Foreign Collaborations in India

The Indian Government embarked on liberalizing the Indian regulatory

framework with specific reference to foreign investment, through the Statement
on Industrial Policy of 1991. Since then the Indian regulatory environment for
foreign investment has been eased consistently to make it increasingly investorfriendly.
Under the current FDI framework, foreign investment is permitted from all
categories of investors and in all sectors except
Citizens/entities of Pakistan and Bangladesh
Certain sectors, namely :
Atomic Energy
Lottery Business/ Gambling & Betting
Agriculture (excluding floriculture, horticulture, seed development, animal
husbandry, pisciculture and cultivation of vegetables, mushrooms etc.)
Plantations (excluding Tea plantation)
Retail Trading (other than Single Brand retail)
For other sectors, there are two approval routes for foreign investment in India:
Automatic route under delegated powers exercised by the Reserve Bank of
India (RBI),
Approval by the Government through the Foreign Investment Promotion
Board (FIPB) under the Ministry of Finance.
These are discussed in brief below.
Automatic Route
FDI is permitted under the automatic route (i.e. without requiring prior
approval) for all items/activities except the following:
where the foreign collaborator has an existing venture/tie-up in India in the
same field (same field means 1987 NIC code) as on January 12,
2005, with the exception of following cases which would not require prior FIPB
approval :
- investment by a Venture Capital Fund registered with SEBI;
- existing joint venture has less than 3% investment by either party;
- existing joint venture is defunct or sick.

 proposals falling outside notified sectoral policy/caps or sectors in which FDI

is not permitted.
FIPB Route
In all other cases of foreign investment, where the project does not qualify for
automatic approval, as given above, prior approval is required from FIPB.
Decision of the FIPB is normally conveyed within 30 days of submitting the
application. The proposal for foreign investment is decided on a case-to-case
basis depending upon the merits of the case and in accordance with the
prescribed sectoral policy.
Generally, preference is given to projects in high priority industries,
infrastructure sector, those having export potential, large-scale employment
opportunities, linkages with agro sector, social relevance or relating to infusion of
capital and induction of technology.
Downstream investment
Downstream investments by foreign owned Indian holding companies are
treated at par with FDI guidelines. Prior approval of FIPB is required to act as a
holding company.
Domestic funds cannot be leveraged by the foreign owned Indian holding
company for downstream investments.
Investment by Non Resident Indians (NRIs)
NRIs are also permitted to purchase and sell shares/convertible debentures
under the portfolio investment scheme on repatriation and/or non repatriation
basis through a branch designated by an authorised dealer for the purpose and
duly approved by the RBI, subject to fulfillment of certain conditions.
Under the non-repatriation scheme (i.e. capital is not repatriable outside India),
NRIs are permitted to invest in all activities except in a company which is a ChitFund or a Nidhi Company or is engaged in agricultural / plantation activities, or
real estate business1, or construction of farmhouses or dealing in transfer of
development rights.
The total holding by each NRI cannot exceed 5% of the total paid up equity
capital or 5% of the paid up value of each series of convertible debentures issued

by an Indian company. Further, the total holdings of all NRIs put together cannot
exceed 10% of paid up equity capital or paid up value of each series of
convertible debentures. This limit of 10% may be increased to 24% by the
concerned Indian company by sanction of the shareholders through a special
resolution.
Investment by Way of Acquisition of Shares
Acquisitions may be made from an existing Indian company which is either a
privately held company or a company in which public are interested i.e., a
company listed on stock exchange, provided a resolution to this effect has been
passed by the Board of Directors of the Indian Company.
Acquisition of shares of a public listed company is subject to the guidelines of the
Securities Exchange Board of India (SEBI). SEBI's Take-Over Code Regulations
require that any person acquiring 15% or more of the voting capital in a public
listed company should make a public offer to acquire a minimum 20% stake from
the public.
Foreign investors looking at acquiring equity in an existing Indian company
through stock acquisitions can do so under the automatic route. In case of
financial services sector also, stock acquisitions will be allowed under the
automatic route, provided (i) approvals from RBI/SEBI/IRDA are obtained; (ii)
the non-resident share holding after transfer complies with sectoral limits under
FDI Policy.
As per RBI valuation norms, acquisition price should not be lower than
Prevailing market price, in case of listed companies,
Fair Market Value as per CCI valuation guidelines, in case of unlisted
companies.
Investment by Foreign Institutional Investors
A registered Foreign Institutional Investor (FII) may, through SEBI, apply to RBI
for
1 For this purpose, Real estate business does not include development of
township, construction of residential/commercial premises, roads, bridges, etc.

