Lately, we might have seen the news on how different foreign investors have been splashing their money across Indian markets. Indian heavyweight giant Reliance Industry’s very own brand “Jio” which is a mobile phone and data provider was on an investment seeking spree with investments bagged from Facebook, Google, and other prominent investors. India has been on the rise and with a young and ready population eager to access technology and modern-day comforts, outside investments in Indian companies is becoming increasingly common. Let us look at some of the essential aspects to understand as a foreign investor before investing in India.
Foreign Direct Investment or FDI can be regarded as an investment made by one country’s company in another country. With such investment, the investors get some shared management of the company in the other country in which money is invested. India has an economy that regulates any transactions involving foreign investment. Foreign investment into India is permitted through the Automatic Route and Approval Route. However, investment in specific sectors like tobacco, atomic energy, real estate, the lottery business, and gambling are prohibited by the Reserve Bank of India (RBI). Other sectors like Insurance, Financial Services, Telecom, and E-Commerce have limits set up on the investment amounts allowed.
Foreign Portfolio Investment or FPI is also similar to FDI. If any foreign investor buys shares of an Indian company listed on the Stock Market but holds less than 10 percent, it is called FPI. These investments are in the form of shares and bonds. Foreign Portfolio Investment is usually short-term. Seeing profit and loss, a portfolio investor can leave the Indian company by selling shares and bonds. FPI is regulated by the Securities and Exchange Board of India (SEBI).
About the procedures related to foreign investment, apart from securing the main agreements such as Heads of Terms, due diligence, a share subscription agreement, a shareholders agreement, amending any key director/employee agreement, amending Articles of association and other completion formalities as per Indian regulations, numerous other approvals and customs clearance procedures are required in some sectors. For example, there must be proper permission under the terms of water and air pollution control laws for investment. Registrations that fall under state and central laws must be looked after as is authorization of land use in a factory located outside an industrial zone.
Mergers and acquisitions are generally governed in India by the Company Act 2013 and industry-specific laws. In the case of listed companies, it is necessary to comply with the regulations laid down by the SEBI. If a merger has cross-border aspects, the parties must respect, among other things, the government policy on foreign direct investment and the management of foreign exchange operations. Environmental approval from the Ministry of Environment and Forestry is required for foreign capital investment in petrochemical complexes, oil refineries, cement, thermal power stations and bulk drugs. Apart from these criteria, investment aid such as Temporary tax exemption, tax favours, import of capital goods at preferential customs duty rates, special economic zones and bilateral investment protection agreements with the countries that investors are from are other criteria to be considered.
We can help UK companies invest in India and expect this sector to grow after Covid impacts lessen in 2021. Please contact Reina D’costa our dual qualified UK/India consultant solicitor at r.dcosta@360lawservices.com to see how we can help your business invest in India.