MASTER CIRCULAR ON FOREIGN INVESTMENTS IN INDIA

MASTER CIRCULAR NO. 6/2004‑05, DATED 1.7‑2004, ISSUED BY FOREIGN EXCHANGE DEPARTMENT, RBI

This Master circular covers the following areas:

i. Foreign Investments in Indian companies. In terms of section 6(3)(b) of Foreign Exchange Management Act, 1999 Reserve Bank regulates transfer or issue of any security by a person resident outside India read with Notification No. FEMA 20/2000‑RB, dated May 3, 2000.

ii. Acquisition of Immovable properly. In terms of section 6(3)(i) of Foreign Exchange Management Act, 1999 Reserve Bank regulates acquisition or transfer of immovable property in India other than a lease not exceeding 5) cars, by a person resident outside India read with Notification No, FEMA 21/2000‑RB, dated May 3, 2000.

iii Investment in capital of partnership firms or proprietary concern. In terms of section 2(h) of section 47 of Foreign Exchange Management Act, 1999, Reserve Bank regulates investments by a person resident outside India by a partnership firm or proprietary concern read with Notification No. FEMA 24/2000‑RB, dated May 3, 2000.

2. This Master Circular consolidates the existing instructions in respect of above areas in one place. The list of underlying circulars/ notifications are set out in Annex‑ 1

3. As recommended by the Committee on Procedures and Performance Audit on Public Services (Chairman: Shri S, S. Tarapote) set up by the Reserve Bank, this Master Circular is being issued with a sunset clause of one year, This circular will stand withdrawn on July 1, 2005 and be replaced by an updated Master Circular on the subject.

ANNEX I

LIST OF CIRCULARS/NOTIFICATIONS WHICH HAVE BEEN CONSOLIDATED IN THIS MASTER CIRCULAR ON FOREIGN INVESTMENTS IN INDIA/ACQUISITION OF IMMOVABLE PROPERTY IN INDIA AND INVESTMENTS IN PROPRIETARY/PARTNERSHIP FIRMS

NOTIFICATIONS ISSUED

SI.No.	Notification	Date
1.	No. FEMA 32/2000-RB	December 26, 2000
2.	No. FEMA 35/2001-RB	February 16,2001
3.	No. FEMA 41/2001-RI3	March 2, 2001
4.	No. FEMA 45/2001 -RB	September 20, 2001
5.	No. FEAIA 46/2001-RB	November 29, 2001
6.	No. TEMA 50/2002-RB	February 20,2002
7.	No. FEMA 55/2002-RB	March 7,2002
8.	No. FEMA 62/2002-RB	May 13,2002
9.	No. FEMA 64/2002-RB	June 29, 2002
10.	No. FEMA 65/2002-PB	June 29, 2002
11.	No. FEMA 76/2002-PB	November 12,2002
12.	No. FEMA 85/2003-RB	January 17, 2003
13.	No. FEMA 93/2003-RB	June 9, 2003
14.	No. FEMA 94/2003-RB	June 18,2003
15.	No. FEMA 100/2003-RB	October 3, 2003
16.	No. FEMA 101 /2003-RB	October 3, 2003
17.	No. FEMA 106/2003-RB	October 27, 2003
18.	No. FEMA 108/2003-RB	January 1, 2004
19.	No. FEMA 11 1/2004-RB	March 6, 2004

