Select Your Location
Regulation 16 of FEMA 20R has been provided by the Reserve Bank of India wide circular Notification No. FEMA 20(R)/ 2017-RB relates to Transfer or Issue of a particular security or capital instrument by an Individual resident outside India. Hence, this regulation would not only cover individual residents outside India but would also include foreign entities and limited liability partnerships which are formed outside India.
The Reserve Bank of India (RBI) under Regulation 16 of FEMA has brought the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 which deals with the transfer of security from a foreign company or a resident outside India to an Indian company. Transfer here would be the acquisition of particular securities or would also include the purchase of these securities.
Table of Contents
The Reserve Bank of India has authorized specific entities to deal with foreign exchange under these regulations. These entities are considered special banks under the Foreign Exchange Management Act, 1999 (FEMA).
The following definitions would be required to be interpreted for understanding:
Regulation 16 of FEMA 20R emphasizes the routes for foreign investment in India, the permitted caps which would be required for foreign investment, and the sector caps which would be required as applicable. Apart from seeking prior approval from the government, some form of foreign investments would require approval from a specific government authority.
There are different routes for foreign direct investment. These routes would be applicable where the foreign investment is coming either from a resident outside India (NRI) or a foreign company or a Limited Liability Partnership (LLP).
The following routes would apply to foreign direct investment:
Under specific sectors, 100% foreign direct investment is allowed. However, the approval process would vary depending on the sector in which foreign investment is allowed.
The following sector caps are for foreign direct investment:
This sector would include activities such as floriculture, horticulture, and development of animal husbandry. This would also include pisciculture, aquaculture, and apiculture, and all related forms of activities. All allied activities in the sector would include the plantation of flowers and bringing up of florist type of activities. Growing Mushrooms would also be included under this sector. All the activities must take place in some form of controlled environment or controlled conditions.
Controlled conditions mean something which is not natural for the nourishment of activities carried out in this sector. Any form of artificial way of taking care of plants would come under the definition of controlled conditions. This would include the use and development of greenhouses for growing plants and other crops. The development of plants using some form of microclimatic conditions would also be included under the definition of controlled activates under regulation 16 of FEMA 20R.
For the above sector, 100% investment is allowed under the automatic route.
This sector would include any form of activities which grow plant and other forms of products.
The following would come under the plantation sector:
(a) Tea sector including tea plantations;
(b) Coffee plantations and other related plantations;
(c) Rubber and related plantations;
(d) Cardamom plantations;
(e) Palm oil tree plantations; and
(f) Olive oil tree plantation.
Under this sector, 100% foreign direct investment is allowed and does not require any form of approval from the government.
Mining would include gold, diamond, silver, and other forms of precious stones. These products will not involve mining of elements which contain a specific form of titanium materials and products. This sector is subject to a specific regulation that is the Mines and Minerals (Development & Regulation) Act, 1957. Under this sector, 100% FDI is allowed under the automatic route.
This sector will include coal and other forms of lignite products used in industrial houses. This would be allowed under regulation 16 of FEMA 20R. While washing of coal-based products is allowed under this, coal mining is not allowed. Neither is selling of washed coal or activities which involve coal processing. FDI under this is 100%, and no form of approval is required from the government.
This would include mining elements that bear some form of titanium elements. This is regulated under the Mines and Minerals (Development and Regulation) Act, 1957. For this activity, 100% FDI is permitted; however, government approval is required.
There are specific conditions related to the above sector:
In these sector activities such as exploration, marketing, research and development, and taking out petrol-based products are allowed by private companies. If these activities are conducted privately, then approval is not required by the government, and 100% foreign investment is allowed.
However, if government undertakings conduct these activities, then 49% of investment would be allowed under the automatic route. The rest of the investment that is 51% would require approval from the government.
In the manufacturing sector, 100% foreign direct investment is allowed through the automatic route. This sector would include both the segments, i.e. wholesale segment and the retail segment. Manufacturing for the e-commerce sector would also be included in this process. Manufacturing for food processing activities would be covered under this sector. Regulation 16 of FEMA 20 R would cover the above activities.