permission to purchase the shares and convertible debentures of an Indian

company under Portfolio Investment Scheme.
FIIs are permitted by RBI to purchase shares/convertible debentures of an Indian
company through registered brokers on recognized stock exchanges in India.
They are also permitted to purchase shares/convertible debentures of an Indian
company through private placement/ arrangement.
The total holding by each FII / SEBI approved sub-account of FII cannot exceed
10% of the total paid-up equity capital or 10% of the paid-up value of each series
of convertible debentures issued by an Indian company. Further, the total
holdings of all FIIs/sub-accounts of FIIs put together cannot exceed 24% of paidup equity capital or paid-up value of each series of convertible debentures. This
limit of 24% may be increased to the specified sectoral cap / statutory ceiling, as
applicable, by the Indian company concerned by passing a Board of Directors'
resolution followed by sanction of the shareholders through a special resolution
to that effect.
For promoting an industrial environment, which accords priority to the
acquisition of technological capability, foreign technology induction is
encouraged both through FDI and through foreign technology collaboration
agreements. Foreign collaboration agreements are permitted either through the
automatic approval route or with prior approval from the Government.
Automatic Approval
No approvals are required in respect to all those foreign technology agreements,
which involve:
a lump sum payment of up to USD 2 million;
royalty1 payable up to 5 per cent on net domestic sales and 8 per cent on
exports, subject to a total payment of 8 per cent on sales, without any restriction
on the duration of royalty payments;
Government Approval
Approval from the DIPP, Ministry of Commercial & Industry is necessary for the
following categories of foreign technical collaboration agreements:
Proposals attracting compulsory licensing;

 Items of manufacture reserved for the small-scale sector;

Proposals involving any existing joint venture, or technology transfer/
rademark agreement in the `same field in India;
Proposals not meeting any or all of the parameters for automatic approval.
It is permissible for an Indian Company to issue equity shares against lumpsum
fee and royalty in convertible foreign currency already due for payment /
repayment, subject to meeting all applicable tax liabilities and procedures.
Technology Transfer
1 Royalty is to be calculated on the basis of the net ex-factory sale price of the
product, exclusive to excise duties minus the cost of standard boughtout
components and the landed cost of imported components, irrespective of the
source of procurement, including ocean freight, insurance, customs duties etc.
Chapter 6 Funding Options
A foreign company which sets up a subsidiary in India can fund its Indian
subsidiary through alternative options which primarily consist of the following:
Regulatory Approvals
In accordance with FDI guidelines (see Chapter 5).
Tax Implications on Dividends
Dividends paid by Indian Company would be exempt from tax in India in
hands of the shareholder.
A 12.5% (plus 10% surcharge + 2% Education cess) distribution tax would be
required to be paid by Indian Company in respect of any dividends paid to
shareholders.
Transfer to Reserve Rules
Corporate laws in India provide for a mandatory transfer of distributable profits
to free reserves of the Indian company on the event of dividend declaration. In
case Indian Company declares dividend in excess of 20% of paid up capital,
minimum 10% of distributable profits would be required to be transferred to
statutory free reserves.
Amounts transferred to statutory reserves can be ploughed back into the
business of the company. These can be distributed to equity shareholders only on
liquidation or in case of inadequate profits (as per prescribed conditions).

Repatriation of Capital
Equity funds can be repatriated only on liquidation or on transfer of shares.
Limited buy-back provisions are available under corporate laws.
Indian companies can mobilize foreign investments through issue of preference
shares for financing their projects / industries. Foreign investment through
preference shares is treated as FDI. All preference shares have to be redeemed
out of accumulated profits / fresh capital within a period of 20 years as per
Indian Company Law. The proposals are processed either through the automatic
route or FIPB route as the case may be. The following guidelines apply:
Issue of preference shares is permissible only as rupee denominated
instrument in accordance with Indian Companies Act.
Preference shares, carrying a conversion option, are considered as foreign
direct equity for purposes of sectoral caps on foreign equity. If the preference
shares are structured without conversion option, they fall outside the FDI cap.
The dividend rate should not exceed the limit prescribed by the Ministry of
Finance (currently fixed at 300 Basis Points above State Bank of India's Prime
Lending Rate)
Mobilization of Funds through External Commercial Borrowings (ECBs)
Indian companies (other than financial intermediaries) are allowed to raise ECBs
from any internationally recognized source such as banks, financial institutions,
export
Equity Capital Preference Shares Foreign Currency Debt (ECB)
credit agencies, suppliers of equipment, foreign collaborators, foreign equity
holders.
ECB can be raised from foreign equity holders holding the prescribed minimum
level of equity in the Indian borrower company:
ECB up to USD 5 million minimum equity of 25% held directly by the lender;
ECB more than USD 5 million minimum equity of 25% held directly by the
lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB not
exceeding four times the direct foreign equity holding).
The prevailing ECB policy stipulates certain end-uses:

