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Routes of Inward FDI

Foreign Direct Investment can take the following given routes to enter the economy –

a) Automatic Route

b) Foreign Investment Promotion Board (FIPB) Route

c) Cabinet Committee of Foreign Investment (CCFI) Route

Inward FDI in India : A Sector – wise Guide

1. FDI In Hotel and Tourism Industry

Here, the term ‘hotel” includes beach resorts, restaurants and other tourist complexes that cater to tourists and provide food facilities and accommodation to them. Tourist transport operating agencies, tour operating agencies, units providing tourists facilities for adventure, wild life and cultural experience, water, air and surface transport facilities to tourists, sports, entertainment, amusement, leisure, health units, seminar and convention units are all a part of the tourism related industry.

On the automatic route, 100% FDI is permissible in the hotel and tourism industry in India.

In case of Foreign Technology Agreements, approval is granted automatically if the following conditions are satisfied :-

0 – 3 % of the total capital cost of project must be proposed to be used for payment of consultancy services and technical services. This includes the fees for design, supervision, architects, etc.

0 – 3 % of the net turnover of the project must be used for payment of publicity or marketing support fee and franchising.

0 – 10 % of the gross operating profit must be used for payment of management fee. The incentive fee is included in the management fee.

2. FDI In Banking (Private Sector) : Non – Banking Financial Companies

On the automatic routes, FDI up to 49 % is allowed from all sources. This can vary as per the guidelines issued by the Reserve Bank of India from time to time.

NRI / OCB / FDI investments are allowed in the following Non – Banking Financial Companies activities :-

Custodial Services

Credit Rating Agencies

Factoring

Underwriting

Micro Credit

Merchant Banking

Rural Banking

Stock Broking

Portfolio Management Services

Credit Reference Agencies

Investment Advisory Services

Venture Capital

Foreign Exchange Brokering

Financial Consultancy

Credit Card Business

Housing Finance

Money Changing Business

Leasing and Finance

Asset Management

Minimum capitalization standards with regards to percentage of FDI for fund – based Non – Banking Financial Companies are as follows :-

Up to 51 %, US $ 0.5 million has to be paid up front.

51 % – 75 %, US $ 5 million must be paid up front.

75 % to 100 %, US $ 7.5 million must be paid up front and US $ 43.5 million must be paid within a period of 2 years. In this condition, foreign investors can set up 100 % operating subsidiaries. Also, the condition of disinvesting 25 % of the equity to Indian entities is not applicable here.

Minimum capitalization standard with regards to FDI for non – fund based Non – Banking Financial Companies is US $ 0.5 million.

Joint Venture operating Non – Banking Financial Companies having up to 75 % (78 % included) foreign investment are allowed to set up subsidiaries that will undertake other activities of Non – Banking Financial Companies. However, this holds true only if the subsidiaries comply with the guidelines pertaining to the applicable minimum capitalization standards (as mentioned above).

The decision to put FDI in the Non – Banking Financial Companies sector on automatic route is taken as per the guidelines issued by the Reserve Bank of India.

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