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Prior to economic reforms and liberalisation in India, foreign companies were not allowed to set up their business in India. Only after liberasation a green signal was provided to foreign companies to establish the business in India. Under the current laws in force, foreign offices are set up in India with lesser restrictions that affect their business. Different forms of foreign offices can be set up in India. Out of them, a branch office and project office can be set up by foreign companies.
Before the economic liberalisation in 1991, the Monopolistic Restrictive and Trade Practices Act, 1969 (MRPT) affected the way in which domestic companies would operate in India. This law restricted the operation of foreign companies in India and opposed a monopoly for Indian companies. After this law was repealed, foreign companies were allowed to establish a branch office and project office. However, setting up of foreign offices in India has to be in compliance with the respective foreign exchange laws in India.
The primary regulatory authority for setting up a branch office and project office in India is the Reserve Bank of India (RBI). There are specific laws that affect the regulation of branch office and project office in India. One such law is the Foreign Exchange Regulation Act, 1973. However, due to its stringent policies and restrictive trade practices, this law was abolished and replaced by the Foreign Exchange Management Act, 1999 (FEMA).
Foreign companies that are established in India are subject to different regulations. Hence it is important to understand what is the business structure required for the foreign company to establish an office.
Read our article:Foreign Investment: Compliance under RBI/FEMA
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