 For import of capital goods, new projects, modernization / expansion in real

sector - industrial sector and infrastructure sector - in India.
For overseas acquisition by Indian Companies
1st stage acquisition of shares in disinvestment process and in the public offer
stage under the Government's disinvestment program.
ECBs not permitted for working capital / on-lending / investment in capital
market / in real estate (excluding integrated townships).
ECBs should have the following prescribed minimum average maturities:
Minimum 3 years average maturity for ECBs equal to or less than USD 20
million, otherwise 5 years
'All-in-cost ceiling' are as given below:
3-5 years maturity 200 basis points over 6-month LIBOR
> 5 years maturity 350 basis points over 6-month LIBOR
Guarantees / standby letter of credit by banks, financial institutions are not
permitted.
The approval requirements for ECBs have been significantly liberalized. No prior
approvals are required in respect of ECBs complying with the prescribed
minimum maturity, "all-in-cost" ceilings and end-use requirements. All other
ECBs require prior approval from an empowered committee of RBI.
Indian corporates raising ECBs have to retain the funds abroad until the time of
their utilization.
The current guideline for prepayment of ECBs states that prepayment upto USD
200 million can be done without any approvals, subject to compliance with the
minimum average maturity of the loan.
It is permissible for an Indian Company to issue equity shares against external
commercial borrowings in convertible foreign currency already due for
payment / repayment, subject to meeting all applicable tax liabilities and
procedures.
Foreign investment through GDRs/ADRs/FCCBs is also treated as FDI. Indian
companies are permitted to raise capital in the international market through the
issue of GDRs/ADRs/FCCBs, subject to certain restrictions.
Issue of ADRs / GDRs does not require any prior approvals (either from
Ministry of Finance / FIPB or RBI) except where the FDI after such issue would
exceed the

sectoral caps (as specified under Automatic Route on page 10), in which case
prior approval from FIPB would be required. Issue of FCCBs up to USD 500
million also does not require any prior approvals. Only companies listed on the
stock exchange are allowed to raise capital through GDRs/ADRs/FCCBs.
Global Depository Receipts (GDRs) /
American Depository Receipts (ADRs) /
Foreign Currency Convertible Bonds (FCCBs)
Chapter 7
Significant Exchange Control Regulations Exchange control is regulated under
the Foreign Exchange Management Act (FEMA), 1999. The Indian Rupee is fully
convertible for current account transactions, subject to a negative list of
transactions that are prohibited / require prior approval.
A foreign-invested Indian company is treated on par with other locally
incorporated companies. Accordingly, the exchange control laws and regulations
for residents apply to foreign-invested companies as well.
Under the FEMA, foreign exchange transactions have been divided into two
broad categories - current account transactions and capital account transactions.
Transactions that alter the assets or liabilities outside India of a person resident in
India or in India, of a person resident outside India have been classified as capital
account transactions. All other transactions would be current account
transactions.
Foreign nationals/ Indian citizens who are not permanently resident in India and
have been deputed by a foreign company to its office / branch / subsidiary / JV
in
India are allowed to make recurring remittances abroad for family maintenance
up to 100% of their net salary. Further, up to 75% of salary of a foreign national/
Indian citizen deputed by a foreign company to its Indian office / branch /
subsidiary / JV can be paid abroad by the foreign company subject to the foreign
national / Indian citizen paying applicable taxes in India.
Prior approval of the RBI is required for acquiring foreign currency above certain
limits for the following purposes:

 Holiday travel over USD 10,000 per person p.a.

