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    25.ecb & Fdi

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    mercatuz
    External commercial borrowing (ECB) and foreign direct investment (FDI) are two ways for Indian corporations to access foreign money. ECB can be accessed through the automatic route, which does not require approval for investment in real sector industries, or the approval route. FDI can be made by incorporating a subsidiary, joint venture, liaison office, or branch office. FDI can be received through the automatic route for up to 100% in most sectors, or the government route, which requires approval. India has seen high FDI inflows in recent years, with over $48 billion invested over the last two years. The Indian government approved several FDI proposals worth over $37 million in October 2011.

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    25.ecb & Fdi

    Uploaded by

    mercatuz
    86 views4 pages
    External commercial borrowing (ECB) and foreign direct investment (FDI) are two ways for Indian corporations to access foreign money. ECB can be accessed through the automatic route, which does not require approval for investment in real sector industries, or the approval route. FDI can be made by incorporating a subsidiary, joint venture, liaison office, or branch office. FDI can be received through the automatic route for up to 100% in most sectors, or the government route, which requires approval. India has seen high FDI inflows in recent years, with over $48 billion invested over the last two years. The Indian government approved several FDI proposals worth over $37 million in October 2011.

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    25.ECB & FDI

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    External commercial borrowing (ECB) and foreign direct investment (FDI) are two ways for Indian corporations to access foreign money. ECB can be accessed through the automatic route, which does not require approval for investment in real sector industries, or the approval route. FDI can be made by incorporating a subsidiary, joint venture, liaison office, or branch office. FDI can be received through the automatic route for up to 100% in most sectors, or the government route, which requires approval. India has seen high FDI inflows in recent years, with over $48 billion invested over the last two years. The Indian government approved several FDI proposals worth over $37 million in October 2011.

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    Download as DOCX, PDF, TXT or read online from Scribd
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    86 views4 pages

    25.ecb & Fdi

    Uploaded by

    mercatuz
    External commercial borrowing (ECB) and foreign direct investment (FDI) are two ways for Indian corporations to access foreign money. ECB can be accessed through the automatic route, which does not require approval for investment in real sector industries, or the approval route. FDI can be made by incorporating a subsidiary, joint venture, liaison office, or branch office. FDI can be received through the automatic route for up to 100% in most sectors, or the government route, which requires approval. India has seen high FDI inflows in recent years, with over $48 billion invested over the last two years. The Indian government approved several FDI proposals worth over $37 million in October 2011.

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    ECB & FDI

    EXTERNAL COMMERCIAL BORROWING(ECB) An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. availed from non-resident
    lenders with minimum average maturity of 3 years.

    The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies. For infrastructure and greenfield projects, funding up to 50% (through ECB) is allowed. In telecom sector too, up to 50% funding through ECBs is allowed. Recently Government of India has increased limits on RBI to upto $30 billions ECB can be accessed under two routes, (i) (ii) Automatic Route and Approval Route

    (A) Automatic Route ECB for investment in real sector industrial sector, especially infrastructure sector-in India, are under Automatic Route, i.e. do not require RBI/Government approval. In case of doubt as regards eligibility to access Automatic Route, applicants may take recourse to the Approval Route. (B) Approval Route In case of doubt as regards eligibility to access Automatic Route, applicants may take recourse to the Approval Route. Reporting arrangements and dissemination of Information i). Reporting Arrangements a). With a view to simplify the procedure, submission of copy of loan agreement is dispensed with. b). Borrowers are required to submit Form 83 (format in Annex II), in duplicate, certified by the Company Secretary (CS) or Chartered Accountant (CA) to the designated the designated AD to the Director, Balance of Payments Statistics Division, Department of Statistical Analysis and Computer Services (DESACS), Reserve Bank of India, Bandra-Kurla Complex, Mumbai 400 051 for allotment of loan registration number.

    c). The borrower can draw-down the loan only after obtaining the loan registration number from DSIM, Reserve Bank of India. d). Borrowers are required to submit ECB-2 Return certifed by the designated AD bank on monthly basis so as to reach DSIM, RBI within seven working days from the close of month to which it relates

    ii). Dissemination of Information For providing greater transparency, information with regard to the name of the borrower, amount, purpose and maturity of ECB under both Automatic Route and Approval Route are put on the Reserve Bank website on a monthly basis with a lag of one month to which it relates.

    FORIEGN DIRECT INVESTMENT (FDI) A foreign company planning to set up business operations in India may:
    (a) Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly

    Owned Subsidiary or
    (b) Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of

    the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000. Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: (a) inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and (b) "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. India enjoys a strong position as a global investment hub with the country registering high economic growth figures even during the peak of financial meltdown. As a result, overseas investors rested their confidence in the economy which eventually pushed foreign direct

    investments (FDI) in India. Around US$ 48 billion of FDI has been pumped in the Indian economy in the last two years.

    An Indian company may receive Foreign Direct Investment under the two routes as given under : i. Automatic Route FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on 'Entry Routes for Investment' issued by the Government of India from time to time, are attracted. FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India. ii. Government Route FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors. The Indian company having received FDI either under the Automatic route or the Government route is required to report in the Advance Reporting Form, the details of the receipt of the amount of consideration for issue of equity instrument viz. shares / fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares through an AD Category I Bank, together with copy/ ies of the FIRC evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas bank remitting the amount, to the Regional Office concerned of the Reserve Bank of India within 30 days from the date of receipt of inward remittances. Further, the Indian company is required to issue the equity instrument within 180 days, from the date of receipt of inward remittance or debit to NRE/FCNR (B) account in case of NRI/ PIO. After issue of shares / fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares, the Indian company has to file the required documents along with Form FC-GPR with the Regional Office concerned of the Reserve Bank of India within 30 days of issue of shares to the non-resident investors.

    The Indian government have cleared 11 FDI proposals on October 10, 2011 entailing investment of around Rs 182.78 crores (US$ 37.53 million). Considering the pace of FDI growth in India, it is believed that FDI in 2011-12 may cross US$ 35 billion mark.

    Questions:

    What is ECP & FDI? Explain different routes through which ECP can be accessed. Explain different routes through which Foreign Direct Investment can be made.

    Sources:
    www.indialiaison.com

    en.wikipedia.org www.rbi.org.in www.ibef.org

    Compiled by: Rejitha K krejtha@gmail.com 09495915759

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