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With todays newsletter, we will be staring a new series titled Regulatory Framework for Foreign Investments in
India, in which, we will give an overview on the entire range of foreign investments regulations in India.
Foreign investments in India are governed under the Foreign Exchange Management Act, as notified by Reserve
Bank of India from time to time. The below schematic representation gives the different routes for foreign
investments in India,
Schematic Representation of Foreign Investments in India
Foreign
Investments
Foreign Direct
Investments
Automatic Route
Government Route
Foreign Portfolio
Investors and Other
Investors
Foreign Venture
Capital Investments
SEBI registered
Foreign Venture
Capital Investors
(FVCIs)
External Commercial
Borrowings (ECBs) &
Foreign Currency
Convertible Bonds
(FCCBs)
Eligible Investors
Venture Capital
Funds (VCFs), which
will now shift to the
new regime of
Alternative
Investment Funds
(AIFs)
Given below is a brief description of each of the different routes for foreign investments,
1. Foreign Direct Investments Equity and Convertible Instruments
Foreign Direct Investment (FDI) in India is undertaken as per the FDI Policy formulated by the Department of
Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India. The latest
consolidated FDI policy circular is available here.
Under FDI, investments can be made in equity shares, mandatorily and fully convertible debentures and
mandatorily and fully convertible preference shares of an Indian company by non-residents through two routes:
Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not require any
approval from the Reserve Bank or Government of India for the investment.
Government Route: Under the Government Route, the foreign investor or the Indian company should obtain
prior approval of the Government of India through the Foreign Investment Promotion Board (FIPB), Department
of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may
be.
Limit
Eligible Investor
Remarks
Eligible borrowers can raise ECB/FCCB from internationally recognized sources, such as (a) international banks,
(b) international capital markets, (c) multilateral financial institutions/regional financial institutions and
Government owned development financial institutions, (d) export credit agencies, (e) suppliers of equipments,
(f) foreign collaborators and (g) foreign equity holders
Through the above routes, foreign investors can invest in a wide range of equity and debt instruments in India.
In subsequent newsletters, we will focus further on particular aspects of the above regulatory framework.