Annexure A

• Banking


• NBFC’s activities in Financial Services Sector


• Housing & Real Estate Development sector for investment from persons other than NRIs/OCBs.


• Venture Capital Fund & Venture Capital Company


• Investing companies in Infrastructure & Service Sector

Annexure B


There are also some areas where though Automatic Route is available, foreign investors cannot invest beyond a certain percentage of the paid up capital of the Indian companies or where investment is subject to some other conditions. These areas have been listed in Annexure `B' of the notification mentioned above

Sectoral cap on Investments by Persons Resident Outside India



Sector	Investment Cap	Description of Activity/Items/Conditions
1. Telecommunications	49% 100%	i) In basic, Cellular Mobile, paging and Value Added Services, and Global Mobile Personal Communications by Satellite subject to the licence  from Department of Telecommunication of Government of India. ii) In manufacturing activities
2. Housing and Real Estate	100%	ONLY NRIs/OCBs are allowed to invest in the areas listed below : (a) Development of serviced plots and construction of residential premises (b) Investment in real estate covering construction of residential and commercial premises including business centres and offices (c) Development of townships (d) City and regional level urban infrastructure facilities,including both roads and bridges (e) Investment in manufacture of building materials (f) Investment in participatory ventures in (a) to (e) above (g) Investment in housing finance institutions
3. Hotel & Tourism	51%	i) Hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists ii)Tourism related industry includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment amusement, sports, and health units for tourists and Convention/Seminar units and organisations.

Q. Who decides whether the Automatic Route is available?



Ans. The Company Secretary of the company issuing shares has to go through the Reserve Bank's Notifications and instructions of the Department of Industrial Policy & Promotion of Ministry of Commerce and Industry and satisfy himself / herself that the company is eligible to issue shares under the Automatic Route.

If he / she is doubtful about the availability of the Automatic Route, an application may be made to the Secretariat for Industrial Assistance (SIA), Ministry of Commerce & Industry, Government of India, Udyog Bhavan, New Delhi. Reserve Bank's notification are available on the Web site:www.fema.rbi.org.in and Government guidelines are available on SIA web site www.sia.nic.in

Q. What is the alternative if the Automatic Route is not available?

Ans. If, for any of the above reasons, the Automatic Route is not applicable, an application may be made to the Secretariat for Industrial Assistance (SIA), Ministry of Commerce & Industry, Government of India, Udyog Bhavan, New Delhi.
This application can be made on plain paper by either the investee company or by the foreign investor. It will, however, be necessary to provide to the Government full details of the proposal. No RBI approval is needed once the approval of the Government is obtained.

Q. What should be done after investment is made under the Automatic Route or SIA / FIPB approval?

Ans. The Indian company has to follow a two-stage reporting procedure.
In the first stage, the company should make a report on plain paper to the concerned Regional Office of RBI within 30 days of receipt of funds. The report should include the name & address of foreign investor, date of receipt of funds and the amount (in rupees), name and address of the bank through whom funds are received and details of the Government approval, if any. In the second stage, the Indian company has to file a report in Form FC-GPR together with two certificates, one from Company Secretary certifying adherence to regulations etc. and the other from a Chartered Accountant indicating the manner of arriving at the issue price of shares along with a copy of the resolution passed by members of the Company authorizing foreign investment, a copy of the resolution passed by Board of Directors allotting shares to the foreign investors and foreign inward remittance certificate received from banker,

Q. At what price can a company issue shares to non-residents

Ans. A newly incorporated company may issue shares at par. If preferential allotment is made in a listed company, the minimum price should be in conformity with the SEBI's guidelines for preferential allotment (the average of market price of shares six months before the date of allotment or average price over the past two weeks, if that is higher). If preferential allotment is made by an unlisted company, the minimum price will be determined in accordance with the guidelines issued by erstwhile Controller of Capital Issues (CCI guidelines). Issue of shares below book value of the shares may not be permitted. In case of issue of right shares, the price should not be lower than that at which the offer is made to resident shareholders.

Q. Is Automatic Route available for purchase of existing shares by the foreign investor ?

Ans. The Automatic Route is only for issue of fresh shares by an Indian company. Transfer of existing shares from residents to non-residents needs approval from Government of India followed by approval from the Reserve Bank of India.