LIST OF CIRCULARS CONSOLIDATED IN THIS MASTER CIRCULAR

SI. No.	Circular No.	Date
1.	A.P. DIR(Series) Circular No. 14	September 26, 2000
2.	A.P. DIR (Series) Circular No. 24	January 6, 2001
3.	A.P. DIR (Series) Circular No, 26	February 22,2001
4.	A.P. DIR (Series) Circular No. 32	April 28, 2001
5.	A.P. DIR (Series) Circular No. 13	November 29, 2001
6.	A.P. DIR (Series) Circular No. 21	February 13, 2002
7.	A.P. DIR (Series) Circular No. 29	March 11, 2002
8.	A.P. DIR (Series) Circular No, 1	July 2,2002
9.	A.P. DIR (Series) Circular No. 5	July 15,2002
10.	A.P. DIR (Series) Circular No. 19	September 12,2002
11.	A.P. DIR (Series) Circular No. 35	November 1, 2002
12.	A.P. DIR (Series) Circular No. 45	November 12,2002
13.	A.P. DIR (Series) Circular No. 46	November 12, 2002
14.	A.P. DIR (Series) Circular No. 52	November 23, 2002
15.	A.P. DIR (Series) Circular No. 56	November 26, 2002
16.	A.P. DIR (Series) Circular No. 67	January 13, 2003
17.	A.P. DIR (Series) Circular No. 68	January 13, 2003
18.	A.P. DIR (Series) Circular No. 69	January 13, 2003
19.	A.P. DIR (Series) Circular No. 75	February 3, 2003
20.	A.P. DIR (Series) Circular No. 88	March 27,2003
21.	A.P. DIR (Series) Circular No. 101	May 5,2003
22.	A.P. DIR (Series) Circular No. 10	August 20, 2003
23.	A.P. DIR (Series) Circular No. 13	September 1, 2003
24.	AP. DIR (Series) Circular No. 14	September 16,2003
25.	A.P. DIR (Series) Circular No. 19	September 23, 2003
26.	A.P. DIR (Series) Circular No. 28	October 17, 2003
27.	A.P. DIR (Series) Circular No. 35	November 14,2003
28.	A.P. DIR (Series) Circular No. 38	December 3, 2003
29.	A.P. DIR (Series) Circular No. 39	December‑3, 2003
30.	AT. DIR (Series) Circular No. 43	December 8, 2003
31.	A.P. DIR (Series) Circular No. 44	December 8, 2003
32.	A.P. DIR (Series) Circular No. 54	December 20, 2003
33.	A.P. DIR (Series) Circular No. 63	February 3,2004
34.	A P. DIR (Series) Circular No. 67	February 6, 2004
35.	A.P. DIR (Series) Circular No. 89	April 24, 2004

PART I

FOREIGN INVESTMENTS IN INDIA

1. Foreign Investments in India attract provisions of section 6 of Foreign Exchange Management Act, (FEMA) 1999 and is subject to the Regulations issued by Reserve Bank of India under FEMA, 1999. The Regulations have been notified vide Notification No. FEMA 20/2000‑RB, dated May 3,2000, FEMA 94/2003‑RB, dated 18th June 2003 and Notification No. FEMA 108/2003 RB dated Ist January 2004. An Indian entity cannot issue are; security to a person resident outside India or record in its books any transfer of security from or to such pet son except as provided in the Act or Rules or Regulations or with the specific permission of the Reserve Bank,

2. Prohibition on Investment into India

Investments, into India is not permissible in the following cases

i. Business of chit fund, or

ii. Nidhi Company, or

iii. Agricultural or plantation activities or

iv. Real estate business, or construction of farm houses

v. Trading in Transferable Development Rights (TDRs).

vi, Retail Trading

vii. Atomic Energy

viii. Lottery Business

iv. Gambling and Setting

x. Housing and Real Estate business

xi. Agriculture (excluding Floriculture, Horticulture. Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetable, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea plantation)

3. In other cases investments can be made either with the specific prior approval of the Government of India, the Secretariat for Industrial Assistance/Foreign Investment Promotion Board (SIA/FIPB) or under the Automatic route. The list of the activities requiring the approval of the Government is given in Annex‑A (A) to Schedule I to FEMA Notification No. 94 and details of the activities/sectors which are covered under the automatic route is given as Annexure‑B to the said Schedule. The Automatic Route is not open for those non-resident investors who have/had a previous financial/technical/trademark collaboration in an existing domestic company engaged in the same or allied activity. If the activity or manufacturing item of the issuer company requires an Industrial License under the provisions of the Industries (Development and Regulation) Act, 1951 or under the locational policy notified by Government of India under the Industrial Policy Resolution 1991 or the investment is sought in excess of the prescribed sectoral limits Automatic Route is not available and in such cases, specific approval of FIPB would be required.

4. Eligibility for Investing in India

A person resident outside India (other than a citizen of Pakistan, Sri Lanka or Bangladesh) or an incorporated entity outside India, (other thin an entity in Bangladesh or Pakistan) has the general per mission to put chase shares or convertible debentures or preference shares of an Indian company subject to certain terms and conditions

5. Nature of Investments

5.1 The Indian companies also have general permission to issue partly convertible debentures/partly convertible preference shares subject to certain conditions. Companies can issue NCDs only to NRIs/PIO by means of a public issue only. The coupon rate on part convertible preference shares/partly convertible debentures should not exceed SBI's prime lending rate plus 300 basis points.

5.2 Trading is permitted under automatic route with FDI upto 51% provided the Indian company is primarily engaged in export activities, and the under taking is an export house/trading house/super trading house/star trading house. Government also permits certain trading activities under FIPB route, as mentioned in Annexure ‘B’ to Notification No. FEMA 94/2003‑RB, dated 18^th June,2003.