Gift over USD 5,000 / donation over USD 10,000 per remitter / donor p.a.
Business travel over USD 25,000 per person per visit
Foreign studies as per estimate of institution or USD 100,000 per academic
year, whichever is higher
Consultancy services procured from abroad over USD 1,000,000 per project
Remittance for purchase of Trade Mark / Franchise
Reimbursement of pre incorporation expenses over USD 100,000
Certain specified remittances are prohibited:
Remittance out of lottery winnings
Remittance of income from racing / riding etc. or any other hobby
Remittance for purchase of lottery tickets, banned / prescribed magazines,
football pools, sweepstakes etc
Payment of commission on exports made towards equity investments in Joint
Ventures/ Wholly Owned subsidiaries abroad of Indian Companies.
Payment of commission on exports under the Rupee State Credit Route
Payment related to Call Back Services of telephones
Current Account Transactions
Capital account transactions can be undertaken only to the extent permitted. RBI
has prescribed a list of capital account transactions, which inter alia include the
following:
investments overseas by residents (please refer to Chapter 5 for details)
borrowing / lending in foreign exchange
export/ import of currency
transfer / acquisition of immovable property in / outside India Remittances
exceeding USD 25,000 p.a. (over and above ceilings prescribed for other
remittances mentioned above) by a resident individual for any current account or
capital account transaction.
Foreign capital invested in India is generally repatriable, along with capital
appreciation, if any, after the payment of taxes due on them, provided the
investment was on repatriation basis
Acquisition of immovable property in India : Generally foreigners are not
permitted to acquire immovable property except in certain cases, where the

property is required for the business of the Indian branch / office / subsidiary of
the foreign entity. NRI/ PIOs are also permitted to acquire certain properties.
Royalties and Technical Know-how Fees: Indian companies that enter into
technology transfer agreements with foreign companies are permitted to remit
payments towards know-how and royalty under the terms of the foreign
collaboration agreement, subject to limits. (Please refer to Chapter 5).
Dividends: Dividends are freely repatriable after the payment of Dividend
Distribution Tax by the Indian company declaring the dividend. No permission
of RBI is necessary for effecting remittance, subject to specified compliances
Other Remittances: No prior approval is required for remitting profits earned by
Indian branches of companies (other than banks) incorporated outside India to
their Head Offices outside India. Remittances of winding-up proceeds of a
branch / liaison office of a foreign company in India are permitted subject to RBI
approval. Remittances of winding-up proceeds of a project office of a foreign
company in India are permitted under the automatic route subject to fulfillment
of necessary compliances.
The RBI does not permit netting of payments for remittances and requires that all
accruals from overseas be repatriated into the country.
Repatriation of Capital Netting Capital Account Transactions
Tax Incentive Schemes
The EOU Scheme was introduced by the Government in 1980 with a view to
promoting exports.
EOUs are extended a host of incentives and facilities, including duty free
imports of all types of capital goods, raw material, and consumables as well as
tax deductions against export income.
These units are permitted to be set up for a varied range of business activities
including manufacture, services, software development, agriculture, aquaculture,
animal husbandry, floriculture, horticulture and sericulture.
Please refer to Annexure 1 for details of incentives and benefits available to
EOUs.

Tax Incentives
Undertakings set-up in EOUs are eligible for a deduction of 100% on the profits
derived therefrom up to 31st March 2009.
The SEZ Policy was introduced by the Government in 2000 with a view to
providing an internationally competitive and hassle free environment for exports.
The SEZ Act, 2005 provides the umbrella legal framework, covering all important
legal and regulatory aspects of SEZ development as well as for units operating in
SEZs.
SEZs are duty free enclaves, deemed to be outside the customs territory of India
for the purposes of carrying out authorised activities. At present there are 22
operational SEZs in India. In addition, about 200 SEZs are in various stages of
approval and establishment spread throughout the country.
SEZ developers are entitled to 100% tax holiday for 10 continuous years out of 15
years with exemption from minimum alternate tax as well as dividend
distribution tax.
Expenditure on the developing of the SEZ shall also be exempt from all duties of
customs, excise, CST, service tax, etc.
SEZ units shall enjoy 100% tax holiday for 5 years and 50% for the next 10 years
out of profits derived from actual exports of goods and services.
Please refer to Annexure 2 for the salient features and benefits of the SEZ Policy.
In a bid to enhance the export potential of the electronics industry and develop
an efficient electronic component and information technology industry, EHTP
and STP schemes have been announced which offer a package of incentives and
facilities like duty free imports in line with the EOU scheme, deemed exports
benefits and tax holidays. Export oriented IT enabled services like call centers,
data processing, medical transcription etc. are also eligible to be registered under
the STP scheme.
The Directors of STPs in respect of STP proposals and the Designated Officers in
respect of EHTP proposals accord automatic approval subject to compliance with
the same set of conditions as are applicable to EOUs.

