.

• Scholarships/Chairs, etc.

Primarily there are no restrictions on current account transactions. A person may sell or draw foreign exchange freely for his current account transactions, except in a few cases where limits have been prescribed (Section 5). The Central Government has the power to regulate current account transactions. Unless the transaction is restricted, FX can be drawn for the same.

See paragraph 7 for more details on current account transactions.

2.3 Person includes:—

(a) an individual

(b) a Hindu Undivided Family (HUF)

(c) a company

(d) a firm

(e) an association of persons or body of individuals, whether incorporated or not

(f) every artificial judicial person not falling in any of the above sub-clauses

(g) any agency, office or branch owned or controlled by such person.

2.4 Resident/Non-Resident:— If an individual stays in India for more than 182 days during the course of the preceding financial year, he will be treated as a person resident in India. There are a few exceptions as under:

• If a person goes/stays outside India for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident outside India (non-resident). (It has been clarified that students going abroad for further studies will be regarded as non-residents.)

• If a person who is residing abroad comes to/stays in India only for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident in India.

The term financial year means a twelve-month period beginning from April 01 and ending on March 31 next.

Following persons (other than individuals) will be treated as person resident in India:

• Person or body corporate which is registered or incorporated in India.

• An office, branch or agency in India, even if it is owned or controlled by a person resident outside India.

• An office, branch or agency outside India, if it is owned or controlled by a person resident in India.

The definition is however inadequate to define residential status of a firm, an HUF, a trust or any entity which does not have to be registered.

Conversely, a non-resident means a person who is not a resident in India.

3.1 All dealings in foreign exchange or foreign security can be done only through an authorized person if permitted by FEMA, rules & regulations framed there under, or by general or special permission of the RBI. Further no payments can be made by a resident to a non-resident unless permitted under FEMA (section 3).

3.2 Holdings/surrender of foreign currency, etc. (Sections 4, 8 & 9) - Persons resident in India are primarily prohibited from acquiring, holding, owning, possessing, etc. any foreign exchange, foreign security or immovable property outside India. Also they are required to repatriate and bring to India all foreign exchange that is due to or accrued to them and deposit the same in the bank account. However they are permitted to hold foreign coins without any limit, and foreign currency notes and travellers’ cheques up to US $ 2,000 or equivalent foreign currency. The foreign exchange received has to be surrendered to the authorized dealer within the prescribed time limit as mentioned below:

Services rendered, settlement of lawful obligation, inheritance, settlement, gift	180 days from date of receipt.
Unutilised foreign exchange	180 days from date of acquisition.
Unspent foreign currency notes and coins taken for travel	180 days from date of return. (In the case of an individual, if he has not deposited the same in his Resident Foreign Currency (Domestic) Account.)
Unspent foreign currency travellers’ cheques taken for travel	180 days from date of return. (In the case of an individual, if he has not deposited the same in his Resident Foreign Currency (Domestic) Account.)
Other cases	180 days from date of receipt.

3.3 Residents have been allowed to maintain foreign currency accounts in India as under:

A. EEFC ACCOUNT

A person is permitted to credit the undermentioned amounts out his foreign exchange earnings to his EEFC Account:—

	Entity or person	Limit in %
1	Status Holder Exporter (as defined in the EXIM Policy in force)	100
2	Individual professionals **	100
3	100% EOU Unit in EPZ/STP/EHTP	100
4	Any other person	100

** Professionals mean Director on Board of overseas company; Scientist/Professor in Indian University/Institution; Economist; Lawyer; Doctor; Architect; Engineer; Artist; Cost/Chartered Accountant; Any other person rendering professional services in his individual capacity, as may be specified by the Reserve Bank from time to time. Professional earnings including director’s fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity.

However, amounts received to meet specific obligations of the account holder cannot be credited (e.g., equity investment from a non-resident investor). The balances do not earn any interest.

These funds can be used for several current account purposes. For many transactions, where there are restrictions under the current account rules, funds in EEFC account can be used without restrictions.

B. Units in SEZ are permitted to open, hold and maintain a Foreign Currency Account with an authorized dealer in India.

C. RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT – RFC(D) A/c

A person resident in India can open, hold and maintain a Resident Foreign Currency (Domestic) Account and credit the account with foreign exchange in the form of currency notes, bank notes and travellers cheques: —

1. Acquired by him while on a visit to any place outside India by way of payment of services not arising from any business in or anything done in India; or

2. Acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or

3. Acquired by him by way of honorarium or gift while on a visit to any place outside India; or

4. Representing the unspent amount of foreign exchange acquired by him from an authorised person for travel abroad; or

5. Earned by way of export of goods/services, royalty, honorarium, etc.; or

6. Received by way of gift from close relatives (as defined under the Companies Act, 1956); or

7. By way of sale proceeds of shares offered for conversion to ADR/GDR, where such conversion is approved by the FIPB;

or

8. Proceeds of insurance policies settled in foreign currency.

Balances in this account do not earn interest.

Balances in the account can be used for all permitted current account transactions. There is an overlap between EEFC A/c and RFC (domestic) account. Both accounts are available for similar purposes. However, relaxations which are there for RFC (D) Account, are not there for EEFC account.

D. RESIDENT FOREIGN CURRENCY ACCOUNT – RFC A/c

Resident Indians can also open RFC account. This account is different from RFC (D) account. This account is primarily for non-residents who return to India. In RFC A/c, following items can be deposited:

1. Pension or any other superannuation or other monetary benefits from employer outside India.

2. Amount received on conversion of the assets if those assets were acquired when such person was a non-resident.

3. Amount received as gift or inheritance from a person who was a non-resident and has become a resident.

4. Proceeds of insurance policies settled in foreign currency that is issued by Insurance Companies in India.

There are no restrictions on use of funds. They can be used for meeting expenses and making investments abroad.

E. BANK ACCOUNT OUTSIDE INDIA OF EMPLOYEES OF FOREIGN COMPANIES ON DEPUTATION IN INDIA

Employees of foreign companies (either foreign nationals or Indian nationals) who are on deputation in India are permitted to open, hold and maintain a foreign currency account outside India and remit the whole salary received in India to the said account provided appropriate Income-tax has been paid on the same.

F. FOREIGN CURRENCY ACCOUNT OF PROJECT/ SERVICE EXPORTER

Exporters of projects/services are permitted to open, hold and maintain foreign currency bank accounts either in India or abroad for each project under execution abroad.

G. FOREIGN CURRENCY ACCOUNTS BY SHIP-MANNING/CREW-MANAGing AGENCIES

Ship manning/crew managing agencies rendering services to shipping companies incorporated outside India can open and maintain non-interest bearing foreign currency accounts in India, till the validity period of their agreement, for the purpose of undertaking transactions in the ordinary course of their business.

H. US $ ACCOUNTS OF GEM & JEWELLERY ENTITIES

Certain firms and companies dealing in purchase / sale of rough or cut and polished diamonds / precious metal jewellery plain, minakari and / or studded with / without diamond and/ or other stones, with a track record of at least 2 years in import / export of diamonds / coloured gemstones / diamond and coloured gemstones studded jewellery / plain gold jewellery, and having an average annual turnover of Rs 3 crore or above during preceding three licensing years, are allowed to open and maintain non-interest bearing Diamond Dollar Accounts (DDA) in US $.

3.4 Any passenger bringing in foreign exchange on his arrival in India in the form of currency notes, bank notes or travellers cheques exceeding US $ 10,000 or its equivalent and / or the value of foreign currency notes exceeding US $ 5,000 or its equivalent is required to file a declaration in Form CDF with the Custom Authorities.

3.5 An Indian entity opening a Branch / Representative / Liaison Office outside India is allowed to remit, subject to certain terms and conditions, as under:—

1. For Initial Expenses – Up to 15% of its average annual sales / income or turnover during the last two accounting years or up to 25% of net worth, whichever is higher.

2. For Recurring Expenses – Up to 10% of its average annual sales / income or turnover during the last two accounting years.

The overseas office is also permitted to acquire immovable property outside India for its business and for residential purpose of its staff out of the above remittances.

4.1 Penalties for contraventions under FEMA are per se monetary in nature. If any person contravenes any provisions, rules, regulations, etc. the penalty imposed may be 3 times the amount involved in contravention; and if the amount of contravention is not ascertainable, penalty can be up to Rs. 200,000. If the contravention is a continuing one, a penalty up to Rs. 5,000 per day may be imposed for every day after the 1st day during which the contravention continues.

4.2 The adjudicating officer may also confiscate any currency, security or property in addition to imposing penalty.

4.3 If a person does not pay up the penalty within 90 days, he is liable for civil imprisonment.

4.4 There is a right to appeal given at every stage and an appeal against an order of the Adjudicating Authority can be made to the Special Director (Appeal). An appeal against the order of the Special Director (Appeals) can be made to the Appellate Tribunal. An appeal, on questions of Law, against the order of the Appellate Tribunal can be made to the High Court.

4.5 A person preferring an appeal to the Special Director (Appeals) or the Appellate Tribunal can take assistance of a Chartered Accountant or Legal Practitioner.

5.1 The officers of the Directorate have powers to investigate contraventions referred to in section 13.

5.2 The powers and limitations of these Officers are the same as those conferred on Income-tax Authorities under the Income-tax Act, 1961.

Powers for compounding of offences – RBI has been given powers for compounding all cases of contraventions other than cases under section 3(a) of FEMA. Cases of contravention under section 3(a) relate to dealing in or transfer of foreign exchange and foreign security to any person other than an authorised dealer. For these, Enforcement Directorate will be responsible. Powers of compounding with RBI should give confidence to public.

Depending on the amount involved, various officers have been designated to look into applications for compounding. The compounding authority can call for any information, record or any other documents relevant to the compounding proceedings. The compounding authority is required to pass an order within 180 days from the date of application. The sum for which the contravention is compounded has to be paid within 15 days from the date of order of compounding.

7.1 Current Account Transactions (See para 2.2 for meaning)

Unless the transaction falls within the belowmentioned restrictions, FX can be drawn for the same without any limit.

Broad categories of current account transactions can be classified as under:

1. Transactions for which FX withdrawal is totally prohibited such as payment for lotteries, transactions with residents of Nepal and Bhutan, etc.

2. Transactions for which FX can be withdrawn only with prior approval of Government, such as specified transactions by PSUs, lump sum knowhow payments exceeding US $ 2 millions, etc. However payments from EEFC, RFC(D) and RFC A/c do not require any approval.