Q. What should be done after SIA / FIPB permission for transfer of existing shares from residents to non-residents has been obtained?

Ans. Either the transferor (resident) or the transferee (non-resident) can make an application for RBI's permission for the transfer. The applicant should however submit a copy of the sale contract or consent from the other party. The applicant should also submit a copy of the SIA / FIPB permission for the transfer. A Chartered Accountant's certificate in respect of the valuation of shares may also be submitted. RBI grants the approval if the transfer takes place at a price above the "floor" provided by guidelines issued by the erstwhile Controller of Capital Issues, if the shares are unlisted. For listed shares, the average of market price of shares six months before the date of application to SIA / FIPB (or average price over the past two weeks, if that is higher), is taken as "floor price". RBI issues an "in-principle" approval for the transfer. After obtaining the "in principle" approval the applicant has to apply for final permission together with original Foreign Inward Remittance Certificate and an undertaking to the effect that the shares acquired by them shall not be disposed of / transferred in favour of residents except in terms of the extant provisions of FEMA, 1999.

Q. Can the surplus funds / refund of remittance received from a person resident outside India for purchase of shares under the Automatic route or with specific Government approval or purchase of shares offered on right basis be repatriated ?

Ans. Yes, the surplus funds / refund of remittance received from a person resident outside India for purchase of shares under the Automatic route or with specific Government approval or purchase of shares offered on right basis can be repatriated through authorized dealers who have been delegated powers by way of ( A.P.DIR Series) circular No.45 dated November 12, 2002.

Q. Other than issue of shares under Automatic Route / Government Route, what other general permissions are available under RBI Notification No.FEMA 20 dt.3-5-2000 ?

Ans. The following general permissions have been granted subject to the conditions mentioned in the Notification :-
Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid up capital of the company
Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies
To raise funds abroad by issuing ADRs / GDRs to non-residents
Issue shares or preference shares or convertible debentures on right basis by an Indian company to a person resident outside India.

Q. What should be done if a company is doubtful of applicability of Automatic Route ?

Ans. It is the responsibility of the investee companies to ensure that investment is eligible under the "Automatic Route" as provided for in the Notification No.FEMA 20 dated 3-5-2000. In case of doubt regarding whether the proposal will fall under the "Automatic Route", the investee company may approach Secretariat of Industrial Assistance (SIA), Ministry of Commerce & Industry, Government of India, Udyog Bhavan, New Delhi for clarifications.

Q. Can Preference shares be issued under the Automatic Route ?

Ans. Yes. However, the rate of dividend offered should not exceed SBI Prime Lending Rate plus 300 basis points.

Q. Are all foreign investments repatriable? Whether the dividend thereon be freely repatriated?

Ans. Yes. All foreign investments are on repatriation basis except for the cases where NRIs / OCBs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer (AD).

Q. Is RBI permission necessary for foreigner / NRI / OCB to subscribe to Memorandum and Articles of Association ?

Ans. Indian companies are permitted to issue shares to non-resident investors in terms of the Automatic Route as indicated in the Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations 2000. It has been clarified that non-resident investors can subscribe to the Memorandum & Articles of Association of those companies which are eligible to issue shares under the Automatic Route in terms of the Regulations mentioned above. In respect of companies not covered by the Automatic Route, foreign investors can subscribe to the Memorandum & Articles of Association after necessary approval for investment is obtained from SIA / FIPB.

Q. What is the procedure for disinvestment of capital invested?

Ans. Non residents can sell shares on Stock Exchange without prior approval of RBI. They can approach a bank for repatriation of the sale proceeds if they hold the shares on repatriation basis and if they have the necessary No-Objection Certificate / Tax Clearance Certificate issued by the Income Tax authorities. For sale of shares through private arrangements, Regional Offices of RBI grant permission for disinvestment of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No.FEMA.20/2000 RB dated 3rd May 2000. The sale price of shares on disinvestment is determined strictly in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification.