Tax Incentives
Undertakings set-up in Electronic Hardware Technology Park (EHTP) or
Software Technology Park (STP), are eligible for a deduction of 100% of export
profits derived therefrom for any ten consecutive years from the year in which
such the undertaking.
Export Oriented Units (EOUs) Special Economic Zones (SEZs) Electronic
Hardware Technology Park (EHTP) and Software Technology Park (STP)
Schemes
begins manufacturing or commences its business activities. In any case, such
deduction would be available only up to 31st March 2009.
The salient features and benefits of the STP Scheme are given in Annexure 3. The
Industrial Parks Scheme has been introduced with a view to enhance the
development of infrastructure facilities for the purposes of industrial use.
Secretariat for industrial Assistance, Department of Industrial Policy and
Promotion (DIPP) accords approval to set up Industrial Parks, which meet all the
criteria laid down for automatic approval like minimum area required to be
developed, minimum number of industrial units to be provided, minimum
investment on infrastructure development etc.
For developers of Industrial Parks
100% tax deduction is available to the developers of Industrial Parks (notified by
DIPP on or before 31th March 2009) for any ten consecutive assessment years out
of fifteen years beginning from the year in which the undertaking or the
enterprise develops and begins to operate an industrial park.
Income tax holiday and excemption from CENVAT is available for units set up in
industrial parks in the states of Uttaranchal, Himachal Pradesh, Sikkim and
North East States, subject to certain conditions. These have been summarized
below:
Setting up of Industrial Parks Units in Industrial Parks in specified states State
Incentives Validity Period Eligible Units

Uttaranchal / 100% corporate tax 10 years Units in specified activities that (a)
Himachal holiday for first 5 years, begin manufacturing or (b) undertake Pradesh
balance years - 30% substantial expansion from Jan 7, 2003 upto March 31, 2012
100% exemption from 10 years New units commencing commercial production
CENVAT or existing units undertaking more than 25% expansion in installed
capacity on or after Jan 7, 2003 but before March 31, 2007 Sikkim 100% corporate
tax 10 years Units in specified activities that (a) begin holiday manufacturing or
(b) undertake substantial expansion from Dec. 23, 2002 upto Mar 31, 2012
Exemption of balance 10 years New units commencing commercial production
duty amount after setting or existing units undertaking more than 25% off
CENVAT credits expansion in installed capacity on or after December 23, 2002
but before March 31, 2007.
Other North- 100% corporate tax 10 years Units in specified activities that (a)
begin Eastern holiday manufacturing or (b) undertake substantial States
expansion from Dec 24, 1997 up to March 31, 2007
Exemption of balance 10 years New units commencing commercial production
duty amount after setting or existing units undertaking more than 25% off
CENVAT credits expansion on or after Dec. 24, 1997.
Undertakings engaged in prescribed infrastructure projects are eligible for tax
deduction of profits from relevant business as below: 100% tax deduction in a block of 20 years to undertakings engaged in
developing / operating and maintaining / developing, operating and
maintaining infrastructure facilities like roads, bridges, rail systems, water
supply projects, water treatment systems, irrigation projects, sanitation and
sewerage systems or solid waste management system.
100% tax deduction in a block of 15 years to undertakings involved in
developing / operating and maintaining, / developing, operating and
maintaining, ports, airports, inland waterways or inland ports. A similar
deduction is also available to undertakings set up before March 31, 2010 for
generation/ generation and distribution of power.
A two-tier benefit of 100 % tax deduction for first 5 years and a deduction of
30% of profits for the subsequent 5 years is available to undertakings which start
providing telecommunications services before March 31, 2005. The scope of

telecommunications services has been extended to include broadband network

and Internet services
Food Processing Units
A 100% tax holiday for first 5 years and a deduction of 30% (25% in case the
assessee is not a company) of profits for the next 5 years has been extended to
undertakings engaged in the business of processing, preservation & packaging of
fruits & vegetables or in the integrated business of handling storage and
transportation of food grains, starting operation on or after April 1, 2001.
Scientific Research & Development
A 100% tax holiday for a period of 10 consecutive years is available to a company
carrying on scientific research & development subject to fulfillment of certain
conditions. The time limit for obtaining approval from the prescribed authority
has been extended to March 31, 2007.
If certain conditions are met, deduction is available of one and one-half times of
scientific research expenditure incurred by a company on in-house R&D facility
in bio-technology or in the manufacture or production of drugs, pharma,
electronic equipments, computers, telecom equipments etc. This weighted
deduction is available till financial year 2006-07.
Tax Holiday In Respect Of Other Facilities
Tax Holiday in Respect of Infrastructure Project / Power / Housing
Entity Options in India
A foreign company looking at setting up operations in India has the following
options for formulating its entry strategy:
A foreign company can set up a wholly owned subsidiary company in India for
carrying out its activities. Such subsidiary is treated as an Indian resident and an
Indian Company for all Indian regulations (incl. Income Tax, FEMA and
Companies Act), despite being 100% foreign owned.
At least two and seven shareholders are mandatory for a private limited and
public limited company respectively.