3. Transactions for which FX can be withdrawn only with prior approval of Government even if payment is made from EEFC A/c.

4. Transactions for which FX can be withdrawn only with prior approval of RBI such as FX for business travel exceeding US $ 25,000, etc. However, payments from EEFC, RFC(D) and RFC A/c do not require any approval.

5. Transactions for which FX can be withdrawn only with prior approval of RBI even if payment is made from EEFC A/c.

Residents are permitted to remit US $ 200,000 for any current and capital account purpose (except those transactions which are prohibited altogether – refer paragraph A below), without any limit. (See para 6.2.6 below for further details on investments abroad by Individuals)

The details of restrictions on Current Account Transactions are as follows:

A. Payments or withdrawal of FX for following purposes are totally prohibited:—

1. Travel to Nepal and Bhutan.

2. Transactions with a person resident in Nepal and Bhutan.

3. Remittance out of lottery winnings.

4. Remittance of income from racing/riding, etc. or any other hobby.

5. Remittance for purchase of lottery tickets, banned/ proscribed magazines, football pools, sweepstakes, etc.

6. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies.

7. Payment of commission on exports under Rupee State Credit Route, except commission up to 10 % of invoice value of exports of tea and tobacco.

8. Payment related to "Call Back Services" of telephones.

9. Remittance of interest income on funds held in NRSR Scheme Account.

10. Remittance towards participation in lottery schemes involving money circulation or for securing prize money/awards, etc.

B.1. The following payments will require prior approval from the Government of India, except where the payment is made from the RFC or RFC(D) or EEFC Account of the remitter:—

	Purpose of Remittance	Approval to be obtained from
1	Cultural Tours	Ministry of HRD
		(Department of Education
		and Culture)
2	Advertisement in foreign print media	Ministry of Finance
	for the purpose other than promotion	(Department of Economic Affairs)
	of tourism, foreign investments and
	international bidding (exceeding US $
	10,000) by a State Government or its
	PSU
3	Remittance of Freight of vessel	Ministry of Surface Transport
	chartered by a PSU	(Chartering Wing)
4	Payment of import through ocean	Ministry of Surface Transport
	Transport by a Government	(Chartering Wing)
	Department or a PSU on c.i.f. basis
5	Multi-modal transport operators	Registration certificate from the
	making remittance to their agents	Director General of Shipping
	abroad
6	Remittance of hiring charges of
	Transponders
	(a) TV Channels	Ministry of Information and
		Broadcasting
	(b) Internet service providers	Ministry of Communication and
		Information Technology
7	Remittance of container detention	Ministry of Surface Transport
	charges exceeding the rate prescribed	(Director General of Shipping)
	by Director General of Shipping
8	Remittance of prize money/sponsor-	Ministry of HRD (Department of
	ship of sports activity abroad by a	Youth Affairs & Sports)
	person other than International/
	National/State Level Sports bodies,
	if the amount involved exceeds
	US $ 100,000

B.2. Remittance for membership of P & I Club would require prior approval from the Ministry of Finance except where the payment is made from RFC or RFC(D) Account of the remitter.

C.1. The following payments will require prior approval of RBI, except where the payment is made from the RFC or RFC(D) or EEFC Account of the remitter:—

1. Release of exchange exceeding US $ 10,000 or its equivalent in one calendar year, for one or more private visits to any country (except Nepal and Bhutan).

2. Exchange facilities exceeding US $ 100,000 for persons going abroad for employment.

3. Exchange facilities for emigration exceeding US $ 100,000 or amount prescribed by country of emigration.

4. Remittance for maintenance of close relatives abroad,

1. exceeding the net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who is resident but not permanently resident in India and (a) is a citizen of a foreign state other than Pakistan or (b) is a citizen of India who is on deputation to the office or branch or subsidiary or joint venture in India of such foreign company.

2. exceeding US $ 100,000 per year per recipient.

Explanation: for the purpose of this item, a person resident in India on account of his employment or deputation of a specified duration (irrespective of the length thereof) or for a specific job or assignment; the duration of which does not exceed three years, is a resident but not permanently resident.

5. Release of foreign exchange, exceeding US $ 25,000 to a person, irrespective of period of stay, for business travel, or attending a Conference or specialized training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/Check-up.

6. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/doctor abroad. However, an amount up to US $ 100,000 or its equivalent can be released without insisting on any estimate from a hospital/doctor.

7. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US $ 100,000 per academic year, whichever is higher.

8. a) Remittances exceeding US $ 1,000,000 per project, for any consultancy services procured from outside India.

b) Remittances exceeding US $ 10 million per project, consultancy services procured from outside India by Indian companies executing infrastructure projects.

C.2. The following payments will require prior approval of RBI, except where the payment is made from the RFC or RFC(D) Account of the remitter:—

1. Commission to agents abroad for sale of residential flats/commercial plots in India, exceeding US $ 25,000 or 5% of the inward remittance (whichever is higher) per transaction.

2. Remittance exceeding US $ 100,000 or 5% of the investment brought into India, whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses in India.

3. Donations in excess of US $ 5,000 by Indian corporates & non-corporates (other than individuals) – Companies, partnership firms, trusts, etc.

4. Donations by Indian corporates, in exceeding 1% of the foreign exchange earnings during the previous 3 financial years or US $ 5 million, whichever is less, for

1. Creation of Chairs in reputed educational institutes.

2. Donations to funds (not being an investment fund) promoted by educational institutes.

3. Donation to technical institution or body or association in the field of activity of the donor Company.

5. Payment for purchase of Trade Mark(s)/Patent(s).

6. Remittance towards cash calls to the operator for the purpose of oil exploration in India either by credit to the foreign currency or Rupee account in India subject to the condition that the payment is made as per the production sharing agreement and the copy is available on records of the AD.

7.2 Investments Abroad by Indian Residents

7.2.1 Joint Ventures Abroad

Indian investments abroad in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) are permitted by RBI.

Investments can be made under the automatic route up to 400% of the net worth of the Indian party as on the date of the last balance sheet, in which case prior permission is not required, or the non-automatic route, in which case prior permission is required. There are various options available for investment under both the routes.

General Guidelines:

1. Indian companies and partnership firms registered under the Indian Partnership Act, 1932 are allowed to invest abroad. Unregistered Partnership Firms (except in certain cases), Proprietary Concerns (except in certain cases), HUFs, AOPs, etc. are not allowed to invest abroad. Investments can be made either directly, or through Special Purpose Vehicles (intermediate companies).

2. Registered Trusts and Societies engaged in manufacturing / educational sector or who have set up hospital(s) in India can invest in a JV / WOS outside India, in the same sector, after obtaining prior permission of RBI.

3. Investments can be made in existing companies or new companies or for acquiring overseas business.

4. The foreign entity can be engaged in any industrial, commercial, trading, agriculture, service industry, financial services such as insurance, mutual funds, etc.

5. Overseas investments in following activities are not permitted:

6. Investment can be in equity, loans, or by way of guarantees. Further, these guarantees can be – corporate or personal / primary or collateral and can be given by the promoter company / group company / sister concern / associate company in India. The amount of guarantee should be specified upfront. Form ODI will have to be filed with RBI for all guarantees given.

7. Remittance can be by way of cash, or export of goods and services. For contribution by way of exports, no agency commission will be payable to the wholly owned subsidiary/Joint Venture Company.

8. Investment under automatic route will not be permitted to parties on RBI Caution List, or who have defaulted to the banking system in India and whose names appear on the Defaulter’s list.

9. Shares certificates / other documents where share certificates are not issued should be submitted within the specified time and dividends, royalties, etc. due to Indian investor should be repatriated to India in accordance with the prevailing time limits.

10. Authorized dealers have been permitted to release FX for feasibility studies prior to actual investment.

11. Annual Performance Report (APR) in Form ODI should be submitted for pre / post commencement of commercial operation. Audited Annual Accounts, Directors’ Report of the Overseas Company are also required to be submitted.

12. In the event of changes proposed in the JV / WOS regarding activities, investment in another concern / subsidiary or alterations of share capital, there are reporting requirements to RBI.

13. Disinvestment can be either under the automatic route or approval route. All such proposals should be accompanied by a Chartered Accountant’s valuation report.

14. Resident Indian does not need permission to accept appointment as Director on boards of overseas company or to act as Trustee of an overseas Trust.

15. Investment in Nepal can be made in Indian Rupees only. Investment in Bhutan can be made either in freely convertible currencies or in Indian Rupees. However, if investment is made in freely convertible currencies then all dues receivable on such investments as well as their sale / winding up proceeds are required to be repatriated to India also in freely convertible currencies.

16. Regulated Entities in the Financial Services Sector who wish to invest overseas in any activity will have to comply with the conditions stipulated in Regulation 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004.

17. Unregulated Entities in the Financial Services Sector who wish to invest overseas in non-financial sector activities will have to comply with the conditions stipulated in Regulation 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004.

18. Entities setting up Branch / JV / WOS overseas for trading in Commodities Exchanges Overseas will have to obtain clearance from the Forward Markets Commission.

19. Shares held in the overseas JV / WOS can be pledged by way of security for availing fund based and / or non-fund based facilities for itself or the JV / WOS from a Bank in India or abroad.

