The government had received requests from Export Promotion Councils and leading exporters that they should continue with the current Foreign Trade Policy (2015-20), which had been extended from time to time.
The government has always involved all stakeholders in formulating policy. Hence, it was decided to extend the Foreign Trade Policy 2015-20, valid till Sept 30, 2022, for a further period of six months, till 31.03.2023.
On March 31, 2023, Shri Piyush Goyal, the Hon. Minister of Trade and Industry, revealed his proposed foreign policy for the years 2023 to 2028.
The policy is in place as of April 1, 2023, and it remains in place through March 31, 2028.
The new global trade policy’s goal, unveiled in March 2023, is to grow India’s exports to $2 trillion by 2030. Its flexible and open-ended nature allows it to adapt to changing needs.
The policy is built around four pillars: Developing Areas, Export Growth through Collaboration, Incentive to Remission, and Ease of Doing Business.
A one-time amnesty program is introduced in the FTP 2023 to allow exporters to finish up any old outstanding authorizations and start over.
The “Towns of Export Excellence Scheme” and the “Status Holder Scheme,” promotes the recognition of new towns and exporters, respectively.
The policy emphasizes process re-engineering and automation to make doing business easier for exporters and growing sectors, including dual-use high-end technological products under e-commerce export, SCOMET, and merchanting trade from India.
The strategy strongly emphasizes export development and promotion, shifting from an incentive system to one that is facilitating and built on the technological interface and collaborative principles.
Building on prior “convenience initiatives,” the guideline also codifies implementation procedures in a paperless, online world.
Here are the key points of the new foreign trade policy:
The Foreign Trade Policy (FTP) 2023 is a dynamic, open-ended policy that will accommodate emerging needs.
The policy aims to increase India’s exports to $2 trillion by 2030.
The four pillars of FTP 2023 are Incentive to Remission, Export promotion through collaboration, Ease of doing business, and Emerging Areas.
The policy is based on the continuity of time-tested schemes facilitating exports and a nimble document responsive to the trade requirements.
The FTP 2023 encourages recognition of new towns through the “Towns of Export Excellence Scheme” and exporters through the “Status Holder Scheme.”
The new FTP is offering a one-time Amnesty Program for exporters to finish the previous round of pending authorizations and begin anew.
The strategy strongly emphasizes export development and promotion, shifting from an incentive system to one that facilitates trade and is based on concepts of cooperation and technological interface.
Exporters are being given more credit by using automatic IT technologies with a risk-management framework for various permissions under the new FTP.
Regional Offices will now administer duty exemption programs for export manufacturing in a regulated IT system environment, doing away with the necessity for a manual interface.
The FTP 2023 expands on prior “ease-of-doing-business initiatives” by codifying implementation procedures in an online, paperless environment.
Due to reduced pay structures and IT-based programs, MSMEs and other groups will find it simpler to enjoy export benefits.
In addition to the 39 existing towns, four additional towns—Faridabad, Mirzapur, Moradabad, and Varanasi—have been named Towns of Export Excellence (TEE).
Overall, the new FTP aims to promote exports, enhance competitiveness, and promote sustainable development in the Indian economy.
A forward contract is a contract between the bank and its customer to buy or sell a specific currency at a specified future price for delivery on a specified future day beyond the Spot Date.
Period of Delivery:
A contract can be booked for a future fixed date of delivery or can have a window period of delivery where the contract must state the first & last date of delivery. The window period should be specified by the customer in such a way that the last date of delivery shall not exceed 1 month.
For Example: 19th Apr 2023 to 18th Mar 2023 & 31st Jan 2023 to 28th Feb 2023
Delivery in case of Holiday:
If the fixed date of delivery or the last date of delivery is a known holiday (which is known at least 3 working days before the date) the last date for delivery should become the preceding working day. In case of suddenly declared holidays, the contract shall be deliverable on the next working day
For Foreign Exchange business, Saturday will not be treated as a working day
Early delivery:
Yes, a forward contract can be utilized before its utilization period starts. In this case, the bank can recover or pay the swap difference. The bank also recovers the Interest on outlay and inflow of funds for such swaps.