Under the Industries (Development and Regulation) Act, 1951, an industrial license can be secured for carrying out any form of defence activities. For manufacturing arms and ammunition such as guns, specific permission would be required from the respective authority. Manufacturing ammunition must comply with the Arms Act, 1959. For this sector, up to 49% investment is allowed through the automatic route. If more than 49% of investment is present, then government approval would be required where the investor has some form of access to modern technologies.
There are specific conditions which have to be followed by the investee under this sector (regulation 16 of FEMA 20R):
The broadcasting sector would include carriage services for broadcasting such as:
For the above services, foreign direct investment is allowed under the automatic route. More than 100% FDI is allowed under this route.
Apart from this, there are specific conditions which have to be followed by the investee, such as regulatory compliance with the relevant telecommunication authority.
In this sector, 100% foreign direct investment is allowed for the development of airports and other forms of infrastructure. This would include both Greenfield projects and existing projects. 100 % investment is allowed under this sector for the above under the automatic route.
For any form of airport-related transfer services such as domestic airways as well as commercial airlines, then 49% of investment would be allowed through the automatic route. If the investment is coming through a Non –Resident Indian or an OCI, then 100% investment would be allowed through the automatic route.
Helicopter services and other forms of transport under regulation 16 of FEMA 20 R do not require any prior approval from the government of India. 100% investment would be allowed in such sectors.
Civil Aviation services which include manufacturing and maintenance activities of aircraft, 100% foreign direct investment is allowed through the automatic route.
Specific approval would be required from the Director-General of Civil Aviation for specific approvals.
Under regulation 16 of FEMA 20 R, the construction sector would include the development of townships and other residential complexes. This can be the construction of bridges, towns, hotels, and other forms of structures. 100% of foreign direct investment is allowed for such activities, and no approval from the government is required.
For the development of Information technology parks, software technology parks, and other forms of industrial parks, no approval from the government would be required. Foreign direct investment under this route will be allowed to 100%.
For the development and launching of satellites, 100% foreign investment would be allowed. However, this investment would be subject to approval from the government. Apart from this specific approval is also required either from the Department of Space and the ISRO.
Under regulation 16 of FEMA 20R, 49% of foreign direct investment is allowed for regulation of security agencies.
This will include all forms of local as well as international telecommunication providers. 100% foreign direct investment is allowed under this sector. 49% is allowed under the automatic route, and if more than 49% is present, then government approval is required.
Under regulation 16 of FEMA 20R, 100% foreign direct investment is allowed for the development of Greenfield projects in the pharmaceutical sector. This is allowed through the automatic route. Whereas for Brownfield projects, 100% of foreign direct investment is allowed. However, only 74% is allowed under the automatic route, and 26% is for the government route. Apart from this, there are specific conditions that have to be adhered by the respective parties.
Railway services such as cargo transport, transport of chemicals, transport of metals, and passenger carrier services would come under railway services. Construction and development of railway services would also be included under railway infrastructure services. 100% foreign investment is allowed under this route.
Hence, if a foreign investor wants to invest in the above sector, then following sector caps are required to be followed regarding foreign investment.
Varun Hariharan has completed the Legal Practice Course from BPP Law School, Manchester. He has a Masters in Commercial and Corporate Law from the Queen Mary University of London and LLB Honours from Bangor University, UK. He specialises in law related to corporate, artificial intelligence and technology law.
Many investors use fixed deposits as their primary investment vehicle. Investors with a high-ri...
The main idea of CDS, which was initially to give banks a way to transfer credit exposure, has...
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
This is a question that has come up again and again, and with this has come some other relevant questions, too, lik...
28 Apr, 2021
The article presents views over FRRO Registration. FRRO is an abbreviation for Foreigners Regional Registration Off...
15 Feb, 2021
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!