INVESTMENTS ABROAD – AUTOMATIC ROUTE – IN J. V. / SUBSIDIARY (There is only one automatic route. However further classification is made to give different possibilities.) Any investment not falling within the below mentioned guidelines will require prior permission from RBI

Sr. No.	Particulars	Networth Route	EEFC Route and/or ADR/GDR Route	Overseas Bidding or Tender Route	Exchange of ADR/GDR of Indian Companies
1.	Approval by	Banks (Authorized Dealer)	Banks (Authorized Dealer)	Banks (Authorized Dealer)	Intimation To RBI
2.	Manner of Investments	Cash, Swap of shares, Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery)	Remittance from EEFC Account / Proceeds of ADR/GDR Issue	Cash, Export of Goods, Supply of Know-how, services, Machinery (including second hand machinery)	Swap or exchange of ADR/GDR issued by Indian Party with shares of Foreign Company
3.	Amount of Investments	1. 400% of its net worth as on the date of its last audited balance sheet 2. Navaratna Public Sector Undertakings, ONGC Videsh Limited & Oil India Limited can invest without any limits in overseas entities in the oil sector 3. Indian entities can invest up to 400% of their net worth in overseas unincorporated entities in oil sector (Cir 48 – 3-6-2008)	Not applicable	400% of its net worth as on the date of its last audited balance sheet	Up to 10 times the export earnings during the preceding financial year as reflected in its audited balance sheet (inclusive of all investments made under any other route)
4.	Area of Business of Foreign JV/WOS	In any bona fide business activity	In any bona fide business activity	In any bona fide business activity	In any bona fide business activity
5.	Profitability/Turnover criteria	Not Applicable	Not Applicable	Not Applicable	Not Applicable
6.	No. of copies of  intimation	3 copies of Form ODI to be submitted to banker at the time remittance. In case of financial commitment not involving remittance 2 copies of Form ODI to be forwarded to RBI through banker	3 copies of Form ODI to be submitted to banker at the time remittance from EEFC Account. In case ADR/GDR proceeds are used, within 30 days of making the investment submit Form ODI to RBI	3 copies of Form ODI within 30 days of making the investment to RBI through banker	3 copies of Form ODI within 30 days of swap to RBI

Note: -

1. For arriving at the net worth of an Indian party, the net worth of its holding company or its subsidiary may be taken into account to the extent it (the holding / subsidiary company) has not undertaken overseas investment and has issued a letter of disclaimer in favour of the Indian party.

2. Application / intimation in all cases has to be in Form ODI.

An employee or Director in India of an Indian office or branch of a foreign company or of a subsidiary in India of foreign company or of an Indian company in which foreign equity holding is not less than 51% (whether directly or through a SPV or step down subsidiary) may purchase equity shares without any monetary ceiling. The shares so acquired can also be repurchased by the foreign company / sold without obtaining RBI permission provided the sales proceeds are repatriated to India.

An employee or Director of the Indian promoter company of an overseas JV / WOS engaged in the field of software can purchase shares up to US $ 10,000 or its equivalent in a block of 5 calendar years. The shares so acquired should not exceed 5% of the paid-up capital of the JV / WOS. The percentage of shares held by the Indian promoter company together with the shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to the allotment of shares to the employees.

Further, a resident employee (including working director) of companies based in the knowledge-based sectors (information technology, pharmaceuticals, biotechnology) can purchase foreign securities under the ADR / GDR linked Employees’ Stock Option Scheme up to US $ 50,000 or its equivalent in a block of five calendar years.

7.2.3 Portfolio Investments – Automatic Route

1. A listed Indian company can invest up to 50% of its net worth as on the date of its last audited balance sheet:—

1. In shares of overseas companies listed on a recognized foreign stock exchange.

2. In rated bonds / fixed income securities issued by above companies.

2. A Indian Mutual Fund registered with SEBI can invest up to the ceiling prescribed by SEBI from time to time (the present ceiling is US $ 7 billion, in addition to this, certain qualified mutual funds can also invest in aggregate up to US $ 1 billion) in:—

(i) In shares or rated bonds/fixed income securities of an overseas company listed on a recognized stock exchange.

(ii) Exchange Traded Funds.

(iii) Other securities as may be permitted by RBI from time to time

3. An Indian Venture Capital Fund registered with SEBI can invest up to US $ 500 million in equity and equity-linked investments of off-shore Venture Capital undertakings, after obtaining prior approval of SEBI.

7.2.4 Investment in Agricultural Operations Overseas

An Indian company or a partnership firm registered under the Indian Partnership Act, 1932 are permitted to undertake agricultural operations including purchase of land incidental to such activity. Investment can be made either directly (through a branch) or through an overseas subsidiary / joint venture up to 400% of its net worth.

7.2.5 Investment by Recognized Star Exporters

A proprietary concern / unregistered partnership firm engaged in the business of exports are permitted to invest up to 10% of the average three years export realization or 200% of their net owned funds, whichever is lower after obtaining prior approval of RBI, subject to the following conditions:—

1. The exporter should have exports exceeding Rs. 15 crore per annum.

2. The exporter should be KYC compliant and must engaged in the proposed business.

3. Export outstanding should not exceed 10% of the average export realization of the preceding three years.

4. The exporter should not be on any caution list or RBI, etc.

Investment can be through an overseas subsidiary/joint venture. Application for approval will have to be made in Form ODI.

7.2.6 Remittance under the Us $ 200,000 Scheme

An individual resident in India is permitted to remit up to US $ 200,000 per calendar year for any legal and lawful purpose without obtaining prior permission of RBI. The individual can use said facility for any current account transaction, acquisition of any movable and / or immovable property, remittance towards gift and donation, investment in overseas companies (except incorporation of a new company) or opening of a bank account outside India. However, remittances cannot be made to Bhutan, Nepal, Mauritius or Pakistan or countries identified as "non co-operative countries and territories" by the Financial Action Task Force. Currently (i.e., as per list updated as on February 17, 2006), the countries where investment cannot be made are Myanmar, Nigeria. The updated list can be seen at the website of FATF - http://www.fatf-gafi.org. An application cum declaration form is required to be filed with the A. D.

7.3 Acquisition and Transfer of Immovable Property outside India

Immovable property outside India can be acquired by following persons:

A.	INDIVIDUALS
	Indian Nationals	Indian Nationals	Foreign Nationals
	Resident in India	Resident Outside	Resident in/
		India	Outside India
1	By way of gift or inheritance	No restrictions	No restrictions
	from any person resident in
	India but who was a
	non-resident and had
	acquired the property while
	he was a non-resident
2	By purchase out of funds
	held in RFC Account
B.	OTHERS
	Branches / Trading Offices of Indian Companies	Foreign Subsidiaries of Indian Companies	Foreign Companies
1	For their business	No restrictions	No restrictions
2	Residence of their staff

7.4 Borrowings from Non-residents

7.4.1 External Commercial Borrowings [Ecb]

ECB is an important component of India’s overall external debt. ECB refers to commercial loans availed from non-resident lenders in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments e.g. floating rate notes and fixed rate bonds, etc. by Corporates including hotels, hospitals, software sector. Further ECB can also be availed by Units in Special Economic Zones (SEZ) and certain NGOs. Individuals, Trusts and Non-Profit making organizations are not eligible to raise ECB.

For what can the ECB funds be used

1. Except for the prohibited activities, ECBs can be used for any bona fide business requirement such as import of capital goods, new projects, modernization/expansion of existing production units, etc.

2. Utilization of ECB proceeds is permitted in the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares.

3. Utilization of ECB proceeds is permitted for direct investment in Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS) either by way of fresh investment or expansion of existing JV / WOS including for mergers and acquisitions.

4. d) For pre-mature buy-back of FCCBs (on or before 31-12-2009).

5. Payment for obtaining licence/permit for 3G Spectrum.

Restriction on ECB utilization

Funds borrowed by way of ECB cannot be used for onward lending, investment in capital market, acquiring a company (or a part thereof) in India by a corporate, working capital requirement, general corporate purposes and repayment of existing Rupee loans (except in the case of investment in the Telecommunications Sector where borrowing under ECB for repayment of Rupee loans is permitted subject to certain conditions). ECB also cannot be used for real estate activities.

From whom can one borrow

One can raise ECB from internationally recognised sources such as:—

1. International banks, international capital markets, multilateral financial institutions such as IFC, ADB, CDC, etc.

2. Export credit agencies.

3. Suppliers of equipment, foreign collaborators and foreign equity holders.

Note: In case of borrowing from Foreign Equity holder ECB up to USD 5 million can be raised wherein the minimum direct foreign equity holding is of 25%

Where ECB above USD 5 million is to be raised from Foreign Equity holder then the following two requirements have to be complied with:—

a) The lender should have a minimum direct foreign equity holding of 25%; and

b) Debt-equity ratio of the borrowing company should not exceed 4:1

Parking & Utilization of ecb proceeds overseas

1. ECB up to US $ 500 million per borrower company (US $ 100 million for Corporates in the services sector viz. hotels, hospitals and software sector) per financial year under the Automatic Route is permitted for rupee and foreign currency expenditure for permissible end-uses and these funds have to be parked until actual requirement in India.

2. Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end-uses.

* for the respective currency of borrowing or applicable benchmark.

Total cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Further, total cost will also exclude payment of withholding tax in Indian Rupees.

Prepayment of ECB

Prepayment up to US $ 500 million (US $ 100 million for corporates in service sector) is allowed without obtaining prior approval of RBI, subject to compliance with the minimum average maturity period as applicable to the loan.

Different possibilities of taking ecb

ECB can be accessed under two routes:—

(i) Automatic Route.

(ii) Approval Route.

Automatic Route

Automatic route is available when ECB is for the purpose of investment in India in real sector – industrial sector, payment for obtaining licence / permit for 3G Spectrum, especially infrastructure sector ((i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, exploration and refining). Under the automatic route the borrower is not required to obtain any RBI / Government approval. However, drawdown is permitted only after obtaining Loan Registration Number (LRN) from RBI.

i) Who can borrow

Only company’s registered under the Companies Act, 1956 except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible to borrow.

Normally trusts (and all persons who are not companies), are not eligible for raising ECBs. However, now certain Non Governmental Organizations (NGOs) engaged in micro financing, are eligible to raise up to US $ 500 million during financial year under automatic route. They can borrow from certain overseas organizations and individuals. ECB proceeds can be utilized for lending to self-help groups or for micro-credit or for bona fide micro finance activity including capacity building. Detailed guidelines have been issues for this purpose.

Entities in the Service Sector viz. hotels, hospitals and software companies can borrow up to US $ 100 million or its equivalent in a financial year for meeting foreign currency and / or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land.

Corporates who have violated ECB policy and are under investigation by RBI and / or Directorate of Enforcement will not be allowed to access the Automatic Route. All requests from such corporates will be examined under the Approval Route.

ii) Amount and Maturity

1. ECB up to USD 20 million or equivalent with minimum average maturity of three years

2. ECB above USD 20 million and up to USD 500 million or equivalent with minimum average maturity of five years

3. ECB up to USD 20 million can have call/put option provided the minimum average maturity of 3 years is complied before exercising call/put option.

Important note: It should be noted that while the route is automatic, unlike in the past, the borrower cannot bring in the funds and then file declarations. First the borrower has to file in duplicate the form with the details of the loan and submit the same to the Authorized Dealer. The RBI will give the registration number. Only after that the loan can be drawn.

