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:
- Already established distribution / marketing set up of the Indian
- Available financial resources of the Indian partner.
- 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.
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