Entry Strategies For Foreign Investors

As an Indian Company

Foreign equity in Indian companies can be up to 100% depending on the requirements of the investor and subject to equity caps in respect to the area of activities under the Foreign Direct Investment (FDI) policy.

For registration and incorporation of a Indian Company, an application has to be filed with Registrar of Companies (ROC). Once the company has been duly registered and incorporated as an Indian company, it is subject to laws and regulations as applicable to other domestic Indian companies.

1. Joint Venture:
Foreign companies can set up their operations in India by forming strategic alliances with Indian partners. Setting up of operations through a Joint Venture may provide the following advantages to a foreign investor:

1. Already established distribution / marketing set up of the Indian partner.
2. Available financial resources of the Indian partner.
3. Already established contacts of the Indian partners that help ease the process of setting up operations.

Foreign investments are approved through two routes as under:

1.1 Automatic Route: Approvals for foreign equity up to 50 percent, 51 percent and 74 percent are given on an automatic basis, subject to fulfillment of prescribed parameters in certain industries as specified by the Government. RBI accords automatic approval to all such cases.

1.2 Government Approval: Approval from Foreign Investment Promotion Board (FIPB) are required in all other cases.

2. Wholly Owned Subsidiary: -
The foreign investors have the option of setting up a wholly owned subsidiary, wherein the foreign company owns 100 percent of the Indian company. All such cases are subject to prior approval from the Foreign Investment Promotion Board (FIPB). Some of the criteria for setting up wholly owned subsidiary are as follows:

• Only a "holding" operation is involved and all subsequent / downstream investments need prior approval of the Government.
• Where proprietary technology needs to be protected or sophisticated technology is to be introduced.
• At least 50 percent of the production is to be exported.
• Proposals for consultancy.
• Proposals for infrastructure like roads, industrial model towns, industrial parks etc.