A.P. (DIR Series) Circular No. 6
All Category - I Authorised Dealer Banks
of sectoral caps and simplification of Foreign Direct Investment (FDI)
Attention of Authorised Dealer
Category - I (AD Category-I) banks is invited to the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside
India) Regulations, 2000, notified by the Reserve Bank vide Notification No. FEMA. 20/2000-RB dated 3rd May 2000 (FEMA
20), as amended from time to time.
2. The Central Government had
reviewed the extant FDI Policy on various sectors and has made amendments
in the Consolidated FDI Policy Circular 2015 vide Press Note No. 6(2015
Series) dated June 3, 2015, Press Note No. 7(2015 Series) dated June 3,
2015, Press Note No. 8(2015 Series) dated July 30, 2015, Press Note No.
11(2015 Series) dated October 1, 2015 and Press Note 12(2015 Series) dated
November 24, 2015.
3. While Authorised Dealers and
their constituents are advised to refer to the said amendments regarding
the changes made, some of the salient features are as under:
sectors where there is a limit/cap on foreign investment, such limit/cap
shall be reckoned in a composite manner. In other words, "sectoral
cap", i.e., the maximum amount which can be invested by foreign
investors in an entity will include all types of foreign investments,
direct and indirect, regardless of whether the said investments have been
made under Schedules 1, 2, 2(A), 3, 6, 8, 9 and 10 of FEMA (Transfer or
Issue of Security by Persons Resident Outside India) Regulations, 2000.
Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs)
having underlying of instruments which can be issued under Schedule 5,
being in the nature of debt, shall not be treated as foreign investment
under such composite limit/cap. However, any equity holding by a person
resident outside India resulting from conversion of any debt instrument
under any arrangement shall be reckoned as foreign investment under the
foreign investment" in an Indian company will be the sum total of
direct and indirect foreign investments.
investment up to aggregate foreign investment level of 49% or
sectoral/statutory cap, whichever is lower, will not be subject to either
Government approval or compliance with the sectoral conditions, as the case
may be, provided such investment does not result in change in ownership
leading to control of Indian entities [within the meaning of Regulation 14
(1) of Foreign Exchange Management (Transfer or issue of security by a
person resident outside India) Regulations, 2000] by non-resident entities.
Other foreign investments will be subject to conditions of Government
approval and compliance of sectoral conditions as laid down in the FDI
policy and the related Regulations under the Foreign Exchange Management
onus of compliance with the sectoral/statutory caps on foreign investment
and attendant conditions, if any, shall be on the company receiving foreign
company shall be considered as owned by resident Indian citizens if more
than 50% of the capital in it is beneficially owned by resident Indian
citizens and/or Indian companies, which are ultimately owned and controlled
by resident Indian citizens. A Limited Liability Partnership (LLP) will be
considered as owned by resident Indian citizens if more than 50% of the
investment in such an LLP is contributed by resident Indian citizens and/
or entities which are ultimately ‘owned and controlled by resident Indian
citizens’ and such resident Indian citizens and entities have majority of
the profit share.
shall include the right to appoint a majority of the directors or to
control the management or policy decisions including by virtue of their
shareholding or management rights or shareholders agreement or voting
agreement. For the purpose of LLP, ‘control’ shall mean right to appoint
majority of the designated partners, where such designated partners, with
specific exclusions to others, have control over all the policies of the
investment in LLP is permitted under the automatic route if the LLP is
engaged in sector where 100% FDI is allowed and there are no attendant FDI
linked performance conditionalities to the sector.
investment by way of swap of shares has been permitted provided the
resident company in which the investment is made is engaged in an automatic
route sector subject to the condition that irrespective of the amount,
valuation of the shares involved in the swap arrangement will have to be
made by a Merchant Banker registered with the Securities and Exchange Board
of India (SEBI) or an Investment Banker outside India registered with the
appropriate regulatory authority in the host country.
terms of the Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident outside India) (Amendment) Regulations, 2016 notified
vide Notification No. FEMA 361/2016-RB dated
February 15, 2016, a Non-resident Indian (NRI) has been permitted to
purchase or sell shares, convertible preference shares, convertible
debentures and warrants of an Indian company or units of an investment
vehicle, on repatriation basis (under Schedule 3 to FEMA 20) and
non-repatriation basis (under schedule 4 to FEMA 20) . Investment by an
NRI, including a company, a trust and a partnership firm incorporated
outside India and owned and controlled by NRI, on non-repatriation basis
under Schedule 4 of notification ibid, will be deemed to be domestic
investment at par with the investment made by residents.
investment up to 100 percent under the automatic route has been permitted
in the plantation sector which includes tea plantations, coffee
plantations, rubber plantations, cardamom plantations, palm oil tree
plantations and olive oil tree plantations. There have been changes in the
foreign investment cap in other sectors. The updated Annex-B to schedule-1
has been notified vide Notification No. FEMA
362/2016-RB dated February 15, 2016.
estate business" shall mean dealing in land and immovable property
with a view to earning profit therefrom and does not include development of
townships, construction of residential / commercial premises, roads or
bridges, educational institutions, recreational facilities, city and
regional level infrastructure, townships. Further, earning of rent income
on lease of the property, not amounting to transfer, will not amount to
“real estate business”.
has been given a precise definition and foreign investment up to 100% under
the automatic route is permitted in manufacturing subject to the conditions
of the FDI policy and the provisions of the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India)
Regulations, 2000. A manufacturer is permitted to sell its products
manufactured in India through wholesale and/or retail, including through e-commerce
without Government approval.
entity engaged in single brand retail trading operating through brick and
mortar stores, is permitted to undertake retail trading through e-commerce.
4. To effect these changes the
Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000 have been amended through the
Foreign Exchange (Transfer or Issue of Security by a Person Resident
outside India) (Tenth Amendment) Regulations, 2015 notified vide Notification No. FEMA.354/2015-RB dated October 30, 2015,
(c.f. G.S.R No.823 (E) dated October 30, 2015), the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside
India) (Amendment) Regulations, 2016 notified vide Notification No. FEMA 361/2016-RB dated February 15,
2016(c.f. G.S.R No 165(E) dated February 15, 2016) and Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) (Second Amendment) Regulations, 2016 notified vide Notification No. FEMA 362/2016-RB dated February 15,
2016, (c.f. G.S.R No. 166 (E) dated February 15, 2016).
5. Authorised Dealer banks may
bring the contents of this circular to the notice of their constituents and
6. The directions contained in
this circular have been issued under section 10(4) and 11(1) of the Foreign
Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions / approvals, if any, required under any other law.
Chief General Manager-in-Charge