Home       Top Rated       Submit Article     Advanced Search     FAQ       Contact Us       Lawyers in India       Law Forum     RSS Feeds     

Register your Copyright Online

We offer copyright registration right from your desktop click here for details.

Latest Articles | Articles 2014 | Articles 2013 | Articles 2012 | Articles 2011 | Articles 2010 | Articles 2009 | Articles 2008 | Articles 2007 | Articles 2006 | Articles 2000-05

Search On:Laws in IndiaLawyers Search

Mutual Consent Divorce in Delhi
We provide fast, cost effective and Hassle free solution.
Contact us at Ph no: 9650499965 (Divorce Law Firm Delhi)
File Caveat in Supreme Court
Contact Ph no: +9650499965

Main Categories
 Accident Law
 Animal Laws
 Aviation Law
 Bangladesh Law
 Banking and Finance laws
 Case Laws
 Civil Laws
 Company Law
 Constitutional Law
 Consumer laws
 Contracts laws
 Criminal law
 Drug laws
 Dubai laws
 Educational laws
 Employment / Labour laws
 Environmental Law
 family law
 Gay laws and Third Gender
 Human Rights laws
 Immigration laws
 Insurance / Accident Claim
 Intellectual Property
 International Law
 Juvenile Laws
 Law - lawyers & legal Profession
 Legal Aid and Lok Adalat
 Legal outsourcing
 Media laws
 Medico legal
 Pakistan laws
 Real estate laws
 Right To Information
 Tax Laws
 Torts Law
 Woman Issues
 Workplace Equality & Non-Discrimination
 Yet Another Category

More Options
 Most read articles
 Most rated articles

Subscribe now and receive free articles and updates instantly.


Published : May 10, 2010 | Author : lovejeet
Category : Banking and Finance laws | Total Views : 6983 | Unrated

Lovejeet Singh

New Consolidated Indian Foreign Direct Investment Policy

A new circular, Circular 1 of 2010 is issued by Department of Industrial Policy and Promotion (“DIPP”), Ministry of Commerce & Industry and Government of India in April 2010 consolidating all the prior policies/regulations on Foreign Direct Investment (“FDI”) issued by Foreign Exchange Management Act, 1999 (“FEMA”), Reserve Bank of India (“RBI”) Regulations under FEMA and Press Notes issued by DIPP. The consolidated policy is issued with an objective to provide a policy framework which is transparent and predictable.

Since the liberalization of foreign investment regime in India, the government has issued approximately 175 press notes on foreign investments and collaborations. Additionally various circulars and guidelines were issued by FEMA and RBI independent of the government press notes. Often it has been a painful exercise to harmonize the government press notes and guidelines of RBI and FEMA. Only the specialized experts were able to understand the norms associated with investments. Due to the lack of a single platform on FDI norms there were inconsistencies and vagueness in the governing laws leaving investors into confusions at times. In order to reduce the regulatory burden, all the guidelines are consolidated into one document. The disharmony that existed in the some pieces comes out starkly now as one goes through the consolidated document.

The new policy framework supersedes all the previous guidelines and press notes issued by various government authorities relating FDI as it is a compilation of all the previous guidelines issued relating FDI. The consolidated Circular will be updated every six months with the help of the Federation of Indian Chambers of Commerce & Industry (“FICCI”). The present Circular issued will be superseded by a circular to be issued on 30th September 2010.

The consolidated policy includes all the issues like types of instruments available for foreign investments, entry routes and conditions on investments, provisions regarding indirect foreign investments and downstream investments, policy on routes, caps and entry conditions of investment, remittance and repatriation and reporting of FDI are covered under the new policy in one document. Also several issues are clarified and various terms are precisely defined on which FDI policy was silent prior to the issue of this consolidated document.

The issues which are addressed and the terms which are defined in the consolidated document are as follows:-
1. A precise definition has been given to the term Capital. As stated in the policy, Capital means “equity shares; fully, compulsorily & mandatorily convertible preference shares; fully, compulsorily & mandatorily convertible debentures”.

2. Under the present policy, Indian companies can issue equity shares, fully and compulsorily convertible debentures, fully & compulsorily convertible preference shares to non-residents subject to pricing guidelines/valuation norms prescribed under FEMA. The pricing of the capital instruments should be decided / determined upfront at the time of issue of the instruments.

The pricing issue may be controversial sometimes as no specific mean to determine the price is given under this provision.

3. The inward remittance received via issuance of Foreign Currency Convertible Bonds (“FCCBs”) and Depositary Receipts (“DRs”) would be treated as FDI.

4. FDI policy was silent on the issuance of convertible warrants and partly paid-up shares by Indian companies to foreign investors. It only contemplated issuances of shares and debentures. Investors sought the approval of FIPB for the issuance of warrants and partly paid up shares. Now the issue has been clarified in the current policy. The circular clearly says that “any other type of instruments like warrants, partly paid shares etc are not considered as capital and cannot be issued to persons resident outside India”. It signifies that now FIPB does not have the power to issue convertible warrants and partly paid up shares to person resident outside India.

5. Another major change which can be noticed in the new policy is regarding investment in Venture Capital Fund (“VCF”) by Foreign Venture Capital Investor (“FVCI”). Earlier a registered FVCI may through SEBI, apply to RBI for permission to invest in VCF and permission may be granted by RBI subject to such terms and conditions as may be considered necessary. Now FVCI may contribute upto 100% capital in VCF and may also set up a domestic asset management company to manage the fund. However, now all such investments can be done through Government route subject to SEBI and RBI regulations. Also the investment in unregistered trust is totally restricted.