Approval Route

The following types of proposals for ECB will be covered under the Approval Route. These proposals will be approved by the Empowered Committee of RBI. There is no restriction as such on the amount of borrowing.

Who can borrow

1. Financial institutions (either directly or through Special Purpose Vehicles) dealing exclusively with infrastructure or export finance such as IDFC, ILFS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank will be considered on a case by case basis.

2. Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government will also be permitted to the extent of their investment in the package and assessment by RBI based on prudential norms. Any ECB availed for this purpose so far will be deducted from their entitlement.

3. ECB with minimum average maturity of 5 years by Non-banking Financial Companies.

4. Foreign Currency Convertible Bonds (FCCB) by housing Finance Companies satisfying the prescribed criteria.

5. Multi-State Co-operative Societies engaged in manufacturing activity.

6. Indian Companies engaged in the development of integrated townships including housing, commercial premises, hotels resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials, development of land and providing allied infrastructure.

7. SEZ developers can avail of ECB under the Approval Route for providing infrastructure facilities, as defined in the ECB policy, within the SEZ.

8. Cases falling outside the purview of the automatic route limits and maturity period indicated above come under approval route.

9. Companies eligible to borrow under the automatic route can borrow an additional amount of up to US $ 250 million with an average maturity of more than 10 years. Prepayment and call/put options are not permitted for such borrowing up to a period of 10 years. (I could not find this in the Master Circular)

7.4.2 Borrowings through loans/deposits

Indian Companies, other Body Corporates, Indian Proprietary Concerns and Firms can accept fresh deposits from NRI only if the deposit is by way of debit to the NRO account of the lender and the amount deposited does not represent inward remittances or transfer from NRE/FCNR (B) Accounts into the NRO Account of the lender. However, they are permitted to hold and renew on maturity existing deposits received by them on repatriation as well as non-repatriation basis.

Resident Individuals are permitted to avail of interest free loans up to US $ 250,000 from their NRI / PIO relative(s) (as defined under the Companies Act, 1956) subject to certain conditions.

Special permission of the RBI will be required in case where deposits / loans do not fulfil the specified criteria or where the deposits/loans are on repatriation basis in the case of proprietary concerns and firms.

Banks can grant loans up to Rs. 100 lakhs against NRE and FCNR(B) deposits either to the depositors or third parties in India or overseas.

8.1 Investments and Collaborations in India

8.1.1 Foreign Investment in India

The Industrial Policy governs the Foreign Direct Investment in India. Both – FEMA and Industrial Policy (including consolidated FDI Policy) – should be read together to have a full picture. Sectoral limits for Foreign Direct Investments and Investments by NRIs are almost at par excepting the sector of Housing and Real Estate Development, and Domestic Airlines. Various avenues and policy for foreign investment are covered in brief.

Investment is generally allowed in an Indian company, which in turn does actual business. Branches, liaison offices and project offices can be opened for limited purposes. In SEZs, non-residents can invest as a branch/unit, Joint Venture or a Wholly Owned subsidiary on automatic basis. Investment in a proprietorship, partnership or Association of Persons, is subject to RBI permission in certain cases.

Investment can be made by an incorporated entity, or individuals. Unincorporated entities cannot invest. However, citizens and incorporated entities of Pakistan are not permitted to invest under the Foreign Direct Investment Scheme. Citizens and incorporated entities of Bangladesh can invest only after obtaining prior approval of FIPB. Investment can be by way of subscription to the capital of the company or by way of acquisition from existing shareholders.

Investment in India can be made in almost ANY sector without any approval from any authority. This is known as the "Automatic route". Even for the small list of sectors, which are not under the "automatic route", a specific approval can be taken from Secretariat of Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB).

Banks are permitted, subject to certain terms and conditions, to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions. Similarly, SEBI authorized Depository Participants, subject to certain terms and conditions, can also open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities. These facilities are available for both issue of fresh shares to the non-residents as well as transfer of shares from/to the non-residents.

FDI is prohibited in the following activities/sectors:

1. Retail Trading (except single brand product retailing)

2. Atomic Energy

3. Lottery Business including Government /private lottery, online lotteries, etc.

4. Gambling and Betting including casinos etc.

5. Business of chit fund

6. Nidhi company

7. Trading in Transferable Development Rights (TDRs)

8. Real Estate Business or Construction of Farm Houses

9. Activities/sectors not opened to private sector investment.

10. Foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities.

List of activities which require prior permission

1. Where the foreign investor has an existing Joint Venture/technology transfer / trademark agreement in the ‘same’ field prior to January 12, 2005.

2. Foreign investment exceeding 24% in case of items, which are, reserved for small sector undertakings. These items include biscuits, toys, woodwork, etc. — which do not require high technology.

3. The investment is not within the sectoral guidelines.

4. The investment in certain sectors, though within the sectoral guidelines, requires prior approval of the Government e.g. sectors where an industrial licence is required – cigars and cigarettes manufacture.

In case the foreign investment falls within the above-restricted list or does not fall within the sector specific investment limits prescribed for automatic approval, an approval needs to be obtained from SIA/FIPB by satisfying them about the benefits to India. Powers of SIA/FIPB are discretionary.

It is also necessary that the foreigner investor should not have any other investment or collaboration or trademarks agreement with an Indian resident in the same field before January 12, 2005. Otherwise an FIPB approval is required. This requirement for obtaining FIPB approval will not be applicable to FDI proposals relating to the IT sector/mining sector as well as to FDI by International Financial Institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelschaft (DEG), etc., as investment made by International Financial Institutions is generally without an element of technical/trademark collaboration. Further the requirement for obtaining approval does not apply to investment by Venture Capital Funds registered with SEBI; where investment by joint venture party is less than 3%; and where the existing venture is sick or defunct.

Investments can be made in Indian companies by way of fully paid equity shares and/or fully paid compulsorily convertible preference shares/debentures only.

Investment in trading companies (retail trading is not permitted except in ‘Single Brand’ products) can be made only up to 51% under the automatic route. Remittance of dividend in respect of such investment is allowed only after the company secures registration as an Export/Trading/Star Trading House.

Investment in retail trading companies engaged in retail trade of ‘Single Brand’ products can be made up to 51% under the approval route (after obtaining prior approval from the Secretariat of Industrial Assistance (SIA)) subject to the following conditions:—

1. Products to be sold should be of a ‘Single Brand’ only.

2. Products should be sold under the same brand internationally.

3. ‘Single Brand’ product retailing will cover only products that are branded during manufacturing.

Automatic Route is also available for acquisition of existing shares if the specified conditions are satisfied.

In case of investments under "Automatic Route" intimation has to be made to RBI about details of investors within 30 days of receipt of funds. In all cases (whether under Automatic Route or Approval Route), Form FC-GPR – Part ‘A’ has to be filed with RBI, through the companies bankers, within 30 days of allotment of securities. A company secretary’s certificate also has to be filed in the specified format confirming fulfilment of various legal requirements. A Chartered Accountant’s or statutory auditor’s certificate indicating the manner of arriving at the price at which the securities have been issued, is also required to be submitted.

Thereafter, every year before June 30, Form FG-GPR – Part ‘B’ has to be filed directly with the Director, Balance of Payment Statistical Division, RBI detailing all investments by way of direct / portfolio / re-invested earnings / others in the Indian company during the preceding financial year.

Allotment of shares has to be done within 180 days from the date of receipt of inward remittance or debit to NRE / FCNR(B) account, as the case may be.

8.1.2 Euro Issues, ADR/GDR Issues

– No end-use restrictions except prohibition on investment in stock market & real estate

– A broker can purchase shares on behalf of Non-Residents and convert the shares so purchased into ADR/GDR

– Two-way fungibility allowed in case of ADR/GDR issues i.e. ADR/GDR can be converted into underlying equity shares in India and shares already issued in India can be converted into ADR/GDR and issued abroad.

– Funds raised can be brought into India or retained abroad for meeting future foreign exchange requirements.

8.1.3 Technical Know-how Fees and Royalty

Technical Know-how fees and Royalty can be remitted without RBI permission. The lump sum shall be paid in three installments as detailed below, unless otherwise stipulated in the approval letter:— First 1/3rd after the collaboration agreement is filed with the Authorized Dealer in Foreign Exchange. Second 1/3rd on delivery of know-how documentation. Third and final 1/3rd on commencement of commercial production, or four years after the agreement is filed with the Authorized Dealer in Foreign Exchange, whichever is earlier. The lump sum can be paid in more than three installments, subject to completion of activities as specified above.

Further, royalty on domestic sales and export sales can be paid (net of taxes), without any limitation as to the period of payment. Even wholly owned subsidiaries can make payments for royalty and know-how payments to their parents. The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc. The payment of royalty will be restricted to the licensed capacity plus 25% in excess thereof for such items requiring industrial licence or on such capacity as specified in the approval letter. This restriction will not apply to items not requiring industrial licence. In case of production in excess of this quantum, prior approval of Government would have to be obtained regarding the terms of payment of royalty in respect of such excess production. The royalty would not be payable beyond the period of the agreement if the orders had not been executed during the period of agreement. However, where the orders themselves took a long time to execute, then the royalty for an order booked during the period of agreement, but executed after the period of agreement, would be payable only after a Chartered Accountant certifies that the orders in fact have been firmly booked and execution began during the period of agreement, and the technical assistance was available on a continuing basis even after the period of agreement. No minimum guaranteed royalty would be allowed.

The lump sum fees and royalty payable above or under 8.1.4 below can be paid in kind i.e. equity shares can be issued by the concerned company instead of paying the same in foreign exchange.

8.1.4 Royalty Payment for trade marks and brands

Royalty is allowed to be paid to the foreign collaborator under the automatic route for use of his trade marks and brand name even if there is no transfer of technology. For this purpose royalty on brand name / trade mark shall be paid as a percentage of net sales, viz., gross sales less agents’/dealers’ commission, transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts, components imported from the foreign licensor or its subsidiary / affiliated company.

8.1.5 Foreign Institutional Investors (FIIs)

FIIs such as Pension Funds, Investment Trusts, Asset Management Companies, etc., who have obtained registration from SEBI, are permitted to invest on full repatriation basis under FDI Policy as well as under the Indian Primary & Secondary Stock Markets (including OTCEI) including in unlisted, dated Government Securities, Treasury Bills, Units of Domestic Mutual Funds and commercial paper without any lock-in period.