Extension of forward contract:
In an extension of the forward contract, the earlier contract is cancelled at the current selling or buying rate and rebooked simultaneously at the current market rate. The difference between the earlier booked rate and the rate at which the contract is cancelled is recovered or paid to the customer.
Recovery/ Payment of Loss /Gain:
In case of cancellation of a contract at the request of a customer and if the request is made on or before the maturity date the bank recovers the loss or passes on the profit, the actual difference between the booked rate and the rate at which the cancellation is affected.
In the absence of any instructions from the customer, a contract which has been matured is cancelled by the bank within the 3 working days after the date of maturity
Please note that if a contract is cancelled after the maturity date, the bank is not liable to pass on the profit on the contract, if any, but the loss incurred in the contract shall be recovered from the customer.
Different Schemes of Hedging of Foreign Currency Exposure through forward contracts?
There are two types of exposures under which hedging can be done i.e. Contracted & Anticipated, all existing facilities such as Past Performance, Simplifies hedging, and Self-declaration have been withdrawn with effect from 01 September 2020 by RBI vide its master direction RBI/FMRD/2016-17/31 updated on 01.09.202.
What is contracted exposure?
It is an exposure to the exchange rate of the Indian Rupee against a foreign currency on account of current and capital account transactions permissible under FEMA, which have already been entered into. For Example, if an exporter has already received a purchase order and agreed to supply goods against it, then booking a forward contract against the same order is called contracted exposure.
What is anticipated exposure?
Exposure to the exchange rate of the Indian Rupee against a foreign currency on account of current and capital account transactions permissible under FEMA, which are expected to be entered into the future. For Example, if an exporter expects that he will receive a purchase order of at least 1 million dollars every month based on his experience and prospects, then booking a forward contract for such future exposures is called anticipated exposure.
What is the difference between contracted exposure and anticipated exposure for hedging foreign currency exposure by resident Indians?
Contracted Exposure
Anticipated Exposure
Exposure is hedged based on the contractual exposure which already exists
Exposure is hedged based on the exposure which is anticipated in future.
Proof of underlying exposure is not required for booking forward contracts up to USD 10 Million or its equivalent, however, the bank can demand the same whenever is required
Proof of underlying exposure is not required for booking forward contracts up to USD 10 Million its equivalent
Application & Forward Booking confirmation to be submitted to AD Bank within 15 calendar days through digital/ physical mode
Application & Forward Booking confirmation to be submitted to AD Bank within 15 working days through digital/ physical mode
Can be rebooked or cancellation
Can be rebooked or cancelled
Profit or loss fully passed or recovered
Losses are recovered upfront however profit is withheld & passed to the customer after submission of necessary documentation proof of Cash Flow.
Authorised Dealers may, in exceptional cases, pass on the net gains on contracts booked to hedge an anticipated exposure whose underlying cash flow has not materialised, provided it is satisfied that the absence of cash flow is on account of factors which are beyond the control of the user
The notional and tenor of the contract should not exceed the value and tenor of the exposure.
The notional and tenor of the contract should not exceed the value and tenor of the exposure.
If outstanding notional increasing USD 10 mio in the same FY underlying documents are required for fresh booking as well as for existing outstanding contracts
If outstanding notional increasing USD 10 mio in the same FY, evidence of cash flows on a contract basis is required for all outstanding contracts
The same exposure should not be hedged using any other derivative contract.
The same exposure has not to be hedged using any other derivative contract.
CGTMSE Scheme: Maximum Coverage Raised to Rs. 500 Lakhs
The Indian economy is supported by micro and small businesses (MSEs). However, because they frequently lack collateral or credit history, small companies frequently struggle to get loans from conventional financial institutions. (CGTMSE) the scheme was created by the Indian government to address this issue.
(SIDBI) and (MSMEs) introduced the CGTMSE program in August 2000. By ensuring a percentage of the loan amount, the initiative aims to give micro and small businesses access to credit without the need for collateral.
A lender (bank or finance institution) gives loans to MSEs within the CGTMSE scheme without requiring any kind of security. Any micro or small enterprise engaged in manufacturing, trading or service activities can avail of the benefits of the CGTMSE scheme. The scheme covers both new and existing enterprises, including those in the retail trade, agriculture, and allied activities.