Section II - Foreign Technical Collaboration

Q. What are the provisions for remittance in foreign exchange on account of Foreign Technology Transfer?

Ans. In terms of the provisions of Section 5 of FEMA, a person resident in India may draw foreign exchange from an Authorised Dealer for all current account transactions, except certain prohibited / restricted categories. Government of India Notification No. GSR 381(E) dated 3rd May 2000 lays down the prohibition/restrictions mentioned above. In terms of the above-mentioned notification, an Authorised Dealer may permit an Indian company to effect remittance of technical know-how fees / royalties on account of a technical collaboration agreement entered into with a person resident outside India if :-
the payment is made out of Resident Foreign Currency / Export Earner’s Foreign Currency account of the remitter or the agreement is registered with the Reserve Bank.

Q. What are the parameters for foreign technology transfer under the Automatic Route of RBI ?

Ans. In case the lumpsum payment does not exceed US$ 2 million and payment of royalty does not exceed 5% on domestic sale and 8% on export sale, RBI may register the agreement and grant approval for remittance under the Automatic Route, if prescribed criteria are complied with.

Q. Where Automatic Route of RBI for technology transfer is not available

Ans. Proposals which do not satisfy the parameters prescribed for automatic approval by RBI, require clearance from Government of India. If the terms of any technical collaboration agreement are beyond the above mentioned parameters, the Reserve Bank will register the agreement after the company submits copy of specific permission from Government of India. Further, in terms of the policy laid down by the Government, no Automatic Approval shall be granted by the RBI for Technology Transfer proposals for any item reserved for Small Scale Sector or for any item which requires Industrial Licence. Automatic Route is also not available if the Technical Collaboration Agreement is sought to be extended beyond an initial period of seven years. Similarly if the foreign collaborator had a previous financial / technical collaboration with a company in India, in the same or allied activity, Automatic Route is not available. Any application requiring Government approval may be lodged in Form FC/IL (SIA) or on plain paper containing complete information regarding the proposals. Applications may be addressed to SIA (Secretariat for Industrial Assistance), Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Udyog Bhavan, New Delhi 110 011.

Q. Is RBI approval required for foreign technical collaboration under the Automatic Route? If so, what is the procedure?

Ans. Yes. The procedure for getting foreign technical collaboration approvals under the said Automatic Route, together with allied information is given below:

A. General

Approval will be given for payment in connection with foreign technology for manufacture of products as also foreign technology required for services sector. The payment parameters will be a lumpsum payment up to US$ 2 million and / or 5% royalty on domestic sales and 8% on exports, subject to total payment of 8% of sales over a period of 10 years from the date of agreement or 7 years from the date of commencement of commercial production, whichever is earlier. The prescribed lumpsum / royalty rates may be subject to or net of taxes and will be calculated according to standard conditions / procedures.

B. Hotel & Tourism Related Industries

The term "Tourism Related Industries" will include the following:

1. Travel / tour operating / tourist transport operating agencies.
2. Units providing facilities for cultural, adventure and wildlife experience to tourist.
3. Surface / air / water transport facilities for tourists.
4. Leisure, entertainment, amusement, sports and health units for tourists.
5. Convention / Seminar units and organisations in connection with tourism.

For technology transfer in respect of Hotel & Tourism related industries, the parameters are:

1. lumpsum fee towards technical and consultancy services up to US$ 200,000
2. franchising and marketing etc fee up to 3% on the gross room sales and
3. management fees up to 10% of the foreign exchange earnings to the foreign collaborator if the equity participation is at least 25%.

C. Procedure for granting approval

All applications for permission under the Automatic Route of RBI should be submitted on plain paper in five copies furnishing the following details, to the concerned Regional Office of Exchange Control Department, Reserve Bank of India :-

1. Name of the company with address of the registered office as well as Head Office
2. NIC Code No. and description of the activity (whether manufacturing or service sector)
3. Whether item of manufacture is reserved for Small Scale Sector as also whether any Industrial
    Licence is required.
4. Name/Address/Country of the Foreign technical collaborator
5. Particulars in respect of payments for Technology Transfer:
    Lumpsum fee (in foreign exchange as well as its rupee equivalent & No. of instalments), Royalty
    ( percentage on domestic / export sales, period etc.) and also whether lumpsum / royalty is subject to
     or net of taxes
6. Name and full address of Authorised Dealer through whom remittance of technical know-how fees /
    royalty will be made
7. Declaration in the following format :-