Limits on Investments are:—

1. The total holdings of all FIIs in any Company will be subject to a ceiling of 24% of its total paid-up capital. The Company concerned can raise this ceiling of 24% up to the sectoral cap/statutory ceiling as applicable.

2. A single FII cannot hold more than 10% of the paid-up capital of any Company.

3. A FII may trade in all exchange trade derivative contracts approved by SEBI from time to time subject to the limits as prescribed in by SEBI.

8.1.6 Foreign Venture Capital Investor (FVCI)

A registered Foreign Venture Capital Investor (FVCI) may, through the Securities and Exchange Board of India, apply to the Reserve Bank for permission to invest in Indian Venture Capital Undertaking (IVCU) or in a VCF or in a scheme floated by such VCFs. The registered FVCI may purchase equity / equity linked instruments/ debt / debt instruments, debentures of an IVCU or of a VCF through Initial Public Offer or Private Placement or in units of schemes/funds set up by a VCF. The amount of consideration for investment in VCFs/IVCUs shall be paid out of inward remittance from abroad through normal banking channels or out of funds held in an account maintained with the designated branch of an authorized dealer in India. There is no limit on investments. However, if the FVCI intends to invest in a IVCU which registered as Trust then the FVCI has to obtain prior permission of the Government.

8.1.7 International Financial Institutions

Multilateral Development Banks, which are specifically permitted by the Government to float rupee bonds in India, are permitted to purchase Government dated securities.

8.1.8 Investments by Non-Resident Employees of Indian Companies, Etc.

An Indian Company can issue shares up to 5% of its paid-up capital to its employees or employees of its overseas joint venture or wholly owned subsidiary resident outside India, under a SEBI approved Employees Stock Options Scheme. These shares cannot however be issued to employees who are citizens of Pakistan.

SECTOR SPECIFIC GUIDELINES FOR FOREIGN DIRECT INVESTMENT

5.1 PROHIBITION ON INVESTMENT IN INDIA.

FDI is prohibited in the following activities / sectors:

(a) Retail Trading (except single brand product retailing)

(b) Lottery Business including Government /private lottery, online lotteries,etc.

(c) Gambling and Betting including casinos etc.

(d) Business of chit fund

(e) Nidhi company

(f) Trading in Transferable Development Rights (TDRs)

(g) Real Estate Business or Construction of Farm Houses

(h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

(i) Activities / sectors not opened to private sector investment including Atomic Energy

and Railway Transport (other than Mass Rapid Transport Systems).

Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities.

5.2 SECTOR-SPECIFIC POLICY FOR FDI (please take this table directly from Press Note No. 1 of 2011 issued by DIPP)

In the following sectors/activities, FDI up to the limit indicated against each sector / activity is allowed / permitted subject to other conditions indicated & security conditions where applicable.

In sectors/activities not listed below, FDI is permitted up to 100% on the automatic route, subject to applicable laws / sectoral rules/regulations/security conditions.

Sl.No.	Sector/Activity	% ofCap/Equity	FDI	Entry Route
AGRICULTURE
5.2.1	Agriculture & Animal Husbandry
	a) Floriculture, Horticulture, and	100%		Automatic

	Cultivation of Vegetables & Mushrooms under controlled conditions; b) Development and production of Seeds and planting material; c) Animal Husbandry (including of breeding of dogs), Pisciculture, Aquaculture under controlled conditions; and d) services related to agro and allied sectors Note: Besides the above, FDI is not allowed in any other agricultural sector/activity
5.2.1.1	Other conditions:
	For companies dealing with development of transgenic seeds/vegetables, the following conditions apply: (i) When dealing with genetically modified seeds or planting material the company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically modified organisms. (ii) Any import of genetically modified materials if required shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) Act, 1992. (iii) The company shall comply with any other Law, Regulation or Policy governing genetically modified material in force from time to time. (iv) Undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the receipt of approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM). (v) Import of materials shall be in accordance with National Seeds Policy.

	(vi) The term “under controlled conditions” covers the following: • ‘Cultivation under controlled conditions’ for the categories of Floriculture, Horticulture, Cultivation of vegetables and Mushrooms is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically. • In case of Animal Husbandry, scope of the term ‘under controlled conditions’ includes – • Rearing of animals under intensive farming systems with stall-feeding. Intensive farming system will require climate systems (ventilation, temperature/humidity management), health care and nutrition, herd registering/pedigree recording, use of machinery, waste management systems. • Poultry breeding farms and hatcheries where micro-climate is controlled through advanced technologies like incubators, ventilation systems etc. • In the case of pisciculture and aquaculture, ‘under controlled conditions’ includes – • Aquariums • Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control.
5.2.2	Tea Plantation
5.2.2.1	Tea sector including tea plantations Note: Besides the above, FDI is not allowed in any other plantation	100%	Government

	sector/activity
5.2.2.2	Other conditions:
	(i) Compulsory divestment of 26% equity of the company in favour of an Indian partner/Indian public within a period of 5 years (ii) Prior approval of the State Government concerned in case of any future land use change.
INDUSTRY
	MINING
5.2.3	MINING
5.2.3.1	Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals( Development & Regulation) Act, 1957.	100%	Automatic
5.2.3.2	Coal and Lignite
	(1) Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under and subject to the provisions of Coal Mines (Nationalization) Act, 1973	100%	Automatic
	(2) Setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.	100%	Automatic
5.2.3.3	Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities
5.2.3.3.1	Mining and mineral separation of titanium bearing minerals & ores, its value addition and integrated activities subject to sectoral	100%	Government

	regulations and the Mines and Minerals (Development and Regulation Act 1957)
5.2.3.3.2	Other conditions:
	India has large reserves of beach sand minerals in the coastal stretches around the country. Titanium bearing minerals viz. Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals which have been classified as “prescribed substances” under the Atomic Energy Act, 1962. Under the Industrial Policy Statement 1991, mining and production of minerals classified as “prescribed substances” and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon). Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of “prescribed substances” under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/concentrates including Zircon, were removed from the list of “prescribed substances”. (i) FDI for separation of titanium bearing minerals & ores will be subject to the following additional conditions viz.: (A) value addition facilities are set up within India along with transfer of technology; (B) disposal of tailings during the mineral separation shall be carried out

	in accordance with regulations framed by the Atomic Energy Regulatory Board such as Atomic Energy (Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987. (ii) FDI will not be allowed in mining of “prescribed substances” listed in the Notification No. S.O. 61(E) dated 18.1.2006 issued by the Department of Atomic Energy. Clarification: (1) For titanium bearing ores such as Ilmenite, Leucoxene and Rutile, manufacture of titanium dioxide pigment and titanium sponge constitutes value addition. Ilmenite can be processed to produce 'Synthetic Rutile or Titanium Slag as an intermediate value added product. (2) The objective is to ensure that the raw material available in the country is utilized \ for setting up downstream industries and the technology available internationally is available for setting up such industries within the country. Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (A) above shall be deemed to be fulfilled.
	MANUFACTURING
5.2.4	Manufacture of items reserved for production in Micro and Small Enterprises (MSEs)
5.2.4.1	FDI in MSEs will be subject to the sectoral caps, entry routes and other relevant sectoral regulations. Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an undertaking would also require an Industrial License under the Industries (Development & Regulation) Act 1951, for such manufacture. The issue of Industrial License is subject to a few general conditions and the specific condition that the Industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production and in accordance with the

	provisions of section 11 of the Industries (Development & Regulation) Act 1951.
5.2.5	DEFENCE
5.2.5.1	Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act 19513	26%	Government
5.2.5.2	Other conditions:
	(i) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence. (ii) The applicant should be an Indian company / partnership firm. (iii)The management of the applicant company / partnership should be in Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians. (iv) Full particulars of the Directors and the Chief Executives should be furnished along with the applications. (v) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and having an established R & D base. (vi) There would be no minimum capitalization for the FDI. A proper assessment, however, needs to be done by the management of the

³ DIPP had recently released a Discussion paper calling for views/suggestions from the stakeholders to review the extant policy on FDI in Defence sector

Sl.No.	Sector/Activity	% of FDI Cap/Equity	Entry Route
	applicant company depending upon the product and the technology. The licensing authority would satisfy itself about the adequacy of the net worth of the non-resident investor taking into account the category of weapons and equipment that are proposed to be manufactured. (vii) There would be a three-year lock-in period for transfer of equity from one non-resident investor to another non-resident investor (including NRIs & erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the FIPB and the Government. (viii) The Ministry of Defence is not in a position to give purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements would be made available to the extent possible. (ix) The capacity norms for production will be provided in the licence based on the application as well as the recommendations of the Ministry of Defence, which will look into existing capacities of similar and allied products. (x) Import of equipment for pre-production activity including development of prototype by the applicant company would be permitted. (xi) Adequate safety and security procedures would need to be put in place by the licensee once the licence is granted and production commences. These would be subject to verification by authorized Government agencies. (xii) The standards and testing procedures for equipment to be produced under licence from foreign collaborators or from indigenous R & D will have to be provided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality

	Assurance Procedures of the licensee. Self-certification would be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would be for a fixed period and subject to renewals. (xiii) Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises. (xiv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence. (xv) Government decision on applications to FIPB for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement.
	POWER
5.2.6	Electric Generation, Transmission, Distribution and Trading
5.2.6.1	i) Generation and transmission of electric energy produced in-hydro electric, coal/lignite based thermal,	100%	Automatic

	oil based thermal and gas based thermal power plants. ii) Non-Conventional Energy Generation and Distribution. iii) Distribution of electric energy to households, industrial, commercial and other users and iv) Power Trading Note 1: All the above would be subject to the provisions of the Electricity Act 2003. Note 2: (i) to (iii) above do not include generation, transmission and distribution of electricity produced in atomic power plant/atomic energy since private investment in this sector/activity is prohibited and is reserved for public sector.
SERVICES SECTOR
5.2.7	Civil Aviation Sector
5.2.7.1	The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions. For the purposes of the Civil Aviation sector: (i) “Airport” means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934; (ii) "Aerodrome" means any definite or limited ground or water area

intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto; (iii)"Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights; (iv)"Air Transport Undertaking" means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward; (v) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment; (vi)"Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis; (vii) "Scheduled air transport service", means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public; (viii) “Non-Scheduled Air Transport service” means any service which is not a scheduled air transport service and will include Cargo airlines; (ix)“Cargo” airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation; (x) "Seaplane" means an aeroplane capable normally of taking off from and alighting solely on water; (xi)“Ground Handling” means (i) ramp handling , (ii) traffic handling both

	of which shall include the activities as specified by the Ministry of Civil Aviation through the Aeronautical Information Circulars from time to time, and (iii) any other activity specified by the Central Government to be a part of either ramp handling or traffic handling.
5.2.7.2	Policy for FDI in Civil Aviation sector The policy for FDI in the Civil Aviation Sector would be subject to the Aircraft Rules, 1934 as amended from time to time, Civil Aviation Requirements, and Aeronautical Information Circulars as notified by the Ministry of Civil Aviation.
5.2.7.2.1	Airports
	(a) Greenfield projects	100%	Automatic
	(b) Existing projects	100%	Automatic up to 74% Government route beyond 74%
5.2.7.2.2	Air Transport Services
	(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and seaplane services. (b) No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled and Non-Scheduled Air Transport Services except Cargo airlines. (c) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services.
	(1) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline	49% FDI (100% for NRIs)	Automatic
	(2) Non-Scheduled Air Transport Service	74% FDI (100% for NRIs)	Automatic up to 49% Government route beyond 49% and up to