Though a wholly owned subsidiary has been the most preferred option, foreign
companies have also been setting up shop in India by forging strategic alliances
with Indian partners. The trend in this respect is to choose a partner who is in the
same field/area of activity and has sufficient experience and expertise in the
relevant line of activity.
The foreign investment guidelines for setting up an Indian subsidiary company
or participating in a joint venture company with an Indian partner have already
been discussed in Chapter 5.
Setting up a Liaison or Representative Office is a common practice for foreign
companies seeking to enter the Indian market. The role of such offices is limited
to collecting information about the possible market and providing information
about the company and its products to prospective Indian customers. Such offices
act as listening and transmission posts and provide a two-way information
flow between the foreign company and the Indian customers. A Liaison Office is
not allowed to undertake any business activity other than liaison activities in
India and cannot, therefore, earn any income in India, in terms of the approval
granted by RBI.
Foreign Companies planning to execute specific projects in India can set up
temporary project /site offices in India for this purpose. RBI has granted general
permission to a foreign entity for setting up a project office in India, subject to
fulfillment of certain conditions. The foreign entity only has to furnish a report to
the jurisdictional Regional Office of RBI giving the particulars of the project /
contract.
Entry Strategy 1:
Operating as an Indian Company, through:
Option 1
Wholly owned Subsidiary Company
Option 2
Joint Venture with an Indian Partner preferably with majority equity
participation

Entry Strategy 2:
Operating as a
Foreign Company, through:
Option 1
Liaison Office
Option 2
Project Office
Foreign companies engaged in manufacturing and trading activities abroad can
set up Branch Offices in India for the following purposes, with the prior approval
of RBI:
Export/Import of goods,
Rendering professional or consultancy services,
Carrying out research work, in which the parent company is engaged,
Promoting technical or financial collaborations between Indian companies and
parent or overseas group company,
Representing the parent company in India and acting as buying/selling agent
in India,
Rendering services in Information Technology and development of software in
India,
Rendering technical support to the products supplied by parent/group
companies,
Foreign airline/shipping company.
In general, manufacturing activity cannot be undertaken through a branch office.
However, foreign companies can establish branch office / unit for manufacturing
in a SEZ subject to fulfillment of certain conditions.
Option 3
Branch Office
Summary of Guidelines for Foreign Direct Investment in Some Specific Sectors
A synopsis of the prevalent FDI caps in various sectors is given below:
Advertising industry : FDI is permitted up to 100% through the automatic route.
Film industry:

FDI in all film-related activities, such as film financing, production, distribution,

exhibition, marketing etc., is permitted up to 100% for all companies under the
automatic route.
No FDI/NRI investment is permitted in agriculture, other than in Tea sector
(including tea plantations), wherein 100% FDI is allowed. However, proposals for
FDI in tea plantations require prior approval of the FIPB and are subject to the
following conditions
Compulsory disinvestment of 26% equity in favour of an Indian partner/Indian
public within a period of five years
Prior approval of the State Government is required for any future change in
land use.
100% FDI in processing and warehousing of Coffee and Rubber is now permitted
under the automatic route.
FDI upto 49% permitted with prior FIPB approval. Where any individual
investment exceeds 10% of the equity, such investor shall not hold any controlling
interest in the ARC. Investments by FIIs are not allowed.
Under this sector, the following three activities are permitted to receive FDI/NRI
investments after approval from the FIPB:
Mining and mineral separation,
Value addition per se to the mining and mineral separation products,
Integrated activities (comprising of both the above).
FDI up to 74% is permitted in both pure value addition and integrated projects.
For pure value addition projects as well as integrated projects with value
addition up to any intermediate stage, FDI is permitted up to 74% through joint
venture companies with Central/State PSUs in which equity holding of at least
one PSU is not less than 26%. However, in exceptional cases, FDI beyond 74% will
be permitted subject to clearance of the Atomic Energy Commission before FIPB
approval.
Public Sector Banks FDI and portfolio investment allowed up to 20% under
the automatic route. Voting rights for shareholders is limited to 1%.
Private Sector Banks FDI (from all sources) up to 74% is allowed under the