The Foreign Exchange Management Act (FEMA) is designed to facilitate foreign trade, focusing on promoting and maintaining foreign exchange transactions in India. It regulates investments made by foreign entities in India and by Indian entities abroad, requiring compliance with FEMA, Directorate of Foreign Trade, and RBI regulations.

Increased inbound and outbound investments have intensified scrutiny on foreign exchange compliances. Individuals and corporates must closely monitor foreign exchange settlements, considering sectorial caps and investment restrictions to avoid substantial penalties.

Foreign Direct Investment (FDI) occurs when a foreign company gains significant control in an Indian business. FDI involves not just financial infusion but also contributes knowledge, skills, and technology to actively participate in India's daily operations.

Typically, FDI in India involves a foreign investor acquiring business assets or controlling interest in an Indian company, paving the way for foreign entities to engage in Indian markets and operations.

Investment Inbound – FDI in India

India has become an attractive hub for Foreign Direct Investment (FDI) since its economy opened up in 1991. The government's ongoing economic reforms and open-trade policies have made the Indian market alluring for foreign businesses. Companies from abroad find India appealing due to access to skilled human resources.

Foreign entities can establish businesses in India by following the RBI's FDI policy. Foreign individuals can also become directors in Indian companies, provided one director is an Indian citizen residing in India.

Many sectors now allow FDI through the Automatic Route, eliminating the need for prior approval in most cases. However, complying with assessment and documentation requirements is essential for non-residents, where our company aids in ensuring effective compliance.

Routes in which India receives FDI

Automatic Route:

Non-residents or Indian companies typically don't need prior approval from the RBI or Indian government for Foreign Direct Investment (FDI).

Government Route:

Government approval is necessary for the organization. To proceed, the company must submit an application via the Foreign Investment Facilitation Portal, streamlining the process through a single-window clearance system. The application is then forwarded to the relevant ministry, which will review and either approve or reject it, in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce. DPIIT will provide the Standard Operating Procedure (SOP) for handling applications based on the current FDI policy.

Sectors which go under the ' 100% Automatic Route' classification are

Various sectors welcome Foreign Direct Investment (FDI) opportunities in India, including agriculture, animal husbandry, air transport services, airport development, automobile manufacturing, biotechnology, broadcasting, capital goods, wholesale trading, chemicals, healthcare, IT services, food processing, jewellery, industrial parks, leather, mining, financial services, petroleum, pharmaceuticals, renewable energy, infrastructure, retail trading, textiles, power generation, tourism, and more.

Shoplegal services offered under this segment includes,

  • Shoplegal offers comprehensive guidance in choosing the right business structure, such as branch offices or liaison offices, and assists with capital structuring.
  • We provide advice on Foreign Exchange Regulations and Corporate Laws (FEMA), ensuring compliance with FDI sectorial limits and RBI reporting for Automatic Route approvals.
  • Our expertise includes selecting tax-efficient approaches for entering the Indian market and facilitating the registration process for Indian Subsidiary companies of Foreign Parents.
  • Additionally, we offer advice on mergers, acquisitions, due diligence, and implementing cost-effective business structures. We assist in obtaining RBI approvals, ensuring compliance, filing statutory forms, returns, and registration with FIRMS.

Investments Outbound – Overseas Direct Investment (ODI)

FEMA Regulations enable Indian entities to invest in foreign businesses within defined limits. This opportunity isn't limited to large enterprises; even Small and Medium Enterprises (SMEs) benefit, expanding their presence in global markets or bridging supply chain gaps by acquiring overseas entities.

Investing abroad falls under regulated capital transactions. Except for real estate, most sectors have no caps on overseas direct investment, allowing various sectors to explore such opportunities.

Payments for equity or debt investments in foreign companies must be routed through authorized dealer banks and require specific reporting to the Reserve Bank of India via AD Banks.

The various services provided by Shoplegal under this category are as follows.

  • We issue compliance certificates adhering to FEMA and RBI regulations, coordinating with authorized dealer banks.
  • We handle RBI inquiries efficiently and draft/submit Annual Returns and Performance Reports on assets and liabilities to RBI.
  • Additionally, we provide certification for the net worth of Indian businesses investing overseas.