			74%
	(3) Helicopter services/seaplane services requiring DGCA approval	100%	Automatic
5.2.7.2.3	Other services under Civil Aviation sector
	(1) Ground Handling Services subject to sectoral regulations and security clearance	74% FDI (100% for NRIs)	Automatic up to 49% Government route beyond 49% and up to 74%
	(2) Maintenance and Repair organizations; flying training institutes; and technical training institutions	100%	Automatic
5.2.8	Asset Reconstruction Companies
5.2.8.1	‘Asset Reconstruction Company’ (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
5.2.8.2	FDI limit	49% of paid-up capital of ARC	Government
5.2.8.3	Other conditions:
	(i) Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs. (ii) However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest upto 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue. (iii)Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial

	Assets and Enforcement of Security Interest Act, 2002.
5.2.9	Banking –Private sector
5.2.9.1	Banking –Private sector	74% including investment by FIIs	Automatic up to 49% Government route beyond 49% and up to 74%
5.2.9.2	Other conditions:
	(1) This 74% limit will include investment under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders. (2) The aggregate foreign investment in a private bank from all sources will be allowed up to a maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26 per cent of the paid up capital will have to be held by residents, except in regard to a wholly-owned subsidiary of a foreign bank. (3) The stipulations as above will be applicable to all investments in existing private sector banks also. (4) The permissible limits under portfolio investment schemes through stock exchanges for FIIs and NRIs will be as follows: (i) In the case of FIIs, as hitherto, individual FII holding is restricted to 10 per cent of the total paid-up capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body. (a) Thus, the FII investment limit will continue to be within 49 per cent of the total paid-up capital. (b) In the case of NRIs, as hitherto, individual holding is restricted to 5

per cent of the total paid-up capital both on repatriation and non-repatriation basis and aggregate limit cannot exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non-repatriation basis provided the banking company passes a special resolution to that effect in the General Body. (c) Applications for foreign direct investment (FDI route) in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached. (d) Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and Government as per para 4.2.2 above as applicable. (e) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, D/o Company Affairs and IRDA on these matters will continue to apply. (f) RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to non-resident investors as well. (ii) Setting up of a subsidiary by foreign banks (a) Foreign banks will be permitted to either have branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory authority in the

	home country and meeting Reserve Bank’s licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. (c) A foreign bank may operate in India through only one of the three channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank. (d) A foreign bank will be permitted to establish a wholly-owned subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is held by residents at all times consistent with para (i) (b) above. (e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. (f) Guidelines for setting up a wholly-owned subsidiary of a foreign bank will be issued separately by RBI (g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsidiary in India will have to be made to the RBI. (iii) At present there is a limit of ten per cent on voting rights in respect of banking companies, and this should be noted by potential investor. Any change in the ceiling can be brought about only after final policy decisions and appropriate Parliamentary approvals.
5.2.10	Banking- Public Sector
5.2.10.1	Banking- Public Sector subject to Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also	20% (FDI and Portfolio Investment)	Government

Sl.No.	Sector/Activity	% of FDI Cap/Equity	Entry Route
	applicable to the State Bank of India and its associate Banks.
5.2.11	Broadcasting
5.2.11.1	Terrestrial Broadcasting FM (FM Radio) subject to such terms and conditions as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations	20% (FDI, NRI & PIO investments and portfolio investment)	Government
5.2.11.2	Cable Network subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting	49% (FDI, NRI & PIO investments and portfolio investment)	Government
5.2.11.3	Direct –to-Home subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting	49% (FDI, NRI & PIO investments and portfolio investment) Within this limit, FDI component not to exceed 20%	Government
5.2.11.4	Headend-In-The-Sky (HITS) Broadcasting Service refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (Hub/teleport) and again uplinked to a satellite after encryption of channel. At the cable headend these encrypted pay channels are downlinked using a single satellite antenna, transmodulated and sent to the subscribers by using a land based transmission system comprising of infrastructure of cable/optical fibres network.
5.2.11.4.1	FDI limit in (HITS) Broadcasting Service is subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting.	74% (total direct and indirect foreign investment including portfolio and FDI)	Automatic up to 49% Government route beyond 49% and up to 74%
5.2.11.5	Setting up hardware facilities such as up-linking, HUB etc.
	(1) Setting up of Up-linking HUB/ Teleports	49% (FDI & FII)	Government

	(2) Up-linking a Non-News & Current Affairs TV Channel	100%	Government
	(3) Up-linking a News & Current Affairs TV Channel subject to the condition that the portfolio investment from FII/ NRI shall not be “persons acting in concert” with FDI investors, as defined in the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997	26% (FDI & FII)	Government
5.2.11.5.1	Other conditions:
	(i) All the activities at (1), (2) and (3) above will be further subject to the condition that the Company permitted to uplink the channel shall certify the continued compliance of this requirement through the Company Secretary at the end of each financial year. (ii) FDI for Up-linking TV Channels will be subject to compliance with the Up-linking Policy notified by the Ministry of Information & Broadcasting from time to time.
5.2.12	Commodity Exchanges
5.2.12.1	1 Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges. 2 For the purposes of this chapter, (i) “Commodity Exchange” is a recognized association under the provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities. (ii) “recognized association” means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward Contracts (Regulation) Act, 1952

	(iii) “Association” means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative. (iv) “Forward contract” means a contract for the delivery of goods and which is not a ready delivery contract. (v) “Commodity derivative” means- • a contract for delivery of goods, which is not a ready delivery contract; or • a contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified in consultation with the Forward Markets Commission by the Central Government, but does not include securities.
5.2.12.2	Policy for FDI in Commodity Exchange	49% (FDI & FII) [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ]	Government
5.2.12.3	Other conditions:
	(i) FII purchases shall be restricted to secondary market only and (ii) No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies.
5.2.13	Development of Townships, Housing, Built-up infrastructure and Construction-development projects
5.2.13.1	Townships, housing, built-up infrastructure and construction-development projects (which would	100%	Automatic

	include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure)
5.2.13.2	Investment to be made will be subject to the following conditions: (1) Minimum area to be developed under each project would be as under: (i) In case of development of serviced housing plots, a minimum land area of 10 hectares (ii) In case of construction-development projects, a minimum built-up area of 50,000 sq.mts (iii)In case of a combination project, any one of the above two conditions would suffice (2) Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. (3) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. Original investment means the entire amount brought in as FDI. The lock-in period of three years will be applied from the date of receipt of each installment/tranche of FDI or from the date of completion of minimum capitalization, whichever is later. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB. (4) At least 50% of the project must be developed within a period of five years from the date of obtaining all statutory clearances. The investor/investee company would not be permitted to sell undeveloped plots. For the purpose of these guidelines, “undeveloped plots” will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable

under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. (5) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned. (6) The investor/investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned. (7) The State Government/ Municipal/ Local Body concerned, which approves the building / development plans, would monitor compliance of the above conditions by the developer. Note: (i) The conditions at (1) to (4) above would not apply to Hotels & Tourism, Hospitals and SEZ’s. (ii) For investment by NRIs, the conditions at (1) to (4) above would not apply. (iii) 100% FDI is allowed under the automatic route in development of Special Economic Zones (SEZ) without the conditionalities at (1) to (4) above. This

	will be subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce. (iv) FDI is not allowed in Real Estate Business.
5.2.14	Credit Information Companies (CIC)
5.2.14.1	Credit Information Companies	49% (FDI & FII)	Government
5.2.14.2	Other Conditions:
	(1) Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005. (2) Foreign investment is permitted under the Government route, subject to regulatory clearance from RBI. (3) Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment. (4) Such FII investment would be permitted subject to the conditions that: (a) No single entity should directly or indirectly hold more than 10% equity. (b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and (c) FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.
5.2.15	Industrial Parks - both setting up and already established Industrial Parks	100%	Automatic
5.2.15.1	(i) “Industrial Park” is a project in which quality infrastructure in the form of plots of developed land or built up space or a combination with common facilities, is developed and made available to all the allottee units for the purposes of industrial activity. (ii) “Infrastructure” refers to facilities required for functioning of units

located in the Industrial Park and includes roads (including approach roads), water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning. (iii)“Common Facilities” refer to the facilities available for all the units located in the industrial park, and include facilities of power, roads (including approach roads), water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention/conference halls, parking, travel desks, security service, first aid center, ambulance and other safety services, training facilities and such other facilities meant for common use of the units located in the Industrial Park. (iv) “Allocable area” in the Industrial Park means(a) in the case of plots of developed land- the net site area available for allocation to the units, excluding the area for common facilities. (b) in the case of built up space- the floor area and built up space utilized for providing common facilities. (c) in the case of a combination of developed land and built-up space- the net site and floor area available for allocation to the units excluding the site area and built up space utilized for providing common facilities. (v) “Industrial Activity” means manufacturing, electricity, gas and water supply, post and telecommunications, software publishing, consultancy and supply, data processing, database activities and distribution of electronic content, other computer related activities,

