OVERSEAS INVESTMENT

Meaning

Overseas investment means investments, by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity, signifying a long-term interest in the overseas entity ( it includes setting up / acquiring a Joint Venture or a Wholly Owned Subsidiary.

Possible Routes for Investment

Automatic RouteAn Indian Party does not require any prior approval from the Reserve Bank for making overseas direct investments. The Indian Party should approach an Authorized Dealer Category – I bank with an application in Form ODI and the prescribed enclosures / documents for effecting the remittances

towards such investments.

Approval RouteProposals not covered by the conditions under the automatic route require the prior approval of the Reserve Bank for which a specific application in form ODI with the documents prescribed therein is required to be made through the Authorized Dealer Category – I

banks.

Conditions for Indian Parties

Registered with appropriate regulatory authority in India

Approval from the regulatory authorities concerned both in India and abroad

Compliance with prudential norms relating to capital adequacy norms as prescribed by the concerned regulatory authority in India

Points to be considered for ODI

Investments can be made in new or existing entity.

Indian entity can invest in any bonafide activity (except real estate other than development of township, construction of residential/ commercial premises, road or bridges). Also in case of financial service sector, certain additional conditions to be fulfilled.

Other Points

Investment in Pakistan is allowed under approval route only

Investment in Nepal is to be made only in INR

Initially investment in Bhutan was allowed in INR.

ELIGIBLE INVESTOR An Indian Party who is

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

Any other entity in India as may be notified by the Reserve Bank

Resident Individual

Special cases (primarily under approval Route)

Proprietary Firm

Trust / Society

Un-incorporated Entities

INDIAN COMPANIES THAT ARE MOST GLOBAL ONGC Videsh Tata Steel Tata Global Beverages HCL Technologies Tata Communications Dr Reddy's Laboratories Jubilant Life Sciences

Limitation of invest

RBI allows Indians to invest up to $250,000 a year abroad.

Type of Instruments for Type of Instruments for investmentinvestmentOverseas investment can be in the form of :

Equity Shares Preference Shares Convertible will be treated at part with

equity Non-convertible are treated as debt Debentures

MARKET SIZE India has emerged as one of the strongest performers

in the deal-street across the world as mergers and acquisitions (M&A). M&A activity increased in 2014 with deals worth US$ 38.1 billion being concluded, compared to US$ 28.2 billion in 2013 and US$ 35.4 billion in 2012.

Direct investments by Indian firms were US$ 2.67 billion in October 2014, as per RBI data. The investments were a mix of issuance of guarantees (US$ 2.18 billion), loan (US$ 157.33 million) and of equity (US$ 335.33 million).

INVESTMENT Indian companies have invested more than US$

21 billion in manufacturing activity abroad since the middle of 2007, which is roughly 37 per cent of the country's total outward equity investment during the period, the highest in any sector.

Foreign bourses such as the London Stock Exchange, Tokyo Stock Exchange and SIX Swiss Exchange have been in touch with Indian firms, trying to convince the latter of the benefits of listing overseas.

Overseas Investment in USA

The Essar Group invested over $1.6 billion in the declining Minnesota Steel Industries and now employs over 7,200 people in almost a dozen states.

The Tata Group has invested more than $3 billion in the U.S. and now employs nearly 19,000 throughout the country.

jubliant Organsys Total Capital invested $246 million in the U.S. and now employs nearly 900 employees throughout the country.

Wockhardt, a pharmaceutical company, acquired Morton Grove for $37 million. The deal preserved the jobs of all 200 original Morton Grove employees.

Crompton Greaves, an entity of the Indian conglomerate Avantha Group, has invested and partnered on a $20 million to launch a Center for Intelligent Power with the University of Albany. The deal will create 100 high-tech jobs in upstate New York.

Overseas Investment in UK In a recent development, UK announced that India

has become the third largest source of FDI for them as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.

HIGHLIGHTS

Auto major Tata Motors launched assembly operations for light commercial vehicles in Tunisia with its local partner ICAR SA. Tata Motors will commence production of pick-ups and light commercial vehicles in Tunisia from June 2015.

Wipro has initiated talks with UK-based outsourcing group Equiniti for a potential takeover that could be valued at about £ 1 billion (US$ 1.57 billion). If the talks conclude successfully, it will be one of Wipro's largest acquisitions.

Religare Capital Markets is entering into a joint venture with Thailand’s Trinity Securities to expand its investment banking services in Southeast Asia. Religare had signed a joint venture in April 2015 in the Philippines to provide investment banking and equity capital markets services with FSG Capital. It is also exploring further growth initiatives in Bangladesh, Vietnam, and Myanmar.

The Essel Group ME , a wholly-owned subsidiary of Essel Group India, has signed an agreement for acquiring 60 per cent participating interest in the portfolio of African oil and gas exploration projects owned by Simba Energy Inc, a Canadian publicly traded oil and gas company.

Tata Motors in association with Saudi Arabia-based Manahil International Company has opened one of the Gulf's largest automobile showroom and service facilities in the kingdom's capital.

Hyderabad-based Nava Bharat Ventures Limited is likely to achieve financial closure for a 300-megawatt coal-fired thermal power project being set up in Zambia.

Reliance Power plans to spend about US$ 3 billion to set up a 3,000- megawatt power plant based on imported liquefied natural gas in Bangladesh.

Gujarat-based Adani Group plans to invest US$ 2.5 billion in building a 1,600-megawatt coal-fired power plant in Bangladesh.

With an aim to boost bilateral trade, Bangladesh has offered to establish two special economic zones (SEZs) for Indian companies besides allowing Life Insurance Corporation to start operations in the country.

Government initiatives

The Reserve Bank of India, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledge of shares, domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries (WOSs), the central bank has announced similar concessions for pledging of shares in case of step down subsidiary.

The Union Cabinet chaired by the Prime Minister, Mr Narendra Modi, has given its approval for the framework of inter-governmental memorandum of understanding (MoU) which will be finalised by the Government of India and Iran.

The RBI has relaxed norms for foreign investment by Indian corporates by raising the borrowing limit. The financial commitment to be undertaken by an Indian party will be limited to within 400 per cent compared to the earlier 100 per cent of the company's net worth.

The RBI has also allowed limited liability partnership (LLP) firms to undertake financial commitment to/ on behalf of JV or wholly owned subsidiaries of Indian companies abroad.

The Indian government is making efforts to integrate the country's economy with the rest of the world. To help the country's firms raise capital abroad, the government will facilitate unlisted Indian companies to list on foreign markets without having to be publicly traded on domestic exchanges.

Road ahead

Overseas investment is one of the foremost steps to enter the global marketplace and in recent times, India has taken necessary steps to make its presence felt in the global arena. Investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. Information technology (IT) services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to US$ 160 billion by 2025, as per McKinsey & Co.

In another development, the Ministry of External Affairs has initiated a move to set up a direct sea and air link between India and the Latin American region, as Indian corporates plan significant investments in the mining, oil, IT and pharmaceutical sectors in that region.

Aadvantages to receiving country.

Transfer of Technology Development of Human

Capital Resources Increment in Income Creation of New Jobs

Overall Economic Growth