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Preference shares Foreign investment through preference shares
is treated as foreign direct investment. Proposals are  processed either through the automatic route
or FIPB as the case may be, as per the following guidelines:-

(i) Foreign investment in
preference share are considered as part of share capital and fall outside the
External Commercial Borrowing (ECB) guidelines/ cap.

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(ii) Preference shares to
be treated as foreign direct equity for purpose of sectoral caps on foreign
equity, where such caps are prescribed, provided they carry a conversion
option. Preference shares structured without such conversion option fall
outside the foreign direct equity cap.

(iii) Duration for
conversion shall be as per the maximum limit prescribed under the Companies Act
or what has been agreed to in the shareholders agreement whichever is less.

(iv) The dividend rate
would not exceed the limit prescribed by the Ministry of Finance.

(v) Issue of preference
shares should conform to guidelines prescribed by the SEBI and RBI and other
statutory requirements.


FDI  IN  EOUs/ SEZs/Industrial Park /EHTP/
STP  Special Economic Zones (SEZs)


100% FDI is permitted under
automatic route for setting up of special Economic Zone. Units in SEZ
qualify for approval through automatic route subject to sectoral norms. Details
about the type of activities permitted are available in the Foreign Trade Policy
issued by Department of Commerce. Proposals not covered under the automatic
route require approval by FIPB.

100% Export Oriented Units (EOUs)

100% FDI is permitted under
automatic route for setting up 100% EOU, subject to sectoral norms. Proposals
not covered under the automatic route would be considered and approved by FIPB


Industrial Park 

100% FDI is permitted under
automatic route for setting up of Industrial Park.





 Strong Debt Markets:

 A deep liquid debt market in India has been
generating consistent and safe returns for offshore investors. Considering the
interests of overseas investors, the Government has prescribed high investment
limits of USD 20 billion for investments in corporate debt securities  and 
USD 10 billion for investments in government debt securities.

 Strong Deal destination:

India is becoming a
hub of both in-bound and out-bound mega M&A deals, private equity
transactions and a thriving Venture Capital Industry.

 Robust Insurance Sector:

India has a strong
insurance sector with liberal FDI policy permitting FDI of 26% with proposals
to raise it upto 49% in the near term. Several private players offer affordable
insurance covers and innovative products and the space is being regulated by
IRDA, the key statutes being Insurance Act, 1938 and Insurance Regulatory and
Development Authority Act, 1999.


India has entered
into double tax avoidance agreements (DTAAs) with all the major

jurisdictions in
the world providing for liberal provisions to avoid any double taxation on
incomes and capital gains and grants exemptions on earnings by foreign
investors in India as per the respective treaty provisions. Key jurisdictions
used by foreign investors include Mauritius and Singapore which have favourable














1.      Foreign direct investment has a major
role to play in the economic development of the host country. Over the years,
foreign direct investment has helped the economies of the host countries to
obtain a launching pad from where they can make further improvements.

This trend has manifested itself in the last
twenty years. Any form of foreign direct investment pumps in a lot of capital knowledge
and technological resources into the economy of a country. 

2.      This helps in taking the particular
host economy ahead. The fact that the foreign direct investors have been able
to play an important role vis-a-vis the economic development of the recipient
countries has been due to the fact that these countries have changed their
economic stances and have allowed the foreign direct investors to come in and
improve their economies

3.      It has often been observed that the
economically developing as well as underdeveloped countries are dependent on
the economically developed countries for financial assistance that would help
them to achieve some amount of economical stability.

4.      The economically developed countries,
on their part, can help these countries financially by investing in these
countries. This financial assistance can be channelized into various sectors of
the economy. The channelization is normally done on the basis of the
requirements of particular sectors. . 
It has been observed that the foreign direct
investment has been able to improve the infrastructural condition of a country.
There is ample scope of technological development of a country as well.

5.      The standard of living of the general
public of the host country could be improved as a result of the foreign direct
investment made in a country. The health sector of many a recipient country has
been benefited by the foreign direct investment. Thus it may be said that
foreign direct investment plays an important role in the overall economic and
social development of country

6.      FDI has an important impact on country’s trade balance,
increasing labour standards and skills, transfer of technology, skills and the
general business climate.

7.      FDI also provides an opportunity for technological
transfer and up gradation, access to global managerial skills and practices,
optimal  utilization of human
capabilities and natural  resources,
making industry internationally 
competitive, opening  up export
markets, access to international quality goods and services and augmenting
employment opportunities.

8.      India’s share in global FDI has increased considerably,
but the pace of FDI inflows has been slower than China, Singapore, Brazil, and

9.      Indian economy is largely agriculture based and there is
plenty of scope in food processing, agriculture services and agriculture
machinery. FDI in this sector should be encouraged.

10.  Research and Development expenditure shows unexpected
negative sign. This could be attributed to the fact that R&D sector is not
receiving enough FDI as per its requirement. 
But this sector is gaining more attention in recent years

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