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Foreign Direct Investment Scheme

[Investment In Shares, Securities, Units And Other Activities, etc. by an NRI in India]

There are various schemes available under these Regulations for NRIs for investment in Indian securities. These are contained in various Schedules. Schedule No. I contains the Regulations regarding Foreign Direct Investment Scheme. The salient features of the Foreign Direct Investment Scheme as per the RB! Circular No.11 dated 16.5.2000, are given below:



Foreign Direct Investment Scheme

(i)         Reserve Bank’s autonatic route


An Indian company which is not engaged in the activity or manufacture of items listed in Annexure A ‘to this Schedule is permitted to issue shares to a person resident outside India upto the extent specified in Annexure B, on repatriation basis, provided—

  1. The issuer company does not require an industrial licence
  2. The shares are not being issued for acquiring existing shares of another Indian company;
  3. If the person resident outside India to whom the shares are being issued proposes to be a collaborator, he should have obtained Central Government’s approval if he had any previous investment collaboration/tie up in India in the same or allied field in which the Indian company issuing shares is engaged.

(ii)        Subject to compliance with the provisions of paragraph (I) above an Indian company which proposes to undertake activities in Annexure ‘B’ is permitted to issue shares/convertible debentures to persons resident outside India out of fresh capital issued for financing expansion programme for carrying on such activities.


(iii) A trading company is permitted to issue shares/convertible debentures to the extent of 51 per cent of its capital to persons resident outside India. The remittance of dividend in respect of such shares would be permissible only when the company secures registration as an Export/Trading/Star Trading House.


(iv) A SSI Unit which is not engaged in activity or manufacture of items included in Annexure ‘A’ to this Schedule may issue shares to non- residents upto 24 per cent of its capital. Such a company is permitted to issue shares beyond 24 per cent subject to ceilings specified in Annexure ‘B’ if (a) it gives up SSI status and (b) it is not engaged or does not propose to engage in manufacturing of items reserved for SSI sector.


(v) EOUs or units in Free Trade Zones or in Software/Electronic Hardware Technology Parks are permitted to issue shares to persons resident outside India beyond 24 per cent subject to compliance with ceilings indicated in Annexure ‘B’.


(vi) Issue of shares by an Indian company to a person resident outside India which are not covered by the provisions of sub-paragraph (i) to (v) above would require approval of SIA or FIPB.


(vii) An Indian company is permitted to issue fresh shares to the depository abroad for the purpose of raising resources through ADR or GDR mechanism subject to the conditions specified in paragraph No.4, 4A & 4B of the Schedule.


(viii) The price of shares & ADRsI GDRs to be issued by the Indian company to persons resident outside India should be in accordance with the provisions of paragraph No. 5 and 5A of the Schedule as amended w.e.f. 18-6-2003.


(ix) The remittance of dividend to the persons resident outside India by an Indian company which is engaged in any of the industries in the consumer sector specified in Annexure ‘E’ or any other activity to which dividend balancing requirement under the Industrial Policy notified by Government of India is applicable, would be subject to the provisions of paragraph No. 6 of the Schedule as amended w.e.f. 18-6-2003.


(x) The rate of dividend on preference shares issued by an Indian company to a person resident outside India should not exceed 300 basis points over State Bank of India’s prime lending rate, in terms of paragraph No. 7 of the Schedule.


(xi) The consideration for issue of shares to persons resident outside India under this scheme should be received either by way of inward remittance through normal banking channels or out of funds held in NRE/FCNR accounts of NRI/OCB investor.


(xii) The Indian company issuing shares to non-residents under this scheme should submit to Reserve Bank, reports as specified in paragraph 9 of the schedule.


(xiii) Reserve Bank’s permission is necessary for retention abroad of share subscription received by Indian company from non-residents.


(xiv) It may be noted that there are no separate schemes for NRIs/OCBs for direct investment in India on repatriation basis. NRIs/OCBs are now on par with any other foreign investor and they may invest in the shares/convertible debentures issued by an Indian company under the Foreign Direct Investment Scheme.


(xv) Annexures A,B,C and D have been substituted w.e.f. 18-6-2003.


For further relaxation, please refer to the RBI.

Investment In Shares, Securities, Units And Other Activities, etc. by an NRI in India
1. The salient features of Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000
2. Foreign Direct Investment Scheme
3. Investment by Foreign Institutional Investors (FIIs) under Portfolio Investment Scheme
4. Portfolio Investment Scheme for NRIs on Repatriationlnon-Repatriation Basis
5. Purchaselsale of Shares and Convertible Debentures by NRIs on Non-Repatriation Basis
6. Purchase and Sale of Other Securities
7. Long-Term Capital Gains On Shares : Exemption under Section - 10 (36)
8. Other Regulations :  under Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations

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