8. I/We hereby certify that

    a. The applicant is eligible for Automatic Approval from RBI in accordance with guidelines issued by
        Government.The foreign collaborator does not have any previous JV or technical collaboration or
        trade-mark agreement in India in the same or allied field.*
    b. No approval for technology transfer was obtained earlier (either from Government or from RBI under
       Automatic Route) in respect of products / activities for which remittance for technology transfer is
       sought in this application
    c. All information furnished in the application is true and correct to the best of applicant’s knowledge
      and belief.

N.B. * This condition will not be applicable in case the Indian company is in the IT Sector.

D. Documentation

Applications for "Technology Transfer" need not be accompanied by any documents. On approval, the applicant will be advised to file necessary documents viz. a certified copy of the collaboration agreement and a certified copy of the Memorandum & Articles of Association of the company or copy of Partnership Deed in the case of a partnership firm or an affidavit from the Proprietor of a Proprietary firm indicating the details regarding constitution of the firm, with Authorised Dealer (AD) / concerned Regional Office(RO) of RBI. In this connection, further enquiries pertaining to mode of remittance, payment of R&D Cess etc. should be made to the concerned Authorised Dealer / Regional Office of RBI.

E. Standard conditions attached to Approvals for Technology Agreement

1.(a) The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc. The payment of royalty will be restricted to the licensed capacity plus 25% in excess thereof for such items requiring industrial licence or on such capacity as specified in the approval letter. This restriction will not apply to items not requiring industrial licence. In case of production in excess of this quantum, approval of Government would have to be obtained regarding the terms of payment of royalty in respect of such excess production.

(b) No minimum guaranteed royalty would be allowed.

2. The lumpsum shall be paid in three instalments as indicated below, unless otherwise stipulated in
    the approval letter :-

    (i) First 1/3rd after the approval for collaboration proposal is obtained from the Reserve Bank of India
       and collaboration agreement is filed with the Authorised Dealer in Foreign Exchange
    (ii)Second 1/3rd on delivery of know-how documentation
    (iii)Third and final 1/3rd on commencement of commercial production, or four years after the proposal
          is approved by the Reserve Bank of India and agreement is filed with the Authorised Dealer in
         Foreign Exchange, whichever is earlier.

The lumpsum can be paid in more than three installments, subject to completion of activities as specified above.

3. All remittances to the foreign collaborator shall be made as per the exchange rates prevailing on the
   date of remittance.

4. The applications for remittances may be made to the Authorised Dealer in Form A2 with the under
   noted documents :-

    a. A "No Objection" certificate issued by the Income Tax authorities in the standard form or a copy of
       the certificate issued by the designated bank, regarding the payment of tax where tax has been paid
       a flat rate of 30% to the designated bank or a declaration in terms of Sec.266 of Income Tax Act.
    b. A declaration by the applicant to the effect that the proposed remittance is strictly in accordance with
       the terms and conditions of the collaboration approved by RBI/Government.

5. The agreement shall be subject to Indian Laws.

6. A copy of the foreign technology transfer agreement signed by both the parties may be furnished to the
   following authorities:

    a. Administrative Ministry / Department
    b. Department of Scientific and Industrial Research, Technology Bhavan, New Delhi 110 016.
    c. Concerned Regional Office of Exchange Control Department, RBI.
    d. Authorised Dealer designated to service the agreement

7. All payments made under the foreign investment and technology transfer including Rupee payments (if any) to be made in connection with engagement / deputation of foreign technical personnel such as passage fare, living expenses etc. of foreign technicians, would be liable for the levy of cess under the Research and Development Cess Act, 1986 and the Indian company while making such payments should pay the cess prescribed under the Act.

Q. Is payment of royalty to parent companies and payment of royalty for use of trademarks and brand name without technology transfer covered under the Automatic Route of RBI?

Ans. Yes.

Payment of lumsum up to US$ 2 million and/or royalty up to 8% on exports and 5% on domestic sales by wholly owned subsidiaries to offshore parent companies is allowed under the automatic route without any restriction on the duration of royalty payments.

