Foreign Direct Investment Policy, 2020
Foreign Direct Investment Policy, 2020
The Department of Industry and Internal Trade, Government of India released the consolidated Foreign Direct Investment (FDI) policy 2020, which is a single document containing all the decisions that have been taken by the Government with respect to FDI in the last three years. As per the Commerce and Industry Ministry, the policy has come into effect from October 15, 2020. The Present article tries to clear up the basic provisions relating to Foreign Direct Investment policy, 2020.
Eligible Investors
As per the Foreign Direct Investment policy, the following are the eligible investors:
- A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited
- NRIs resident in Nepal and Bhutan, as well as citizens of Nepal and Bhutan, are permitted to invest in the capital of Indian companies on repatriation basis
- OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments as incorporated non-resident entities by the FDI Policy and Foreign Exchange Management (Non-Debt Instrument) Rules, 2019.
- A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy
- Foreign Portfolio Investors (FPI) may make investments
- Registered FPIs and NRIs can invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges
- A Foreign Venture Capital Investor (FVCI) may make investments
Note: An NRI or an OCI may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act.
Eligible Investee Entities
Indian Company
Indian companies can issue capital against foreign direct investment (FDI)
Partnership Firm/Proprietary Concern
- A Non-Resident Indian (NRI) can invest in the capital of a firm or a proprietary concern in India on the non-repatriation basis provided
- The amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks
- The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector
- Amount invested will not be eligible for repatriation outside India
Trusts
Trusts Investment by a person resident outside India is not permitted in Trusts other than in ‘VCF’ registered and regulated by the Securities and Exchange Board of India and Investment vehicle.
Limited Liability Partnerships (LLPs)
Foreign Investment in LLPs is permitted subject to the following conditions:
- Foreign Investment is permitted under the automatic route in Limited Liability Partnership (LLPs)
- An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.
- Conversion of an LLP having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into a company is permitted under automatic route
- Foreign Investment in LLP is subject to the compliance of the conditions of LLP Act, 2008
Investment Vehicle
An entity being ‘investment vehicle’ registered and regulated under relevant regulations framed by SEBI
Startup Companies
Start-ups can issue equity or equity-linked instruments or debt instruments to Foreign Venture Capital Investors (FVCI) against receipt of foreign remittance, as per the Schedule VII of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
Entry Routes for Investment
Investments can be made by non-residents in the equity shares or fully, compulsorily and mandatorily convertible debentures or fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route.
Automatic Route
As per the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.
Government Route
As per the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government Route, are considered by respective Administrative Ministry/Department
CAPs on Investments
Investments can be made by a person resident outside India in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy.
Entry Conditions on Investment
Investments by non-residents can be permitted in the capital of a resident entity in certain sectors/activity with entry conditions. Such conditions may include norms for minimum capitalization, lock-in period, etc.
Foreign Investment Into/Downstream Investment by Eligible Indian Entities
Downstream investment’ means indirect foreign investment, by an eligible Indian entity, into another Indian Company/LLP, by way of subscription or acquisition. Please click on the official link to know more about the guidelines for calculation of an indirect foreign investment.