5.3 A company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annexure A (A) to Notification No. 94, may issue shares or convertible debentures to a nonresident, to the extent of 241, of its paid‑up capital. Such a company may issue shares in excess of 24% of its paid up capital if

a. It has given up its small scale status,

b. It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and

c. It complies with the ceilings specified in Annexure B to Notification No. 94.

5.4 An Export Oriented Unit or a unit in Free Trade Zone or in Export Processing Zone or in a Software Technology Par k or in an Electronic Hardware Technology Park may issue shares or convertible debentures to a person resident outside India in excess of 24% in provided it conforms to the ceilings specified in Annexure B to Notification No. 94.

6. General Permissions granted under the Regulations issue of Rights/Bonus shares

6.1 Genet it per mission is also available to Indian companies to issue Right/Bonus shares subject to certain conditions. As clarified in terms of AP DIR (Series) Circular No. 14, dated l6th September 2003, entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. Such issuing companies would have to seek specific per mission from RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile OCBs. However, bonus shares can be issued to OCBs.

6.2 Acquisition of shares under Scheme of Amalgamation/merger

Where a Scheme of merger or amalgamation of two or met c Indian companies has been approved by a count in India, the transferee company may issue shares to the shareholders of the transferor company, resident outside India subject to ensuring that the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank. The transferor company or the transferee or new company should not be engaged in activities prohibited in terms of FDl policy viz agriculture, plantation or real estate business or trading in TDRS.

6.3 Issue of shares under Employees Stock Option Scheme

A company may issue shares under the Employees Stock Option Scheme, to its employees or employees of its joint venture or wholly owned subsidiary, abroad who are resident outside India, directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the Securities Exchange Board of India; and face value of the shares to be allotted under the scheme to the non‑resident employees does not exceed 5% of the paid‑up capital of the issuing company.

6.4 Issue of shares by Indian companies under ADR/GDR

6.4.I An Indian corporate can raise foreign currency resources abroad through the issue of American Depository Receipts ADRs) or Global Depository Receipts (GDRs). Regulation 4 of Schedule I of TEMA Notification No 20 allow s an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts (GDRs) and/or American Depository Receipts (ADRs), subject to the conditions that:

• The ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and .guidelines issued by the Central Covet orient thereunder from time to time

• The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and

• Is not otherwise ineligible to issue shares to person resident outside India in Let Ins of these Regulations.

These instruments are issued by a Depository abroad and listed in the overseas stock exchanges like NASDAQ. The proceeds so raised have to be kept abroad till actually required in India. There are no end use restrictions except for a ban on deployment /Investment of these funds in Real Estate and the Stock Market. There is no limit upto which an Indian company can raise ADRs/GDRs. However, the Indian company has to be otherwise eligible to raise foreign equity under the extant FDI policy.

6.4‑2 The ADR/GDR can be issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager of the issue. The Indian company will issue its rupee denominated shares in the name of the Overseas Depositor v and will keep in the custody of the domestic Custodian in India. On the basis of the ratio worked out and the rupee shares kept with the domestic Custodian, the Depository will issue ADRs/GDRs abroad.

6.4.3 A limited Two‑way Fungibility scheme has been put in place by the Government of India for ADRs/GDRs. Under this scheme, a stock broker in India, register ed with SEBI, can purchase the shares front the market for conversion into ADRs/GDR. Re‑issuance of ADRs/GDR would be permitted to the extent of ADRs/GDRs which have been redeemed into underlying shares and sold in the domestic market.

6.4‑4 An Indian company can also sponsor an issue of ADR/GDR. Under this mechanism, the company, offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs/GDRs can be issued abroad. The proceeds of the ADR/GDR issue is remitted back to India and distributed among the resident investors who had offered their rupee denominated shares for conversion. These proceeds can be kept in foreign currency accounts in India by the share holders who have tendered such shares for conversion into ADR/GDR.

6.4.5 The ADR/GDR/FCCB proceeds may be utilised in the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public in view of their strategic importance.

ADs have been permitted to allow Indian companies to prepay the existing FCCB subject to certain conditions.

6.4.6 Reporting of such Issues- The Indian company issuing shares shall furnish to the Reserve Bank, full details of such issue in the form specified in Annexure C to Notification No. FEMA 20/2000‑RB, dated May 3, 2000 within 30 day, front the date of closing of the issue. The company should also furnish a quarterly return in the form specified in Annexure D to Reserve Bank within 15 days of the close of the calendar quarter.

7.Transferof Shares and convertible debentures ‑Non‑resident to Resident/Resident to Non‑Resident General Permission

7.1 General permission has been granted to non‑residents/NRls for transfer of shares and convertible debentures of an Indian company as under:

A person resident outside India (Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India (including NRIs); provided transferee has obtained prior permission of SIA/FIPB to acquire the shores if he has previous venture or tie‑up in India through investment in shares or convertible debentures or a technical collaboration or a trade mal k agreement or investment in the satire field or allied field in which the Indian company whose shares are being transfer red, is engaged.

• NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another non‑resident Indian: provided transferee has obtained prior permission of Central Government to acquire the shares if lie has previous venture or tie up in India through investment in shares or convertible debentures or a technical collaboration or a trademark agreement or investment in the same field or allied field in which the Indian company whose shares are being transferred, is engaged.

• The person resident outside India may transfer any security to a person resident in India by wav of gift.

• A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognised Stock Exchange in India through a registered broker.

7.2 Prior permission of RBI in certain cases for transfer of Shares/ convertible debentures

A person resident in India who proposes to transfer any share of convertible debenture of an Indian company by way of sale or gift to a person resident outside India will have to obtain prior approval of FIPB, Ministry of

Finance & Company Affairs, Govt of India followed by permission from RBL The above two stage approval are applicable even when the transfer is made on non‑repatriation basis. A person resident outside India holding shares /convertible debentures of an Indian company may transfer by way of sale to a person resident in India by obtaining prior permission from RBI in form TS 1,

7.3 Issue Price.

Price of shares issued to persons resident outside India under Schedule‑I, would be worked out on the basis of SEBI guidelines in case of listed shares. In other cases valuation of shires would be done by a Chartered Accountant in accordance with the guidelines issued by the erstwhile Controller of Capital Issues.

7.4 Reporting

Advance Reporting

An Indian company issuing shares or convertible debentures under bonus, rights, amalgamation and stock option in accordance with these Regulations should submit to Reserve Bank the details of advance remittance, not later thin 30 days from the date of receipt of the amount of consideration, giving details regarding

• Name and address of the foreign investors

• Date of receipt of funds and their rupee equivalent

• Name and address of the authorised dealer through whom the funds have been received, and

• Details of the Government approval, if any

8. Reporting Issue of Shares

After the issue of shares the company should file a report in Form FC‑GPR not later than 30 days from the date of issue of shares with the Regional Office of RBI where the registered office of the company is situated.

9. Permission for retaining share subscription money received from persons resident outside India in a foreign currency account.

Reserve Bank may' permit an Indian company issuing shares to persons resident outside India under Schedule I to FEMA Notification No. 20 (Le. under the FDI scheme), to retain the subscription amount in a foreign currency account, subject to such terms and conditions as it may stipulate.

10. Portfolio Investment Scheme.

10. 1 Foreign Institutional Investors registered with SEBI and Non‑resident Indians are eligible to purchase the shares and convertible debentures under the Portfolio Investment Scheme. The FII should apply to the designated AD who may then grant permission to FII for opening a foreign currency account and/or a Non-Resident Rupee Account.

NRls should apply to the concerned AD designated bank for permission to open a NRE/NRO account with its designated branch,

10.2 Investment by Foreign Institutional Investors (Schedule 2)

10.2‑1 In the case of FlIs, the total holding of each FII/SEBI approved sub‑account shall not exceed 101~, of the total paid up capital or 10% of the paid up value of each series of convertible debentures issued by air Indian company and the total holdings of all FlIs/sub‑accounts of FIls put together shall not exceed 24% of the paid-up capital or paid‑up value of each series of convertible debentures. This limit of 24% can be increased to the sectoral cap/statutory limit as applicable to the Indian company concerned by passing a resolution by its Board of Directors followed by passing a special resolution to that effect by its General Body.

10.2.2 The Flls are also permitted to trade in all exchange traded derivative contracts subject to certain limits. ADs can also offer forward cover to Fits to the extent of total toward remittance net of liquidated investments His at e not pet united to invest in Print Media Sector through FDI or PIS routes. Such investment by FIT require, prior approval of Government of India, Foreign Investment Promotion Board and Ministry of Information & Broadcasting.

10.2‑3 Registered FIIs have been permitted to purchase shares/convertible debentures of an Indian company through offer/private placement. This is subject to applicable ceiling as indicated in Schedule 2 to Notification No. FEMA 20/2000‑RB, dated May 3, 2000. It is clarified that a FIT may invest in a particular issue of an Indian company either under Schedule I or Schedule 2. The ADs may ensure that the FIls w ho are put chasing the shares by debit to the special rupee accounts report these details separately in the LEC (FIT) returns. The company who has issued the shares to the His Linder Schedule I d7DIT (for which the payment has been received directly into company account) and under‑Schedule 2 (for which the payment has been received front HIS account maintained with Audantised Dealer in India) should report these figures separately under item 4(b) of the FC‑GPR return so that the details could be suitably reconciled for statistical/monitoring purposes.

10.3 The FIT shall restrict allocation of it, total investment between equities and debt including dated Government Securities ind1reasurvEtilisintheIndian Capital Market in the ratio of 70:30.TheFlIcan alsoform a 100% Debt Fund and ~ct registQi ed with SEBI for investriambridebt investments. Investment in debt securities by FIN are subject to hunts, if any, stipulated by SFBI in this regard.

10.4. Investments by NRIs

In the case of NRIs under PIS it is to be ensured that the paid‑up value of shares/convertible debentures purchased by air NRI under PIS route should not exceed 5't of the paid up capital/paid up value of each series

of debentures. The aggregate paid‑up-value of shares/convertible debentures purchased by all NRIs should not exceed 10% of the paid‑up capital of the company-up value of series of debentures of the company the aggregate ceiling of 1096 can be raised to 24%, if the General Body of the Indian company concerned passes a special resolution to that effect. The NRI investor should take delivery of the shares purchased and give delivery of shares sold. Payment fee purchase of shares and/or debentures is made by inward remittance in foreign exchange through nor mal banking channels or out of funds held in NRE/FCNR account maintained in India if the shares at e purchased on repentration basis and by inward remittance or out of funds held in NRE/FCNR / NRO account of the NRI concerned, maintained in India where shares/ debentures are purchased on non repatriation basis.

10.5. Reporting

The link office of the designated branch of an AD shall furnish India CGM, RBL ECD, CO, Mumbai are port on a daily basis on PIS transactions undertaken by it, such report to be furnished on‑Iine or on a floppy in a format supplied by RBl.

10.6. NRI may invest in Exchange Trade Derivative Contracts approved by SEBI From time to timeout of INR funds held in India on non‑repatriation basis subject to the limits prescribed by SEBI, NRIs may also purchase on repatriation basis, Govt dated securities, Treasury bills, units of domestic Mutual funds bonds issued by public sector undertakings and shares in public sector enterprise being divested by the Govt of India.

11. With effect from November 29, 2001, OCBs at e not permitted to invest under the PIS in India. Further, the OCBs that have already made investments under the Portfolio Investment Scheme, may continue to hold such shares/convertible debentures fill such time these are sold on the stock exchange.

OCBs have been derecognised as a class of investor entity In India with effect from September 16 2003. However, requests from such entities which are incorporated and not under the adverse notice of RBI/SEBI will be considered for undertaking fresh investments under FDI scheme with prior approval of Government if the investment is under Govt. route and with the prior approval of RBI if the investment is under automatic route.

12. Purchase of other securities (Schedules 4 and 5)

12.1 There is no limit on NRI purchasing shares/convertible debentures issued by an Indian company on non-repatriation basis whether by public issue or private placement, Amount of consideration for such purchase shall be paid by in" at remittance through normal banking channels front abroad or out of funds held in NRE/FCNR/NRO account maintained with the AD.

NRl can also, without any limit, purchase on non‑repatriation basis dated Government securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds.

12.2 Foreign Institutional Inv estrus can buy dated securities/ treasury bills, non‑convertible debentures/ bonds issued by Indian companies and units of domestic animal funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India.

12.3 NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan at e permitted to invest in Indian Securities on repatriation basis Subject to the condition that the Meant of consideration for such put chase on repatriation basis shall be paid only by way of inward remittance in free foreign exchange through normal banking channels, or by debit to their NRE/FCNR(B) accounts.

In case of investment on non‑repatriation basis, the sale proceeds shall be credited to NRO account. The amount invested under the scheme and the capital appreciation thereon shall not be allowed to be repatriated abroad,

13. Investments by Venture Capital Funds (Schedule b)

A SEBI registered Foreign Venture Capital Investor (FVCI) with general permission from RBI under FEMA Regulations can invest in Indian Venture Capital Undertaking (IVCU) or in a Venture Capital Fund (VCF) or in a Scheme floated b\ such VCFs subject to the condition that the VCF and IVCU should also be registered with SEBI. They can purchase equity/equity linked instruments/debt/ debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement or in units of schemes/fund, set up by a VCF. RBI, on application, may permit a FVCI to open a foreign currency account or rupee account with a designated branch of an authoried dealer. The purchase/sale of shares, debentures, units can beat a price that is mutully acceptable to the buyer and the seller/issuer. ADs are also authorised to offer forward cover to FVCIs to the extent of total inward remittance net of investments liquidated.

Investments Facilities in Brief:

Avenues of Investment	Instrument	Category of Investors
Public/Private Limited	Shares/Convertible Debentures/Preference shares	Non Resident Indian/Non-resident/Foreign Institutional Entities/Foreign Institutional Investors
Public Limited Companies	NCDs	NRIs
Trading Companies	Shares/Convertible Debentures/Preference Shares	Export House /Trading House/Super House/Star Trading House
SSI Units	Shares Convertible Debentures/ Preference Shares	Non-residents
EOU or Unit in Free Trade Zone or in Export: Processing Zone	Shares/Convertible Debentures / Preference Shares	Non-residents
Public/ Private Ltd. Companies	Right Share	Non-residents
Under Scheme of amalgamation/merger	Shares/Convertible Debentures/Preference Shares	Non-residents
Employees Stock Option	Shares/ Convertible Debentures/ Preference Shares	Non-residents
ADR/GDR	Receipts	Non-residents
PIS	Shares/Convertible Debentures	Flls & NRIs
Exchange Traded Derivatives		Flls (on repatriation basis) NRIs (on non-repatriation basis)
Govt. Securities	Govt. dated Securities/Treasury Bills, Units of Domestic Mutual Funds, Bond, Issued b~ PSUs and shares of Public Sector Enterprises being divested	NRIs & Flls;
Indian VCU or VCF or in a Scheme floated by VCF	SEBI Registered VCF/VC Units	SEBI Registered Foreign Venture Capital Investor

PART II

1. Acquisition and Transfer of Immovable Property In India.

1.1 A person resident outside India who is a citizen of India (NRI) can acquire byway of purchase any immovable property in India other than agricultural/plantation/farm house. He may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India or a person resident in India. He may however transfer, agricultural land/plantation property/farm house only to Indian citizens permanently residing in India.

1.2 A per son resident outside India who is a Person of Indian Origin (PTO) can acquit e any immovable property in India other than agricultural land/farm house/plantation property

(a) By way of purchase out of funds received by way of inward remittance through normal banking channel, or by debit to his NRE/FCNR(B)/NRO account.

(b) By way of gift front a per son resident in India or a NRI or a PTO

(c) By way of inheritance from a person resident in India or a person resident outside India who had acquired such property in accordance with the or provisions of the foreign exchange law in force or FEMA regulations at the time of acquisition of the property.

1.3 A PIO may transfer any immovable property other than agricultural land/Plantation property/farmhouse in India

(a) By way of sale to a person resident in India,

(b) By way of gift to a person resident in India or a Non‑resident Indian or a PTO.

1.4 A PTO may transfer agricultural Land/Plantation property/farm house in India by way of sale or gift to per son resident in India who is a citizen of India.

2. Purchase/Sale of Immovable Property by Foreign Embassies/Diplomats/Consulate General.

Foreign Embassy /Diplomat/Consulate General has been allowed to purchase/sell in immovable property in India other than agricultural land/plantation a property/farm house provided (i) clearance from Government of India, Ministry of External Affairs is obtained for such purchaser sale, and (ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channel.

3. Acquisition of Immovable Property for carrying on a permitted activity.

A person resident outside India who has a branch, office or other place of business, (excluding a liaison office) for carrying on his business activity with requisite approvals, in India may acquire an immovable property in India which is necessary for or incidental to carrying on such activity provided that all applicable laws, rules, regulations or directions for the time being in force are duly complied with. The entity/concerned person would have to file a declaration in the form Bit with the Reserve Bank, within ninety days form the date of such acquisition. The non‑resident is eligible to transfer by "ay of mortgage the said immovable property to am authorised dealer as a security for any borrowing.

4. Repatriation of sale precedes.

In the event of sale of immovable property other than agricultural land/fat in house/plantation property in India by NRI/PIO, the authorised dealer will allow repatriation of sale proceeds outside India provided;

i. the immovable property was acquit ed by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA Regulations;

ii. the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non Resident Account or (b) the foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in Non‑Resident External account for acquisition of the property

iii. in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such proper ties.

iv. in the case of sale of immovable property purchased out of Rupee funds, ADS may allow the facility of repatriation of funds out of balances held by NRIs/P10 in their Non‑resident Rupee (NRO) accounts into US$ I million per year, provided that the property has been field for a period not less than 10 years or for a combined period of 10 years partly as property and as sale proceeds in NRO account and subject to production of undertaking by the remitter and a certificate from the Chartered Accountant in the formats prescribed by the CBDT.

5. Prohibition on acquisition or transfer of Immovable property In India by citizens of certain countries.

5.1 No person being a Citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China Iran, Nepal or Bhutan shall acquire or transfer immovable property in India, other than lease, not exceeding five years without prior permission of Reserve Bank.

5.2 Foreign national of non‑Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance.

5.3 Foreign Nationals of non-Indian origin who have acquired immovable property, in India with the specific approval of the Reserve Bank cannot transfer such property without prior permission of the Reserve Bank.

PAR T III

INVESTMENT IN PARTNERSHIP FIRM/PROPRIETARY CONCERN

1. Investment in a firm or a proprietary concern in India by a person resident outside India.

A non‑resident Indian or a person of Indian origin resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on non repatriation basis provided

a Amount is invested by inward remittance or out of NRE/FCNR/NRO account maintained with AD

b. The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business i.e. dealing inland and immovable property with a view to earning profit or earning income therefrom.

c. Amount invested shall not be eligible for repatriation outside India.

2. Investment in sole proprietorship concern/partnership firm with repatriation benefits.

NRIs/PIO may invest in sole proprietorship concerns/partnership firms with repatriation benefits with the approval of Government/ RBI.

3. Investment by non‑residents other than NRIs/PIO

No person resident outside India other than NRIs/PIO shall make any investment by way of contribution to the capital of a film or a proprietorship concern or any association of persons in India provided that the RBI may, on an application made to it, permit a person resident outside India to make such investment subject to such terms and conditions as may be considered necessary.

4. Restrictions

In terms of Regulation 4(h) and (e) of RBI Notification No. FEMA 24/2000‑RB, dated Mae 3,2000 ail NRI or PIO cannot invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or engaged in Print Media.

ANNEX 2

ANNEXURE A TO SCHEDULE I OF FEMA NOTIFICATION NO. FEMA 20/2000‑RB, DATED MAY 3,2000

(as amended vide Notification No. FEMA 94‑R‑B, dated June 18, 2003)

(A) List of Activities for which Automatic Route of RBI for investment by person resident outside India is not available

1. Domestic Airlines,

2. Petroleum Sector (except for private sector oil refining)

3. Investing companies in Infrastructure & Services Sector

4. Defence and Strategic Industries

5. Atomic Minerals

6. Print Media

7. Broadcasting

8. Postal Services

9. Courier Services

10. Establishment and Operation of satellite

11. Development of Integrated Township

12. Tea Sector

(B) List of activities or items for which FDI is prohibited.

1. Retail Trading

2. Atomic Energy

3. Lottery Business

4. Gambling and Betting

5. Housing and Real Estate business

6. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisiculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations)

ANNEX 3

ANNEXURE B TO SCHEDULE I OF FEMA NOTIFICATION NO. FEMA 20/2000‑RB, DATED MAY 3,2000

(as amended vide Notification No. FEMA 94‑RB, dated June 18, 2003)

Sectoral cap on Investments by persons resident outside India

Sector	Investment Cap	Description of Activity/Items/Conditions
1. Private Sector Banking	49%	Subject to guidelines issued by RBI from time to Time
2. Non‑Banking Financial Companies	100%	FDI/NRI investments allowed in the following 19 NBFC activities shall be as per the levels indicated below: (a) Activities covered 1. Merchant Banking 2. Underwriting 3. Portfolio Management Services 4. Investment Advisory Services 5. Financial Consultancy 6. Stock‑broking 7. Asset Management 8. Venture Capital 9. Custodial Services 10. Factoring (b) Minimum Capitalisation norms for fund based NBFCs (i) For FDI upto 5196, US $ 0.5 million to be brought in upfront (ii) If the FDI is above 5196 and upto 7596, US $ 5 million to be brought upfront (iii) If the FDI is above 75% and upto 100%, US $ 50 million out of which $ 7.5 million to be brought in upfront and the balance in 24 months (c) Minimum Capitalisation norms for non‑fund based activities Minimum Capitalisation norm of US$ 0.5 million is applicable in respect of non‑fund based NBFCs with foreign investment. (d) Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US $ 50 million as at (b) (iii) above (without any restriction on number of operating subsidiaries without bringing in additional capital) (e) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capital inflow i. e, (b)(i) and (b)(ii) above. (f) FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard
3. Insurance	26%	FDI upto 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA)
4. Telecommunication	49%	i. In basic, Cellular, Value Added Services, and Global Mobile Personal Communications by Satellite, FDI is limited to 49% subject to licencing and security requirements and adherence by the companies (who are investing and the companies in which the investment is being made) to the license conditions for foreign equity cap and lock‑in period for transfer and addition of equity and other license provisions. ii. ISPs with gateways, radio paging and end-to‑end bandwidth, FDI is permitted upto 74% with FDI, beyond 49% requiring Government approval. These services would be subject to licensing and security requirements iii. No equity cap is applicable to manufacturing activities. iv. FDI upto 100% is allowed for the following activities in the telecom sector: a. ISPs not providing gateways (both for satellite and submarine cables) b. Infrastructure Providers providing dark fibre (IP Category 1) c. Electronic Mail, and d. Voice Mail The above would be subject to the following conditions; FDI upto 100% is allowed subject to the condition that such companies would divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. The above services would be subject to licencing and security requirements, wherever required. Proposal for FDI beyond 49% shall be considered by FIPB on case to case basis.
5. Petroleum Refining (Private Sector) Petroleum Product Markeing Petroleum Product Pipelines	100% 100% 100%	FDI permitted upto 100% in case of private Indian companies Subject to the existing sectoral policy and regulatory framework in the oil marketing sector Subject to Govt. policy and regulations
6. Housing and Real Estate	100%	Only NRIs are allowed to invest upto 100% in the areas listed below : (a) Development of serviced plots and construction of built‑up 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‑which is also opened to FDI as an NBFC
7. Coal & Lignite		(i) Private Indian companies setting up or operating power projects as well as coal and lignite mines for captive consumption are allowed FDI upto 100%. (ii) 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing. (iii) FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption. (iv) In all the above cases, FDI is allowed upto 50% under the automatic route subject to the condition that such investment shall not exceed 49% of the equity of a PSU.
8. Venture Capital Fund (VCF) and Venture Capital Company (VCC)		Offshore Venture Capital Funds/companies are allowed to invest in domestic venture capital undertaking as well as other companies through the automatic route, subject only to SEBI regulations and sector specific caps on FDL
9. Trading		Trading is permitted under automatic route with FDI upto 51 % provided it is primarily export activities, and the undertaking is an export house/ trading house/super trading house/star trading house. However, under the FIPB route: (1) 100% FDI is permitted in case of trading companies for the following activities: a. exports; b. bulk imports with export/ex‑bonded warehouse sales; c. cash and carry wholesale trading; d. other import of goods or services provided at least 75% is for procurement and sale of the same group and not for third party use or onward transfer/ distribution/ sales. (2) The following kinds of trading are also permitted, subject to provisions of Exim Policy. a. Companies for providing after sales services (that is not trading per se) b. Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their Joint ventures in which they have equity participation in India c. Trading of hi‑tech items/items requiring specialised after sales service d. Trading of items for social sector e. Trading of hi‑tech, medical and diagnostic items. f. Trading of items sourced from the small scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name g. Domestic sourcing of products for exports h. Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing. i. FDI upto 100% permitted for e‑commerce activities subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e‑commerce and not in retail trading.
10. Power	100%	FDI allowed upto 100% in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.
11. Drugs & Pharmaceuticals	100%	FDI permitted upto 10096 for manufacture of drugs and pharmaceuticals provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology and specific cell/ tissue targeted formulations. FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology and specific cell/tissue targeted formulations will require prior Govt. approval.
12. Road and highways, Ports and harbours	100%	In projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours.
13. Hotel & Tourism	100%	The term hotels include restaurants, beach resorts and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include 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. For foreign technology agreements, automatic approval is granted if i. Upto 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc. ii. Upto 3% of the net turnover is payable for franchising and marketing /publicity support fee, and , . Upto 10% of gross operating profit is payable for management fee, including incentive fee.
14. Mining	74% 100%	i. For exploration and mining of diamonds and precious stones FDI is allowed upto 74% under automatic route ii. For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing FDI is allowed upto 100% under automatic route iii. Press Note 18 (1998 series), dated 14/12/98 would not be applicable for setting up 100% owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and/or the particular mineral.
15. Advertising	100%	Advertising Sector FDI upto 100% allowed on the automatic route
16. Films	100%	Film Sector (Film production, exhibition and distribution including related services/ products) FDI upto 100% allowed on the automatic route with no entry-level condition
17. Airport	74%	Govt. approval required beyond 74%
18. Mass Rapid Transport Systems	100%	FDI upto 10096 is permitted on the automatic route in mass rapid transport system in all metros including associated real estate development
19. Pollution Control & Management	100%	In both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route
20. Special Economic Zones	100%	All manufacturing activities except: (i) Arms and ammunition, Explosives and allied items of defence equipments, Defence aircrafts and warships, (ii) Atomic substances, Narcotics and Psychotropic Substances and hazardous Chemicals, (iii) Distillation and brewing of Alcoholic drinks and Cigarette/cigars and manufactured tobacco substitutes.
21. Any other Sector/Activity (if not included in Annexure A)	100%

*Govt of India vide Press Note No. 2 (2004 Series) has raised the FDI limit in Private Sector banks from 49% to 74%. RBI is yet to issue Notification.