Investment Routes to India Entry for Foreign Direct Investments (FDI) in IT and IT Enabled Services: Best FDI Attorney Advice in India
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“Before any investor makes any Foreign Direct Investment in India or FDI in India he should duly comply with the RBI compliances or the policies and procedures formulated by the Reserve Bank of India and the government of India. Broadly speaking there are two routes of investment under FDI process i.e. the automatic route and the government route. Having said that, a proper legal consultation should be obtained from the best FDI attorney in India before moving ahead.”
The Foreign Direct Investment Policy (FDI Policy) established by the Department of Industrial Policy and Promotion (DIPP) imposes foreign investment standards as well as a cap (i.e. limit) in specific industrial sectors. These policy changes are intended to make the operating of business easier and to speed up with the rate of foreign investment in the nation. The government has taken a number of effective steps to streamline the Foreign Direct Investment policy. Furthermore, many activities have recently been converted to unrestricted sectors where 100 percent Foreign Direct Investment is allowed.
Routes to India Entry for Foreign Direct Investments (FDI) in IT and IT Enabled Services
The two major entry routes in India in case FDI are:
• Automatic Route-The automated path denotes regulation that is less restrictive or more liberalised. Under the Automatic Route, a foreign investor or an Indian firm does not need the Reserve Bank or the Government of India’s permission to invest. All industries and activities included in the unified FDI policy are eligible for approved route FDI. The automated and approved routes are intended to provide simultaneous monitoring of investment operations in order to eliminate inefficient procedural delays.
• Government Route.- Foreign investment proposals are examined by either the Foreign Investment Promotion Board (FIPB), the Cabinet Committee on Economic Affairs, or the Cabinet Committee on Securities following the government route outlined in the FDI policy. The Department of Economic Affairs (DEA) or the Department of Industrial Policy and Promotion (DIPP) may also help the above-mentioned authorising bodies in some situations. Investments of up to Rs 5000 crores are considered for clearance by the FIPB. CCEA will provide permission if the amount exceeds this limit.
Procedure for Companies to invest through FDI in India in IT and IT Enabled Services
The company must submit an application through the Foreign Investment Facilitation Portal, that allows for one-stop shopping for clearance. The application is subsequently transmitted to the appropriate ministry, which accepts or rejects it in collaboration with the Ministry of Commerce’s Department for Promotion of Industry and Internal Trade (DPIIT). DPIIT publishes the Standard Operating Procedure (SOP) for the processing of applications under the current FDI policy. In general, industrial sectors are classified as Permitted or Prohibited under the FDI policy. There are a few industries where the policy does not specify an FDI limit. For those, paragraph 5.2(a) of the FDI policy clearly states that FDI is authorised up to 100 percent on the automatic route in sectors and activities not specified, pursuant to applicable laws and regulations, security, and other conditions.
As a result, it may be inferred that up to 100 percent FDI is permitted in the information technology industry via the automatic method. Furthermore, because BPO companies’ operations fall under the category of “IT enabled services,” companies engaged in such activities are eligible for 100 percent FDI through the automatic route. The actions of a BPO, on the other hand, are governed by the Department of Telecommunications (“DoT”). Furthermore, under the automatic approval method, 100 percent FDI is authorised in the electronic hardware and software development sectors. However, FDI in the IT industry must follow the rules and guidelines established by the ‘Ministry of Electronics and Information Technology’. India has the world’s second-highest number of internet customers. Under the automated route, up to 100 percent FDI is permitted in data processing, technical testing and analysis services, software supply services, business and management consultancy services, market research services, software development, and computer consultancy services.
Reporting to the Reserve Bank of India (RBI) for Foreign Direct Investments (FDI) in IT and IT Enabled Services
There are a few norms and regulations that the investee firm must follow when collecting share application money in the form of foreign currency, allocating/issuing shares to the investor, and transferring shares to another company. In 2018, the RBI launched FIRMS (Foreign Investment Reporting and Management System), an online reporting platform for reporting foreign investment in India in Single Master Form. FEMA 20(R) mandates the reporting of foreign investment in India via multiple returns, i.e. 9 individual forms that have been merged into a single Single Master Form (SMF). FIRMS give applicants with online reporting capabilities that are available 24 hours a day, seven days a week.
The first step in the updated reporting system is to register as an Entity user. If a business is registered as an Entity user, it can submit the Entity Master Form (EMF) to provide information about its Foreign Direct Investment (FDI), including indirect foreign investment.
FDI process in India is not so simple but complex and a proper FDI attorney’s legal advice is inevitable. The corporate laws or the business laws of India have a separate chapter altogether for foreign investments and for foreign currency or foreign exchange transfer and especially international transfers.
Major countries have made large investments in Indian IT because of its fundamental expertise and strengths. Inflows of Foreign Direct Investment (FDI) into India’s computer software and hardware sector have increased with the ease of procedures of investing, whereby companies are encouraged to invest and growth their market in India.
Authored By: Adv. Anant Sharma & Afsana Khan