Procedure for Government Approval
Competent Authority
Following are the Competent Authorities for grant of approval for foreign investment for sectors/activities requiring Government approval:
| Sl.No | Activity/ sector | Administrative Ministry/ Department |
| 1 | Mining | Ministry of Mines |
| 2 | Broadcasting | Ministry of Information & Broadcasting |
| 3 | Print Media/Digital Media | Ministry of Information & Broadcasting |
| 4 | Civil Aviation | Ministry of Civil Aviation |
| 5 | Satellites | Department of Space |
| 6 | Telecommunication | Department of Telecommunications |
| 7 | Private Security Agencies | Ministry of Home Affairs |
| 8 | Applications involving investments from an entity of a country, which shares a land border with India | Concerned Administrative Ministry/Department as identified by the DPIIT |
| 9 | Trading (Multi-Brand Retail Trading and Food Product retail trading) | Department for Promotion of Industry and Internal Trade |
| 10 | FDI proposals by Non-Resident Indians (NRIs)/ Export Oriented Units | Concerned Administrative Ministry/Department as identified by the DPIIT |
| 11 | Applications relating to the issue of equity shares for pre-operative/pre-incorporation expenses (including payments of rent etc.) | Concerned Administrative Ministry/Department as identified by the DPIIT |
| 12 | Financial services activity which is not regulated by any Financial Sector Regulator | Department of Economic Affairs |
| 13 | Applications for foreign investment into a Core Affairs Investment Company or an Indian company | Department of Economic Affairs |
| 14 | Banking (Public and Private) | Department of Financial Services |
| 15 | Pharmaceuticals | Department of Pharmaceuticals |
Documents Required for Government Approval
The following documents need to be uploaded at the time of submission of application
- Summary of Proposal on Company(Applicant) Letterhead
- Certificate of Incorporation(COI) (Investee/Investor/Downstream)
- Memorandum of Association(MOA) (Investee/Investor/Downstream)
- Board Resolution(Investee/Investor/Downstream)
- Audited Financial Statement of Last Financial Year(Investee/Investor/Downstream)
- Article of Association(Investee/Investor/Downstream)
- LLP Draft
- LLP Agreement
- Income Tax Return of Last Year
- Passport Copy/ Identification Proof
Other Documents
- A copy of the JV agreement/shareholders agreement/ technology transfer/trademark/brand assignment agreement (as applicable), in case there are existing ventures.
- Board resolution of any joint venture company(if required)
- Certificates of Incorporation and charter documents of any joint venture/company which is a party to the proposed transaction
- Certification for LLP cases compliance
- Copy of Downstream Intimation
- Copy of relevant past FIPB/SIA/RBI approvals, connected with the current proposal(In case of amendment proposal)
- Diagrammatic representation of the flow and funds from the original investor to the Investee Company and Pre and Post shareholding pattern of the Investee Company
- FIRC
- In the cases of investments by entities which themselves are pooled investment funds, the details such as names and addresses of promoters, investment managers as well as all the contributors to the investment fund.
- List of the downstream companies of the Indian company and the details of the equity held by the Indian Company along with the details of the activities of the companies
- Self Certificate of the documents/ for the affidavit.
- The comments of the Indian partners/ technical/ trademark collaborators about the new venture, on their official letterheads, with name and contact address of the signatory of the comments.
- The No Objection Certificate from the State Government (in case of repatriation under real estate sector)
- Valuation certificate as approved by a CA
Pharma Documents
- Balance sheets of the last two years of Investee Company
- Certificate Regarding non-compete Clause
- If the investee company possess any advanced/critical technology, the details need to be furnished. Proposal and possibility of any technology transfer after the induction of FDI may also be indicated.
- Name and quantities of the products (both bulk drug and formulations) actually manufactured by investee Pharma Company during the last 3 financial years.
- Name of NLEMs manufactured along with corresponding qualitative production during the last 3 financial years.
- Name of Products approved by concerned state drug controller
- The details of any technology transfer after the induction of FDI(in case of pharmacy)
Security Clearance Form
Security Clearance Form
Online Filing of Applications For Government Approval
The applicant needs to access the Foreign Investment Facilitation Portal (FIFP) for filing Applications For Government Approval:
Registering with FIFP
To apply online with Foreign Investment Facilitation Portal, the entity must register with the portal, the process for registering is explained here:
Access the official webpage of Foreign Investment Facilitation Portal web portal, from the home page click on Registration option.
In the new window, provide the following details for registration:
- Name of Applicant Company/LLP
- Contact Details Applicant Company/LLP
- Contact Details of Consultant
By clicking on the Register option, an OTP will be sent to the applicant’s mobile, provide the same on the space provided.
Using the user name and password, the entity can log in to Foreign Investment Facilitation Portal portal.
Apply for Licence
After successful login, click on Comprehensive Corner and Forms. Click on the ‘Licence (IL-FC) option. (The applicant can save the draft of the application form after each section is completed. To re-open the application form, the applicant shall use the application number to continue)
The Licence (IL-FC) form is reproduced below for reference
il-form (2)- Attach all the relevant documents as mentioned above. After applying, the applicant will receive an intimation to submit the physical copy of the application to the concerned authority.
Note: (The applicant must submit the hard copy to the relevant authorities within 10 days of the application submitted online).
- For Security clearance, fill the self-declaration form and attach the format of Security clearance form is reproduced below:
