Ways for a Foreign Investor to Invest In India
When capital is not readily available within the country, foreign direct investment becomes a significant source of investment for domestic companies. In the simplest of terms, FDI takes place when a foreign entity (an individual or firm) invests in the business of another country. Now, overseas direct investment is not simply the transfer of funds, it is characterized by the notion of a lasting interest.
This lasting interest is what differentiates foreign direct investment from foreign portfolio investment. A lasting interesting of a foreign investor in a domestic business is ensured by giving a minimum of 10 per cent voting rights to the investor.
A foreign investor can invest in the country through two routes- Automatic and Government:
- The Automatic Route– 100 per cent foreign direct investment is allowed under the automatic route in many sectors, except the ones where a prior government approval is needed.
The foreign investors are required to inform the regional office under the reserve bank of India within 30 days of receiving the inward payments. They must register the necessary documents with the regional office within 30 days of handing over the shares to the NRI investors.
- The Government Route– Sectors and activities that are not covered under the automatic route require an approval from the Government of India and are considered by the Ministry of Finance and Foreign Investment Promotion Board (FIPB).
Foreign investment in an Indian company can be done in the following ways, permitted by the Foreign Exchange Management Regulations:
- As an integrated entity by incorporating a company under the Companies Act, 1956 through
- Joint ventures; or
- Wholly owned subsidiaries
- As an office of a foreign entity through
- Liaison Office / Representative Office
- Project Office
- Branch Office
Since opening up its economy to overseas investments in 1991, India has become one of the top destinations for foreign direct investments. Foreign investors take advantage of relatively lower wages, tax exemptions and FDI facilitating norms.