	Research and experimental development on natural sciences and engineering, Business and management consultancy activities and Architectural, engineering and other technical activities.
5.2.15.2	FDI in Industrial Parks would not be subject to the conditionalities applicable for construction development projects etc. spelt out in para 5.2.13 above, provided the Industrial Parks meet with the under-mentioned conditions: (i) it would comprise of a minimum of 10 units and no single unit shall occupy more than 50% of the allocable area; (ii) the minimum percentage of the area to be allocated for industrial activity shall not be less than 66% of the total allocable area.
5.2.16	Insurance
5.2.16.1	Insurance	26%	Automatic
5.2.16.2	Other Conditions:
	(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route. (2) This will be subject to the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority for undertaking insurance activities.
5.2.17	Infrastructure Company in the Securities Market
5.2.17.1	Infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations	49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital ]	Government
5.2.17.2	Other Conditions:
5.2.17.2.1	FII can invest only through purchases in the secondary market
5.2.18	Non-Banking Finance Companies (NBFC)
5.2.18.1	Foreign investment in NBFC is allowed under the automatic route in	100%	Automatic

	only the following activities: (i) Merchant Banking (ii) Under Writing (iii) Portfolio Management Services (iv)Investment Advisory Services (v) Financial Consultancy (vi)Stock Broking (vii) Asset Management (viii) Venture Capital (ix) Custodian Services (x) Factoring (xi) Credit Rating Agencies (xii) Leasing & Finance (xiii) Housing Finance (xiv) Forex Broking (xv) Credit Card Business (xvi) Money Changing Business (xvii) Micro Credit (xviii) Rural Credit
5.2.18.2	Other Conditions:
	(1) Investment would be subject to the following minimum capitalisation norms: (i) US $0.5 million for foreign capital upto 51% to be brought upfront (ii) US $ 5 million for foreign capital more than 51% and upto 75% to be

brought upfront (iii)US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought upfront and the balance in 24 months. (iv)100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition as mandated by para 4.6.4.1, therefore, shall not apply to downstream subsidiaries. (v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below. (vi)Non- Fund based activities : US $0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition: It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company. Note: The following activities would be classified as Non-Fund Based activities: (a) Investment Advisory Services (b) Financial Consultancy (c) Forex Broking

	(d) Money Changing Business (e) Credit Rating Agencies (vii) This will be subject to compliance with the guidelines of RBI. Note: Credit Card business includes issuance, sales, marketing & design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value added cards etc. (2) The NBFC will have to comply with the guidelines of the relevant regulator/ s, as applicable
5.2.19	Petroleum & Natural Gas Sector
5.2.19.1	Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies	100%	Automatic
5.2.19.2	Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.	49%	Government
5.2.20	Print Media
5.2.20.1	Publishing of Newspaper and periodicals dealing with news and current affairs	26% (FDI and investment by NRIs/PIOs/FII)	Government
5.2.20.2	Publication of Indian editions of foreign magazines dealing with news and current affairs	26% (FDI and investment by NRIs/PIOs/FII)	Government

5.2.20.2.1	Other Conditions:
	(i) ‘Magazine’, for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news. (ii) Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 4.12.2008.
5.2.20.3	Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals, subject to compliance with the legal framework as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting.	100%	Government
5.2.20.4	Publication of facsimile edition of foreign newspapers	100%	Government
5.2.20.4.1	Other Conditions:
	(i) FDI should be made by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India. (ii) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, 1956. (iii) Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time.
5.2.21	Security Agencies in Private sector
5.2.21.1	The ‘Private Security Agencies (Regulation) Act, 2005’ regulates the operations of private security agencies. Under Section 6(2) of the above Act,

Sl.No.	Sector/Activity	% of FDI Cap/Equity	Entry Route
	“A company, firm or an association of persons shall not be considered for issue of a licence under this Act, if, it is not registered in India, or is having a proprietor or a majority shareholder, partner or director, who is not a citizen of India”. As such, under the provisions of this Act: • a foreign company cannot be considered for a license under the Act • only a firm registered in India can be eligible for a license • to be eligible for a license under the Act, a firm cannot have a foreign director/partner • majority shareholder cannot be a foreigner-i.e. foreign shareholding would be restricted to a maximum of 49% under the Government route
5.2.22	Satellites – Establishment and operation
5.2.22.1	Satellites – Establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO	74%	Government
5.2.23	Telecommunication Investment caps and other conditions for specified services are given below. However, licensing and security requirements notified by the Department of Telecommunications will need to be complied with for all services.
5.2.23.1	(i) Telecom services	74%	Automatic up to 49% Government route beyond 49% and up to 74%
5.2.23.1.1	Other conditions:
	(1) General Conditions: (i) This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications

Services (GMPCS) and other value added Services. (ii) Both direct and indirect foreign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Nonresident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the `Indian’ shareholding will not be less than 26 percent. (iii) FDI in the licensee company/Indian promoters/investment companies including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 percent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities. (iv) The investment approval by FIPB shall envisage the conditionality that Company would adhere to licence Agreement. (v) FDI shall be subject to laws of India and not the laws of the foreign country/countries. (2) Security Conditions: (i) The Chief Officer In-charge of technical network operations and the Chief Security Officer should be a resident Indian citizen. (ii) Details of infrastructure/network diagram (technical details of the network) could be provided on a need basis only to telecom equipment suppliers/manufacturers and the affiliate/parents of the licensee company. Clearance from the licensor (Department of Telecommunications) would be required if such information is to be

provided to anybody else. (iii)For security reasons, domestic traffic of such entities as may be identified /specified by the licensor shall not be hauled/routed to any place outside India. (iv)The licensee company shall take adequate and timely measures to ensure that the information transacted through a network by the subscribers is secure and protected. (v) The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens. (vi)The majority Directors on the Board of the company shall be Indian citizens. (vii) The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee. (viii) The Company shall not transfer the following to any person/place outside India:-(a) Any accounting information relating to subscriber (except for international roaming/billing) (Note: it does not restrict a statutorily required disclosure of financial nature) ; and (b) User information (except pertaining to foreign subscribers using Indian Operator’s network while roaming). (ix) The Company must provide traceable identity of their subscribers. However, in case of providing service to roaming subscriber of foreign

Companies, the Indian Company shall endeavour to obtain traceable identity of roaming subscribers from the foreign company as a part of its roaming agreement. (x) On request of the licensor or any other agency authorised by the licensor, the telecom service provider should be able to provide the geographical location of any subscriber (BTS location) at a given point of time. (xi)The Remote Access (RA) to Network would be provided only to approved location(s) abroad through approved location(s) in India. The approval for location(s) would be given by the Licensor (DOT) in consultation with the Ministry of Home Affairs. (xii) Under no circumstances, should any RA to the suppliers/manufacturers and affiliate(s) be enabled to access Lawful Interception System(LIS), Lawful Interception Monitoring(LIM), Call contents of the traffic and any such sensitive sector/data, which the licensor may notify from time to time. (xiii) The licensee company is not allowed to use remote access facility for monitoring of content. (xiv) Suitable technical device should be made available at Indian end to the designated security agency /licensor in which a mirror image of the remote access information is available on line for monitoring purposes. (xv) Complete audit trail of the remote access activities pertaining to the network operated in India should be maintained for a period of six months and provided on request to the licensor or any other agency authorised by the licensor. (xvi) The telecom service providers should ensure that necessary

provision (hardware/software) is available in their equipment for doing the Lawful interception and monitoring from a centralized location. (xvii)The telecom service providers should familiarize/train Vigilance Technical Monitoring (VTM)/security agency officers/officials in respect of relevant operations/features of their systems. (xviii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security angle. (xix) In order to maintain the privacy of voice and data, monitoring shall only be upon authorisation by the Union Home Secretary or Home Secretaries of the States/Union Territories. (xx) For monitoring traffic, the licensee company shall provide access of their network and other facilities as well as to books of accounts to the security agencies. (xxi) The aforesaid Security Conditions shall be applicable to all the licensee companies operating telecom services covered under this circular irrespective of the level of FDI. (xxii)Other Service Providers (OSPs), providing services like Call Centres, Business Process Outsourcing (BPO), tele-marketing, teleeducation, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom service providers and 100% FDI is permitted for OSPs. As the security conditions are applicable to all licensed telecom service providers, the security conditions mentioned above shall not be separately enforced on OSPs. (3) The above General Conditions and Security Conditions shall also be applicable to the companies operating telecom service(s) with the FDI cap of

	49%. (4) All the telecom service providers shall submit a compliance report on the aforesaid conditions to the licensor on 1st day of July and January on six monthly basis.
5.2.23.2	(a) ISP with gateways (b) ISP’s not providing gateways i.e without gate-ways (both for satellite and marine cables) Note: The new guidelines of August 24, 2007 Department of Telecommunications provide for new ISP licenses with FDI upto 74%. (c) Radio paging	74%	Automatic up to 49% Government route beyond 49% and up to 74%
	(d) End-to-End bandwidth
5.2.23.3	(a) Infrastructure provider providing dark fibre, right of way, duct space, tower (IP Category I) (b)Electronic Mail (c) Voice Mail Note: Investment in all the above activities is subject to the conditions that such companies will divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world.	100%	Automatic up to 49% Government route beyond 49%
5.2.24	Trading
5.2.24.1	(i) Cash & Carry Wholesale Trading/ Wholesale Trading (including sourcing from MSEs)	100%	Automatic
5.2.24.1.1	Definition: Cash & Carry Wholesale trading/Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or

other professional business users or to other wholesalers and related subordinated service providers. Wholesale trading would, accordingly, be sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would include resale, processing and thereafter sale, bulk imports with ex-port/ex-bonded warehouse business sales and B2B e-Commerce.

