As per RBI Master Circular No.05/2010-11 dated July 01, 2010, in terms of Regulation 6 of the Notification, an Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), not exceeding 100 per cent of the net worth of the Indian party, i.e. a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932, making investment in a JV/WOS abroad and includes any other entity in India excluding individuals as may be notified by the Reserve Bank as on the date of the last audited balance sheet.
How much it can invest ?
Under automatic route , up-to 100% net worth of investing company in its foreign subsidiary or JV Company.
Financial commitment means the amount of direct investment outside India by way of contribution to equity and loans and 100% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas Holding company.
Payment should be routed through your authorised dealer (banker).
No prior registration with the Reserve Bank is necessary for making direct investments under the automatic route. After the report of the first remittance/investment in form ODI is received by the Reserve Bank, from the designated Authorized Dealer, an Identification Number for that particular JV/WOS will be issued for the purpose of taking on record the overseas direct investment with the objective of maintaining a database for monitoring the outflows/inflows in respect of the overseas entities. Subsequent investments in the same project can be made only after allotment of the Identification Number.
Loans can be made by a subsidiary to foreign holding company and Form ODI has to be submitted to Authorised dealer. Under FEMA , investment in equity , lending loan and extending guarantee will all fall under ODI.
A subsidiary can make direct investment outside India by way of contribution to equity and loans and 100% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas Holding company.
However , the holding company cannot make further investment in the subsidiary if it is making a loan to the holding company..
Can an Indian Company invest in shares of a Foreign Company where there is no JV or WOS?
Yes. As per RBI guidelines , if there is no JV or WOS , an Indian companies can invest up to 50 % of their net worth as on the date of the last audited Balance Sheet in overseas companies, listed on a recognized stock exchange, or by way of rated debt securities issued by such companies.
If the investing company is an Indian company , then it can invest in any foreign listed company up to 50% of its net worth under automatic route else it has get the prior approval from RBI if it wants to invest in unlisted foreign company , or if the Indian company is not a listed company.
Can proceeds raised through ECB are allowed to invest in Equity shares of JV or WOS in abroad?
ECB proceeds can be utilised for overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.