According to a notification issued by the Indian government on March 31, 2023, there have been substantial changes made to the (CGTMSE) program. The CGS-I scheme’s coverage ceiling has been raised from Rs. 200 lakhs to Rs. 500 lakhs as a result of the notification with reference number CGTMSE/44/293 and circular number 220/2022-23.
The CGS-I scheme provides
credit guarantees for micro and small enterprises (MSEs) for the credit facilities extended by eligible Member Lending Institutions (MLIs). The coverage under the CGS-I scheme has been increased from Rs. 200 lakhs to Rs. 500 lakhs per borrower
The revised modifications will be applicable for all guarantees approved on or after April 01, 2023, including enhancement in the working capital of existing covered accounts. All other terms and conditions of the scheme shall remain unchanged.
The increase in the ceiling of coverage under the CGS-I scheme is a significant development that will benefit micro and small enterprises. It will enable these enterprises to access higher credit facilities without any collateral, thereby promoting entrepreneurship and creating employment opportunities. The CGTMSE scheme has been instrumental in supporting the growth of MSEs in India, and this modification will further strengthen its impact on the economy.
To be eligible for the CGTMSE scheme,
the enterprise should have a good track record and creditworthiness. It should also have a viable project report, which is evaluated by the lending institution. The scheme is not available to enterprises engaged in speculative or illegal activities.
The premium for the guarantee covered under the CGTMSE scheme is borne by the borrower, and it varies according to the amount of the loan and the tenure of the loan. The premium rates are lower for women entrepreneurs and for enterprises located in the North-Eastern Region and the hilly states.
In conclusion, the CGTMSE scheme is a significant initiative by the Government of India to support the growth of SMEs in the country. By providing collateral-free credit and guarantee cover, the scheme has made it easier for SMEs to obtain loans from banks and financial institutions. The scheme has contributed significantly to the development of the SME sector and has played a vital role in promoting economic growth and employment generation in the country.
The CGTMSE scheme is a government-backed credit guarantee initiative that enables micro and small enterprises to obtain business loans without pledging collateral. It works by providing risk cover to banks and financial institutions, encouraging them to lend to eligible MSMEs.
2. What are the main benefits of the CGTMSE scheme?
The key advantages include collateral-free financing, improved access to institutional credit, support for first-time entrepreneurs, and easier funding for business expansion. This initiative significantly reduces financial barriers for small businesses.
3. Who is eligible under the CGTMSE scheme?
Eligibility is limited to micro and small enterprises involved in manufacturing or services. New ventures, startups, and existing MSMEs registered under the MSME framework can qualify, subject to lender assessment and compliance norms.
4. Which types of enterprises can avail this credit guarantee facility?
Manufacturing units, service providers, traders, startups, and self-employed professionals operating as micro or small enterprises can benefit from this credit guarantee support.
5. What is the maximum loan limit under the CGTMSE scheme?
The maximum amount that can be covered under this credit guarantee program is ₹2 crore per borrower, subject to lender approval and scheme guidelines.
6. Is collateral mandatory for loans covered under CGTMSE?
No collateral or third-party guarantee is required. This is one of the most significant features of this government-supported lending framework.
7. What loan facilities are covered under this scheme?
Both term loans and working capital facilities are eligible. Composite loans combining long-term and short-term funding can also be extended under this framework.
8. How does this scheme support new entrepreneurs?
By removing the need for security, the scheme enables first-time business owners to access formal credit based on project viability rather than asset ownership.
9. How to apply for CGTMSE scheme?
Applicants must approach a bank or financial institution that is a member of the CGTMSE trust. The lender processes the loan application and applies for guarantee coverage on behalf of the borrower after sanction.
10. Can startups apply under this credit guarantee program?
Yes, startups classified as micro or small enterprises and meeting the lender’s eligibility criteria can apply for funding supported by this guarantee mechanism.
11. How much guarantee coverage is provided?
The trust generally offers coverage of 75% to 85% of the sanctioned loan amount, depending on borrower category and loan size.
12. Are service-sector businesses included?
Yes, service-based enterprises such as IT services, logistics, healthcare, education, and consultancy firms are eligible if they qualify as micro or small enterprises.