Payment of royalty up to 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer.

Section III - Portfolio Investment

Q. What are the regulations regarding Portfolio Investments by Non-Resident Indians (NRIs) / Persons of India Origin (PIOs) ?

Ans. NRIs / PIOs can purchase / sell shares / convertible debentures of Indian companies on Stock Exchanges under the Portfolio Investment Scheme.

For this purpose, the NRI / PIO has to apply to a designated branch of a Bank which deals in Portfolio Investment. All the sale / purchase transaction must be routed through the designated branch.

An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs / PIOs (also the OCBs who had purchased shares under the earlier scheme) taken together cannot purchase more than 10% of the paid up value of the company. (This limit can be increased by the Indian company to 24% by passing a General Body resolution).

Investment can be made both on repatriation basis or non-repatriation basis. For making investment on repatriation basis, it will be necessary to make payments by way of inward remittance or by debit to the NRE / FCNR account of the NRI / PIO. Investment on non-repatriation basis can also be made from the NRE / FCNR / NRO accounts.

The sale proceeds of the repatriable investments can be credited to the NRE / NRO etc. accounts of the NRI / PIO whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.

The sale of shares will be subject to payment of applicable taxes.

Section IV - Other Investments

Q. Under what regulations can NRIs / OCBs make investments in shares and Convertible Debentures of Indian company on non-repatriation basis ?

Ans. NRIs / OCBs can make investments up to 100% of paid up capital of the companies in all sectors on non-repatriation basis except Agriculture / Plantation / Real Estate Business / Chit Funds & Nidhi companies and companies engaged in Print Media sector.

Q. In what securities other than shares / convertible debentures can NRIs / OCBs make investment in India ?

Ans. NRIs / OCBs / FIIs can purchase, without limit, on repatriation basis Government dated securities, Treasury Bills, Units of Mutual Funds, PSU Bonds etc. In addition, they can also purchase on non-repatriation basis units of Money Market Mutual Funds and National Plan / Savings Certificates.

Section V: Procedure for opening Branch / Project / Liaison Office

Q. How can foreign companies open Liaison / Project / Branch office in India?

Ans. Foreign company can set up Liaison, Project and Branch Offices in India after obtaining approval from RBI.

Q. What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office / Representative Office?

Ans. Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.

The opening and operation of such offices is regulated by the Foreign Exchange Management Act, 1999 (FEMA). Approval from the Reserve Bank of India (RBI) is required for opening such offices. The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division-I, Exchange Control Department, Reserve Bank of India, Central Office, Fort, Mumbai 400 001.

Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up.

Liaison / representative offices also have to file an annual activity certificate etc. from a Chartered Accountant to the concerned Regional Office of the RBI.

Q. What is the procedure for setting up Project Office?

Ans. Foreign companies planning to execute specific projects in India can set up project / site offices in India. Specific approval from the RBI is required for setting up a project office. An application is required to be made in Form FNC-1. Such approval is generally accorded in respect of projects approved by appropriate authorities or where the projects are financed by Indian banks / Financial Institution or a multilateral / bilateral international financial institution.

Q. What is the procedure for setting up Branch office?

Ans. Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the following purposes :-

To represent the parent company / other foreign companies in various matters in India e.g. acting as buying / selling agents in India

To conduct research work in the area in which the parent company is engaged

To undertake export and import trading activities

To promote possible technical and financial collaborations between the Indian companies and overseas companies.

Rendering professional or consultancy services

Rendering services in Information technology and development of software in India

Rendering technical support to the products supplied by the parent/Group companies.

A branch office is not allowed to carry out manufacturing, processing activities directly / indirectly. Branch office will have to submit activity certificate from a Chartered Accountant on an annual basis to Reserve Bank of India. For annual remittance of profit, Branch Office may submit required documents to an authorised dealer.

Permission for setting up branch offices is granted by the Reserve Bank of India. RBI considers the track record of the applicant company, existing trade relations with India and financial position of the company while scrutinising the application. An application in Form FNC-1 is to be made to RBI. Application may be made to Reserve Bank of India, Foreign Investment Division (I), Exchange Control Department, S.B.S.Marg, Mumbai 400 001, India



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