Foreign Direct Investment (FDI) in India – Basics

After hearing enough rambling on FDI’s and its urgent need to stop Indian rupee fall, one is very curious to know about FDI (Foreign Direct Investment) and trying to understand what qualifies as FDI and what routes are available for them to invest in our country.

FDI as the name suggests, it is an investment directly made by a foreign company into business in another country. Such investment could be either in the form of business expansion in another country or could be a result of buyout of the company.

Foreign investments in India were introduced by the then Finance Minister Dr. Manmohan Singh in 1991 under Foreign Exchange Management Act to promote such investments thereby increasing supply of domestic capital & increase the economic growth.

As per Foreign Exchange Management Act, ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000.

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32 thoughts on “Foreign Direct Investment (FDI) in India – Basics

  1. Dear Ma’am,

    Need you help to understand the Post issue Pattern of Wholly owned subsidiary of Foreign company? where one share is held by Resident as beneficial interest to comply with the requirement of 2 shareholders.

    When I filed the FCGPR mentioning PIP as 99.99% for Foreign company and 1 share for resident(like how we show it in MGT-7), RBI raised query stating that shareholding of Foreign co. is not matching with their record.

    So need your valuable suggestion…

  2. Great post on FDI, very impressive

  3. This is such an excellent blog! Very informative and precise.

  4. We are nationalised Bank in India. We need to open a current acccount of a company whose one director is foreigner with share holding of 9900 share. Indian director holds100 shares. As you are aware nowadays to open any type of accoun verification of KYC norms are compulsory. Besides funds will be received in this account in form of FDI only. So what procedure we need to follow ? What are forms we should get filled in. Kindly also provide any necessary infomation in this regards. Thanks

  5. If FDI received in indian Rupee from Overseas via RTGS, can it covered under
    ‘ Inward remittance through normal banking channel ”
    Will bank issue FIRC for such share application money for FC GPR form or not

  6. I am filing form FC-3 for Liasion office. My query is that as per Instruction kit of respective form Normal fees is rs. 6,000/-, however while uploading form it asks me to pay Rs. 12,000/- as Normal filing fee. There’s no delay in form filing. Please guide.

    • There will be variation in fees because whether the company is small company or not. As per New Companies Act 2013, the government fee is based upon the nature of company i.e. whether it is small company or not. please choose the correct option and then file document

  7. Dear Madam/sir,
    We (company) have received remittence dec 2010 but till date not filled any 30days report and FC-GPR. Please clarify what are the penalities? now we will file 30day report or not. urgent please clarify
    Thanks in Advance

  8. Madam,
    while applying for the Digital Signature and DIN for Foreign Director how do we furnish his Address proof when he has been residing in India for just around 60 days to establish a pvt Ltd Company with an Indian National as a Co- Director.
    what are the documents which require to be legalised at the Indian Embassy ,Is the re a format of obtaining legalisation. Pls advice.
    Thanks and Regards,

  9. Very good efforts to explain everything in detail through this blog.

    Our LLP was incorporated in January 2011 and we 2 partners of LLP would like to open a subsidiary out of India. We are looking to form a Joint Venture with a foreign client with a specific business purpose. My question is whether like an indian Private Limited Company, can our LLP also form a subsidiary company outside India? Whether RBI’s approval is needed or not? Kindly assist to resolve this query.

  10. Madam,
    I will be obliged if you could guide me in the following issue I am facing.
    I have a private limited company with an authorized and paid up capital of Rs. 1 lac and turnover of Rs. 4 crores. As per the new definition of a small company under S. 2(85) of the Cos. Act 2013, it appears my private limited company will NOT be regarded as a SMALL company, and hence, I will need to also prepare Cash Flow Statement (along with Balance Sheet and P. & L A/c), and upload the same for the F.Y. 2013-14.
    Have I read the new provisions correctly?
    Many thanks in advance.
    Manoj Mehta

  11. Madam ,

    Please give me a clarification for the following:

    If a person having a partnership firm can be a director and share holder in a Private Limited Company ?

    If a foreign company is starting a private limited company in India is there any minimum requirement for authorized capital ?

    • Yes, If a person is having partnership firm, that person can become a director and shareholder in a private limited company.
      Minimum requirement for authorised capital is Rs. 1 Lakh to start Pvt. ltd even if foreign company is starting it.

  12. Thanks Madam,

    Good explanation about the filing of Annual Return.
    Notify me of new posts through email.

  13. Respected Mam, Can you please guide me that in case of a public limited company , what is the date at which the company is entitled to commence its business.

    • In case of public limited company, the company shall be entitled to commence its business form the date which is mentioned the Certificate of commencement of business.

      • Madam,

        Our company has received funds from foreign Investor. Such investor is a SEBI registered Venture Capitalist. Hence filing of FC-GPR etc. is exempted but my doubt whether the Company has to file RBI Annual Return for the same.

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