Sunday, 16 November 2014

Foreign Direct Investment

The Indian Economy was famously called a License Raj in the 1960s, 70s and 80s. It has now turned full circle by transforming itself into a liberalized economy. The Industrial Policy of 1991 paved the way for economic liberalization of the Indian Economy, which led to billions of dollars finding its way into India as Foreign Direct Investment (FDI). All the major MNCs across the world now have their presence in India in diverse sectors such as telecommunication, banking, insurance, manufacturing, software development, services, construction, trading, etc.

The Government now controls only key areas such as Railways, Atomic Energy etc. Most of the business sectors are now 100% open to foreign investment.
There are now only a handful of business areas where 100% FDI is restricted and even in these FDI is permitted up to 74%.
Further almost all the business sectors where 100% FDI is permitted have been put on the Automatic Approval Route which implies that there is no impediment in the foreign company in proceeding straight away with the establishment of the required legal entity and commencing its business operations. The required approvals for the foreign investment can be obtained post incorporation of the legal entity.
In areas where the FDI is not available under the automatic approval route, prior approval is required from the Foreign Investment Promotion Board.
The requirement of a license to carry on a business has been done away in most business activities and compulsory licensing is restricted only a few areas. However companies are required to file an Industrial Entrepreneurs Memorandum (IEM) with the relevant authorities before commencement of business.
The firm has assisted hundreds of foreign companies to invest in India across diverse business sectors and foreign direct investment is one of the firm’s key practice areas.

FDI in India normally takes the equity route and foreign companies prefer to incorporate their Wholly Owned Subsidiary (WOS) in India and control 100% of their foreign investment. However when the FDI Policy does not permit 100% of the shares to be held by a foreign company in an Indian company due to the Sectoral Cap the foreign investment must take the Joint Venture route.

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