To control foreign exchange operations in India, the Foreign Exchange Management Act of 1999 (FEMA) was introduced. As a result of this action, India now has more foreign exchange reserves. By creating a controlled and secure environment for currency exchange, this act helped to increase the nation’s foreign exchange reserves.

Foreign investments made in India by other nations are referred to as inbound investments. This kind of investment is foreign direct investment (FDI) in India. Due to its direct impact on the nation’s Gross Domestic Product, FDI is essential for the growth of the economy. Therefore, increasing inbound investment is crucial for FEMA.

The main governing body for both of these investments is the Reserve Bank of India (RBI). Different investors can conduct operations and transactions involving inbound and outward investments through this central bank.

Permitted Routes for Inbound Investments

The automatic approach allows for a 100% investment. Under this route, RBI authorization is not required. Government/Approval Route: The RBI must grant permission to use the Government/Approval Route. Due to the requirement for RBI’s approval, there are particular compliances that must be adhered to.

There are four categories in which investments are allowed, and they are as follows:

Category 1: Industries where FDI is automatically approved up to 100%.

Category 2: Industries where FDI is approved through the government/approval route up to 100%.

Category 3-Sectors where FDI is allowed with the government above a certain threshold.

Category 4- Sectors where FDI is allowed, subject to applicable regulations, both through the government/approval and automatic channels up to a specified amount.

Sectors which require Approval for Inbound Investment under FEMA

When it comes to incoming investment under FEMA, RBI approval is necessary. RBI prior approval is required for the following sectors: instances involving FDI in small guns, mining, and the military

Broadcasting Media in print Public Aviation Satellites Telecom

Agency for Private Security (Single-, Multi-, and Food Product) Trading

Financial services not subject to regulation or subject to more than one regulator/public and private banking (in accordance with FDI Policy)

Need for Inbound Investment under FEMA

There is a need for inbound investment under FEMA for the following reasons.

• • Investee and investor companies’/entities’ certificates of incorporation

• • Association Memorandum (MOA) between the Investee and Investor Companies/Entities

• • Resolution of the Board of the Investor and Investee Companies/Entities

• • Financial Statements of the Investee and Investor Companies/Entities for the Most Recent Fiscal Year, as Audited

• • The Investee and Investor Companies’/Entities’ Articles of Association
  • a list of all overseas collaborators’ names and addresses, as well as a copy of the investor company or entity’s passport or other form of identification.

• • Diagrammatic depiction of the money flow from the initial investor to the investee company as well as the investee company’s pre- and post- shareholding structure.

• An affidavit attesting to the accuracy and consistency of the information submitted both online and in printed copy.

Procedure for Carrying out Inbound Investment Structuring

The procedure for carrying out the incoming investment process is not predetermined. Any foreign business or organisation that plans to make a foreign investment in India must abide by the local regulations. For inward investment, the following process must be taken into account.

Identifying the Investment Type

For the purpose of structuring incoming investments, the investor must determine the type of foreign investment.

Direct foreign investment

The investment must thereafter be made in an Indian unlisted firm or must equal or exceed 10% of the paid-up capital of the company or other entity.

Portfolio investments abroad

if the investment falls within the definition or classification of a foreign portfolio investment. In that situation, the investment must be less than 10% of the firm’s paid-up capital or less than 10% of the paid-up value of each set of capital instruments of an Indian business that is publicly traded.

            Application Submission

The applicant must submit an application for investment in India using the aforementioned methodology. For the same thing, there are various techniques. As a result, the applicant must decide which category to invest in while using the automatic approach.

• • The expansion of the Indian economy

• • Enhancement of the nation’s GDP

• • Enhancing technology and expanding employment opportunities 

Documents for Inbound Investment Structuring

Below is a list of the Inbound Investment documents.

• • Investee and investor companies’/entities’ certificates of incorporation

• • Association Memorandum (MOA) between the Investee and Investor Companies/Entities

• • Resolution of the Board of the Investor and Investee Companies/Entities

• • Financial Statements of the Investee and Investor Companies/Entities for the Most Recent Fiscal Year, as Audited

• • The Investee and Investor Companies’/Entities’ Articles of Association
  • a list of all overseas collaborators’ names and addresses, as well as a copy of the investor company or entity’s passport or other form of identification.

• • Diagrammatic depiction of the money flow from the initial investor to the investee company as well as the investee company’s pre- and post- shareholding structure.

• An affidavit attesting to the accuracy and consistency of the information submitted both online and in printed copy.

Procedure for Carrying out Inbound Investment Structuring

The procedure for carrying out the incoming investment process is not predetermined. Any foreign business or organisation that plans to make a foreign investment in India must abide by the local regulations. For inward investment, the following process must be taken into account.

Identifying the Investment Type

For the purpose of structuring incoming investments, the investor must determine the type of foreign investment.

Direct foreign investment

The investment must thereafter be made in an Indian unlisted firm or must equal or exceed 10% of the paid-up capital of the company or other entity.

Portfolio investments abroad

if the investment falls within the definition or classification of a foreign portfolio investment. In that situation, the investment must be less than 10% of the firm’s paid-up capital or less than 10% of the paid-up value of each set of capital instruments of an Indian business that is publicly traded.

            Application Submission

The applicant must submit an application for investment in India using the aforementioned methodology. For the same thing, there are various techniques. As a result, the applicant must decide which category to invest in while using the automatic approach.