The Government of India guidelines for India direct investment in joint ventures (JVs) and wholly owned subsidiaries (WOSs) abroad as amended up to May 18, 1999 ensure that (1) the outflow of funds for investment in foreign countries is monitored carefully to avoid large capital outflows,(2) Indian industry and business attain strategic positions in certain areas or regional blocks, and (3) reasonable return on investment. They are also intended to avoid large incidence of mortality after approval and to reduce procedural bottlenecks. They seek to give a signal that there is a basic change in the approach of the Government from one of regulator or controller or one of facilitator. The Reserve Bank of India would provide a single window for processing of all overseas investments and would accord all necessary approvals and monitor their progress by prescribing the reporting obligations. Applications for joint ventures abroad were earlier vetted by the Commerce ministry here shall be 2 categories of applications for setting up JVs or WOSs abroad viz., category A – Fast track and category B – Normal cases.
Category A – Fast Track Approval
An application for direct investment in a joint venture/wholly owned subsidiary abroad from a private/public limited company will eligible for automatic approval by RBI, provided:
1. the total value of the investment by the Indian does not exceed US $50 million; in respect of Indian investment in SAARC countries (excluding Pakistan) and Myanmar, total value of investment does not exceed US $150 million, and in respect of Indian Rupee Investments in Nepal and Bhutan, the total value of investment does not exceed Rs 700 crores.
2. the amount of investments is up to 25 percent of annual average export/foreign exchange earnings of the Indian party (other than equity exports to existing JVs / WOSs abroad) in the preceding three years (not applicable to Indian Rupee investments in Nepal and Bhutan as well as investment abroad by Indian software companies in the field of computer software as provided in sub para (4)
3. the amount of investment should be repatriated in full by way of dividends, royalty, technical services fee etc., within a period of five years with effect from the date of first remittance of equity to the foreign concern or the date of first shipment of equity exports or the due date of receipt of entitlements which are to be capitalized, whichever is earlier; and
4. In the case of investment in the field of computer software by Indian software companies with cumulative actual export/foreign exchange realization of US$25 million or more in the preceding three years, blanket investment approval may be given up to 50 per cent of such export/foreign exchange realization, subject to a maximum of US $ 25 million in a block of three succeeding years, inclusive of investment up to US $ 15 million allowed by authorized dealers out of Exchange Earners Foreign Currency (EEFC) accounts.
The investment may, besides cash remittance at the discretion of the Indian party, be contributed by the capitalization in full or in part of: (1) Indian made plant machinery, equipment and components supplied to the foreign concern; (2) the proceeds of goods exported by the Indian party to the foreign concern; (3) fees, royalties, commissions or other entitlement from the foreign concern for the supply of technical know-how consultancy, material or other services.
In cases where the applicant company is a new company and does not have the requisite export performance/exchange earnings, credit may be given to the parent company’s exports/exchange earnings provided, the applicant company is either a wholly owned subsidiary of the exporting /exchange earnings company, or the latter owns at least 51 percent shares in the former. In the case of exports being through subsidiaries set up exclusively for international business, credit may be given to the parent company for the exports/exchange earnings of its subsidiaries.