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Brief discussion on FDI policy guidelines in India
FDI stands for Foreign Direct Investments which is now regulated under specific and welcoming policies of the government of India. The FDI policy is formulated to welcome foreign investments in India under the policy which allows certain sectors where foreign investors can commence their business operations, earn profits and remit the same to their parent countries. FDI policy, however, contemplates several categories where under some sectors are allowed for FDI, some sectors are not allowed for FDI and some sectors are prohibited in any form for FDI. The FDI policy announced by the government of India takes cares of all the issues related to foreign direct investment in various sectors, the process, and procedure for making the foreign direct investment in any form, the incorporation and formation of legal entities which can carry on foreign direct investment in any form are allowed.
FDI to be allowed by way of the following methods:
- By incorporating a wholly owned company in India.
- After incorporating a subsidiary of a foreign company in India.
- Through a merger or acquisition with an Indian enterprise.
- By participating in an equity joint venture with another investor or another enterprise.
- Through establishing a branch office in India.
PROHIBITED SECTORS UNDER THE FDI POLICY GUIDELINES IN INDIA
- Lottery business, including Government/private lottery, online lotteries etc.
- Gambling and betting , including casinos etc.
- Chit funds
- Nidhi Company
- Trading in Transferable Development Rights (TDRs)
- Real Estate business or construction of farm houses
- Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
- Activities/sectors not open to private sector investment e.f. Atomic Energy and Railway Transport (Other than Mass Rapid Transport Systems)
Foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, management contract, is also prohibited for Lottery Business and Gambling and Betting activities. FDI policy guidelines in India thus not only protect the interest of the Indian business but also takes care of the growth of the business sector. Now the Government has decided to allow FDI in retail as well which is subject to regulation by the Government.
FDI IN MULTI BRAND RETAIL TRADING:
AS PER THE FDI POLICY GUIDELINES IN INDIA ALLOWED IN FOLLOWING ACTIVITIES:
- Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery, and meat products, may be unbranded.
- Minimum amount to be brought in as FDI by the foreign investor would be USD 100 million.
- At least 50% of the total FDI brought in shall be invested in back-end infrastructure within three years of the first tranche of FDI, where backend infrastructure will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure, etc. Expenditure on land cost and rental, if any, will not be counted for purposes of backend infrastructure.
- At least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from small Indian industries which have a total investment in plant and machinery not exceeding USD 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation, Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as the small industry for this purpose. This procurement requirement would have to be met, in the first instance, as an average of five years total value of the manufactured/proceeded products purchased, beginning 1st April of the year during which the first tranche of FDI is received. After that, it would have to be met on an annual basis.
- Self-certification by the company, to ensure compliance with the conditions as mentioned above, which could be cross-checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors.
- Retail sales outlets may be set up only in cities with the population of more than ten lakhs as per 2011 Census and may also cover an area of 10 Km around the municipal/urban agglomeration limits of such cities. Retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provisions will be made for requisite facilities such as transport connectivity and parking. In states /UTs not having cities with the population of more than 10 Lakhs as per 2011 Census, retail outlets may be set up in cities of their choice, preferably the largest city and may also cover an area of 10 Km around the municipal /urban agglomeration limits of such cities. The locations such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.
- The government will have the first right to the procurement of agricultural products.
- The policy is an enabling policy only, and the State Government/Union Territories would be free to take their own decisions regarding implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy. The list of States/Union Territories which have conveyed their agreement is annexed. Such agreement, in future, to permit the establishment of retail outlets under this policy, would be conveyed to the Government of India through the Department of Industrial Policy and Promotion and additions would be made to the said list accordingly. The establishment of retail sales outlets will be in compliance with applicable State/Union Territory laws/regulations, such as the Shops and Establishment Act, etc.
- Retail trading, in any form, using e-commerce would not be permissible for companies with FDI, engaged in the activity of multi-brand retail trading.
- Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval.
LIST OF STATES AND UNION TERRITORIES COVERED
- Andhra Pradesh
- Jammu & Kashmir
- Daman & Diu and Dadra and Nagar Haveli
FDI Policy Guidelines in India for initiatives:
- Tax exemption by way of law corporate tax and individual income tax rates for the FDI bodies.
- By granting tax holidays and several other types of tax exemptions, concessions, etc.
- Granting preferential tariffs to the FDI bodies.
- Establishing Special Economic Zones.
- Establishing Export Promotion Zones for FDI incentives.
- Allowing and establishing bonded warehouses.
- Investment financial subsidies.
- Granting soft loans or loan guarantees to the FDI companies.
- Allowing free land and land subsidies to FDI companies.
- Granting infrastructure subsidies.
- Allowing relocation and expatriation to the FDI companies.
- By providing R&D support.
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