This move may help to curb money laundering through trusts that are not regulated as companies. However this may also dampen foreign investment through FVCI.

The Circular also provides additional information with respect to few sectors.

Cash and Carry Wholesale Trading
The operational guidelines are issued under sectoral policy for wholesale trading. FDI upto 100% is allowed in this sector through automatic route. The term ‘Cash and Carry Wholesale Trading’ was not defined earlier. The circular defines the term as to 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/exbonded warehouse business sales and B2B e-Commerce. These guidelines were not present in any of the earlier government press notes or FEMA regulations.

An additional guideline is also issued regarding wholesale trading. Wholesale Trading 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 and the wholesale made to the group companies should be for their internal use only.

It seems that an attempt is made to stop foreign traders from grabbing a huge share of front-end retail pie, in the name of wholesale trading. It poses a big threat to the participation of international wholesale retailers in the country’s retail development. However, apprehension and confusion have gripped the wholesale trading fraternity.

Construction development activities
The guidelines governing FDI prior to the consolidated policy prescribed the obligations related to restriction on sale of undeveloped plots and obtaining all the statutory 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 only for the investor company. Now the circular has imposed these obligations on the investor/investee company. It means approval may be obtained by any of them.

The powers given to investee company to obtain the necessary approvals may give more flexibility in the investments in construction development activities.

Security agencies in private sector
There were no guidelines prior to the consolidated policy regarding investment in security agencies. The circular quotes that majority shareholder cannot be a foreigner i.e foreign shareholding would be restricted to a maximum of 49% under the Government route.

The consolidated policy compiles all the statutory provisions governing FDI in one document giving more transparency and less regulatory burden to the investors. Also the clarification of several issues which were never addressed before removes ambiguity regarding those issues. However few of the new provisions may shrink foreign investments in few sectors. The effects of these provisions may be seen after the practical implementation of the provisions.

Authors contact info - articles The  author can be reached at: lovejeet@legalserviceindia.com

1 2 3 4 5
Rate this article!     Poor

Most viewed articles in Banking and Finance laws category
Amendment of 2013 of The Securitization And Reconstruction of Financial Assets And Enforcement Of Security Interest Act, 2002
The Reserve Bank of India and its functions
Protection of the interest of the investor
Applying the Usurious Loans Act of India
Legally Enforceable Debt u/s. 138 of the Negotiable Instruments Act, 1881
Reduction Of Capital, Does It Reduce Only Capital Or Even Minorities?
Working of Capital Market in India
Intellectual Property
Money Laundering
Indian Foreign Direct Investment Policy
Role of NGO in the WTO system
socio economic survey of the Project Affected Families of Kakinada SEZ Private Limited
Regionalism & Regional Trade Regulation
Recovery of Debts in Ancient India
Banking Frauds in India
Latest Financial Statement
Most recent articles in Banking and Finance laws category
Quash cheque bounce case
Financial Leasing
Insolvency and Bankruptcy Board of India
Tips to Revise A/C into NRO/NRE/ FCNR Prior to Immigration
History of Banking institution in India
Demonetization-Challenges In Cash Less Economy
Working of Capital Market In India
Money Laundering: An Insight
Algorithmic Trading
A case against system markets-automobile industry of India
Bank and Borrower a Relationship of Trust and Understanding
Futures and forward contracts
Debt Recovery Tribunal
Prohibition of Insider Trading Regulations, 2015
Working of Capital Market in India
Analysis of regulations governing IFSCs in India

Article Comments

there are no comments...

Post Your Comments


Your comments

Note : Your email address is only visible to admin, other members / users cannot see it.

You can use following FXCodes

BOLD : [b]
Italic : [i]

[b] Legal Services India [/b] is a [i]nice website[/i].
[url= http://www.legalservicesindia.com/article/ ]click here to visit.[/url]

Legal Services India is a nice website.
Click here to visit


Note : Currently, user comments are moderated and will be posted only after approval.

Please login or register a new free account.

Random Pick
Hierarchy of Case laws deciding whether renting of immovable property alone is exigible for service tax...

» Total Articles
» Total Authors
» Total Views
» Total categories

Law Forum

Legal Articles

Lawyers in India- Click on a link below for legal Services

lawyers in Chennai
lawyers in Bangalore
lawyers in Hyderabad
lawyers in Cochin
lawyers in Pondicherry
lawyers in Guwahati
lawyers in Nashik

lawyers in Jaipur
lawyers in New Delhi
lawyers in Dimapur
lawyers in Agra
Noida lawyers
lawyers in Siliguri

For Mutual consent Divorce in Delhi

Ph no: 9650499965
For online Copyright Registration

Ph no: 9891244487
Law Articles

lawyers in Delhi
lawyers in Chandigarh
lawyers in Allahabad
lawyers in Lucknow
lawyers in Jodhpur
Faridabad lawyers

lawyers in Mumbai
lawyers in Pune
lawyers in Nagpur
lawyers in Ahmedabad
lawyers in Surat
Ghaziabad lawyers

lawyers in Kolkata
lawyers in Janjgir
lawyers in Rajkot
lawyers in Indore
lawyers in Ludhiana
Gurgaon lawyers


India's Most Trusted Online law library
Legal Services India is Copyrighted under the Registrar of Copyright Act ( Govt of India) 2000-2017
 ISBN No: 978-81-928510-1-3