5.2.24.1.2

Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT): (a) For undertaking WT, requisite licenses/registration/ permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self-Government Body under that State Government should be obtained. (b) Except in case of sales to Government, sales made by the wholesaler would be considered as ‘cash & carry wholesale trading/wholesale trading’ with valid business customers, only when WT are made to the following entities: (I) Entities holding sales tax/ VAT registration/service tax/excise duty registration; or (II) Entities holding trade licenses i.e. a license/registration certificate/membership certificate/registration under Shops and Establishment Act, issued by a Government Authority/ Government Body/ Local Self-Government Authority, reflecting that the entity/person holding the license/ registration certificate/ membership certificate, as the case may be, is itself/ himself/herself engaged in a business involving commercial activity; or (III) Entities holding permits/license etc. for undertaking retail trade (like tehbazari and similar license for hawkers) from Government Authorities/Local Self Government Bodies; or

	(IV) Institutions having certificate of incorporation or registration as a society or registration as public trust for their self consumption. Note: An Entity to whom WT is made, may fulfill any one of the 4 conditions. ( c) Full records indicating all the details of such sales like name of entity, kind of entity, registration/license/permit etc. number, amount of sale etc. should be maintained on a day to day basis. (d) WT of goods would be permitted among companies of the same group. However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture (e) WT can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations. (f) A Wholesale/Cash & carry trader cannot open retail shops to sell to the consumer directly.
5.2.24.2	E-commerce activities	100%	Automatic
5.2.24.2.1	E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.
5.2.24.3	Test marketing of such items for which a company has approval for manufacture, provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facility commences simultaneously with test marketing.	100%	Government

5.2.24.4	Single Brand product trading4	51%	Government
	(1) Foreign Investment in Single Brand product trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices. (2) FDI in Single Brand products retail trade would be subject to the following conditions: (a) Products to be sold should be of a ‘Single Brand’ only. (b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India. (c) ‘Single Brand’ product-retailing would cover only products which are branded during manufacturing. (3) Application seeking permission of the Government for FDI in retail trade of ‘Single Brand’ products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The application would specifically indicate the product/ product categories which are proposed to be sold under a ‘Single Brand’. Any addition to the product/ product categories to be sold under ‘Single Brand’ would require a fresh approval of the Government. (4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval.
5.2.25	Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898.

⁴ DIPP had recently released a Discussion paper calling for views/suggestions from the stakeholders to review the extant policy on FDI in Multi-brand Retail

Sl.No.	Sector/Activity	% of FDI Cap/Equity	Entry Route
5.2.25.1	100% FDI is allowed under the Government route.
5.2.25.2	This will be subject to existing Law i.e Indian Post Office Act 1898 and exclusion of activity relating to the distribution of letters.

Note:

Minimum capitalization includes share premium received alongwith the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement;

5.41. In sectors/Activities not listed above, FDI is permitted upto 100% on the automatic route subject to applicable laws/sectoral rules/regulations.

Notes: -

1. In sectors / activities not listed above or not prohibited or not requiring prior Government approval, FDI is permitted up to 100 % under the automatic route subject to sectoral rules / regulations applicable.

2. In sectors where 100 % foreign investment is not permitted i.e. where sectoral caps on foreign ownership are prescribed, prior approval of FIPB will be required to obtained if foreign ownership in the Indian company is 50 % or more or control is exercised with the power to appoint a majority of the Directors on the Board of the Indian Company in the following circumstances when: -

   1. At the time of incorporation of the Indian Company.

   2. Shares in the Indian Company are transferred from a resident Indian to a non-resident entity through amalgamation, merger, acquisition, etc.

3. In case of transfer of shares from a resident Indian to a non-resident entity Form FC-TRS has to be filed with the Bank where the transaction takes place within 60 days from the date of receipt of the full and final amount of consideration.

8.2 Investments by NRI/PIO

NRIs can invest in shares and convertible debentures of Indian companies. OCBs have now been barred from investments. They can invest as any other foreign company i.e. additional investment facilities available to NRIs now cannot be exercised through OCBs. However, OCBs who have existing investments in India, can be granted case by case approval by RBI for additional investments.

Foreign investment policy for foreigners applies equally to NRI for repatriable investment. There are only two sectors – Real Estate Development and Domestic Airlines – where investment facilities are different for NRIs and foreigners.

NRI investment in foreign exchange is made fully repatriable whereas investments made in Indian Rupees through NRO accounts are non-repatriable. It should be noted that while capital remains non-repatriable, income on the investment can be repatriated. Further, NRIs are allowed to remit up to US $ 1 million per calendar year, out of their funds in NRO account, or sale of non-repatriable investments.

RBI has granted general permission to NRI/PIO to acquire shares from other NRI/PIO.

NRIs from Nepal are also permitted to make direct investments on repatriation basis if they remit funds in foreign exchange.

Portfolio Investment in Companies, other than those engaged in the print media sector, listed on Stock Exchanges Permitted up to 5% for each NRI subject to overall ceiling of 10% of the Company’s capital. The Company concerned can increase this limit of 10% to 24%.

NRIs may invest in exchange traded derivative contracts approved by SEBI from time to time out of INR funds held in India on non-repatriation basis subject to the limits prescribed by SEBI.

NRI are permitted to invest up to 100% in PSE Capital / PSU Bonds, Government Securities (other than Bearer Securities), units of UTI & instruments of domestic Mutual Funds (referred to in sec. 10(23D) of the Income-tax Act, 1961).

Purchase of shares by NRI from existing resident shareholders is permitted under the automatic route if the specified conditions are satisfied.

NRI/PIO can invest on non-repatriation basis in all sectors except plantations, nidhis, chit funds and real estate trading. In such cases restrictions placed on investments made on repatriation basis will also not apply. Investments in Companies, Partnership Firms or Proprietary Concerns can be made up to 100% of the capital of these entities. These entities can in turn carry on permitted business activity. No prior permission from RBI is required. If they want to invest on repatriation basis they will have to seek prior approval of SIA / FIPB, which may grant it at its discretion.

NRI can repatriate their investments which were originally made non-repatriation basis under the automatic route if:—

1. The original investment was made in foreign exchange under the FDI Scheme and

2. The sector / activity in which the investment was made is proposed to be converted into repatriable equity is on the automatic route for FDI.

If the above two conditions are not met approval will have to be obtained from FIPB for conversion of non-repatriable equity into repatriable equity.

8.3 Acquisition and Transfer of Immovable Property in India

Immovable property in India can be acquired / transferred by following persons:

Table A

Indian Nationals Resident In India	Indian Nationals Resident Outside India	Persons of Indian Origin Resident Outside India
No restrictions	1. Can acquire any immovable property other than agricultural land/plantation/ farm house	1. Can acquire any immovable property other than agricultural land/ plantation / farm house out of foreign currency funds or by way gift
	2. Can transfer/sell immovable property including agricultural land/plantation/farm house to an Indian National resident in India	2. Can acquire any immovable property including agricultural land/plantation / farm house by way of inheritance
	3. Can transfer /sell any immovable property other than agricultural land/plantation/farm house to a PIO/Indian National (resident outside India / Person resident in India)	3. Can sell any immovable property other than agricultural land/ plantation / farm house to a person resident in India
		4. Can gift any residential or commercial property to a person Resident in India or to a PIO / Indian National Resident outside India
		5. Can sell / gift any agricultural land / plantation / farm house to an Indian National resident in India

Notes: -

1. Persons of Indian Origin do not include citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.

2. NRI/PIO can borrow money from banks / approved housing finance companies for acquisition/repairs/renovation/ improvement of residential accommodation in India.

3. NRI/PIO can repatriate equivalent to the amount of foreign exchange remitted into India at the time of purchase.

4. Payment by NRI/PIO for purchase of immovable property cannot be by way of foreign currency notes or travellers cheques.

5. NRI/PIO employees of Indian companies in India or their branches outside India can also take loans from their employers for purchasing housing property in India or abroad or for any other purpose other than for utilizing in the following activities:—

(a) Chit fund business

(b) Nidhi company

(c) Agricultural or plantation activity or in real estate business or construction of farm houses

(d) Trading in TDR

(e) Investment in capital market including margin trading and derivatives.

Table B

Foreign Citizens Resident in India	Foreign Citizens Resident  Outside India	Indian Branch / Office of Foreign Concern
No restrictions, except in the case of Nationals of Pakistan, Bangladesh, Sri Lanka, China, Iran, Nepal, Afghanistan, & Bhutan who will require prior permission from RBI in all cases except where the immovable property is acquired by way of lease for less than 5 years	Can acquire and transfer only after prior permission from RBI Foreign Embassy / Diplomat / Consulate General Can acquire and sell immovable property other than agricultural land / plantation property / farm house only after obtaining prior permission from the Ministry of External Affairs, Government of India and the consideration for acquisition is remitted from abroad	Can acquire immoveable property which is required for carrying on its activities, a declaration in Form IPI will have to filed with RBI within 90 days of such acquisition (the above procedure is not applicable to a liaison office). Repatriation of sale proceeds requires prior RBI approval.

8.4 Remittances of proceeds of assets by foreign nationals and assets acquired by nri / pio by way of inheritance/legacy/ settlement

Foreign nationals, NRI/PIO can remit up to US $ 1 million per financial year out of balances held in NRO accounts / out of sale proceeds of assets / assets acquired by him by way of inheritance / legacy / settlement. As in the case of inheritance / legacy, remittance in case of settlement will be permitted only after the death of the settler. The person making the remittance will have to obtain a Chartered Accountant's certificate and / or give an undertaking in the prescribed form, as the case may be.

This facility is not available to citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan.

8.5 Temporary foreign currency accounts in India

Organizers of International Seminars, Conferences, Conventions, etc. who have been permitted by the concerned Administrative Ministry of the Government of India to hold such seminars, etc. are permitted to open temporary foreign currency accounts in India. The account is to be operated for receipt of delegate fees from abroad and payment of expenses including payment to special invitees from abroad. The said account has to be closed immediately after the conference/event is over.

Investments Facilities in Brief

Avenues of Investment	Instruments	Category of Investors
Public /Private Limited Companies	Shares/Compulsorily Convertible Debentures/ Compulsorily Convertible Preference shares	Non-Resident Indians/Non-resident/ Non-Resident Incorporated Entities/Foreign Institutional Investors
Public Limited Companies	NCDs	NRIs
Trading Companies	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	Non-residents
SSI Units	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	Non-residents
EOU or Unit in Free Trade Zone or in Export Processing Zone	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	Non-residents
Public/Private Ltd. Companies	Right Share	Existing shareholders/Renounces
Under Scheme of amalgamation/merger	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	Existing shareholders
Employees Stock Option	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	Employees resident outside India
ADR/GDR	Receipts	Non-residents
Portfolio Investment Scheme	Shares/Compulsorily Convertible Debentures/Compulsorily Convertible Preference shares	FIIs & NRIs
Investment in Derivatives (on non-repatriation basis)	Exchange Traded Derivatives	FIIs (on repatriation basis) & NRIs
Govt. Securities	Govt. dated Securities/Treasury Bills, Units of Domestic	NRIs & FIIs
	Mutual Funds, Bonds issued by PSUs and shares of Public Sector Enterprises being divested
Indian VCU or VCF or in a Scheme floated by VCF	SEBI Registered VCF/VC Units	SEBI Registered Foreign Venture Capital Investor