13. Are there any charges associated with the scheme?
Borrowers are required to pay a one-time guarantee fee and an annual service fee. These charges vary based on loan amount and borrower profile.
14. Can existing business loans be brought under this scheme?
In certain cases, existing eligible credit facilities may be covered, provided the lending institution follows prescribed guidelines.
15. Why is this credit guarantee initiative important for MSMEs?
It strengthens financial inclusion, boosts entrepreneurship, and helps small businesses grow without the burden of asset-backed borrowing.
OPEC latest news indicates that global oil-producing nations are taking a cautious approach to managing crude oil supply in 2026. Amid slowing global demand, geopolitical tensions, and concerns over oversupply, OPEC and its extended alliance, OPEC+, have chosen to hold production steady to stabilize oil prices and reduce market volatility. These decisions are closely watched as they directly influence fuel prices, inflation, currency markets, and economic growth worldwide.
The Organization of the Petroleum Exporting Countries (OPEC) is a coalition of major oil-producing nations that coordinates petroleum policies to help stabilize oil markets. Its 13 members include Algeria, Angola, Congo, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the UAE, Venezuela, and Gabon.
OPEC was established in 1960 to ensure equitable returns for producers and a stable oil supply for consumers — and it remains one of the most influential forces in global energy markets.
OPEC’s Role in Oil Markets
OPEC and its broader partner group, OPEC+, regularly meet to adjust crude oil production. These decisions directly affect oil prices:
Production cuts reduce global supply and tend to support higher oil prices.
Output stabilization or increases can dampen price rises or even push prices lower depending on market conditions.
1. OPEC+ Holds Production Steady into 2026 OPEC+ members — including Saudi Arabia, Russia, UAE, Iraq, Kuwait, and others — recently confirmed they will keep oil output unchanged through the first quarter of 2026. The group paused planned production increases despite geopolitical tensions and market volatility. Reuters+1
2. Oversupply Concerns & Price Weakness Oil prices experienced a sharp annual decline of about 18% in 2025, the biggest since 2020, due to oversupply fears. Analysts say demand has struggled to keep up with supply growth, and inventories remain relatively high. Reuters
3. Geopolitical Factors Still in Play Political strains among member states — most notably between Saudi Arabia and the UAE over the Yemen conflict — remain a background factor. However, OPEC+ leaders are trying to keep these tensions from influencing oil policy decisions. Reuters
4. Price Reactions & Market Sentiment Despite oversupply, oil prices ticked up slightly at the start of 2026 amid geopolitical uncertainty and supply risks linked to Venezuela and sanctions. Reuters
Impact of OPEC Decisions Around the World
Oil Prices
When OPEC cuts production, global supply tightens and oil prices generally rise. Conversely, when OPEC+ pauses or increases production, it can reduce upward pressure on prices — or even push prices down when demand is weak.
👉 The recent pause in output increases appears to be a market-balancing decision rather than an aggressive cut. This is significant because overall inventories and oversupply concerns have weighed on prices. Reuters
Inflation
Higher oil prices raise production and transport costs across industries, contributing to wider inflationary pressures in many economies. However, if prices stabilize or fall due to oversupply, inflationary effects could ease.
Global Economic Growth
Sudden price jumps can slow economic activity by increasing costs for industries and consumers, while lower energy costs can support growth by encouraging spending elsewhere.
Stock Markets
Energy equities often rise with oil prices, benefiting companies like BP, Shell, and ExxonMobil. But when prices are stagnant or falling, these stocks may underperform relative to other sectors.
Currency Markets
Because oil is priced in U.S. dollars, sharp oil price moves can impact exchange rates:
Rising oil prices often strengthen the U.S. dollar.
Falling prices can have the opposite effect.
Impact on the Indian Economy
India imports over 80% of its crude oil, so changes in global oil pricing directly affect:
Indian Rupee (INR)
If oil prices rise, India’s oil import bill increases. This raises demand for U.S. dollars and can put downward pressure on the Indian Rupee relative to the USD.
Conversely, if oil prices stabilize or fall due to increased supply, this can ease import costs and reduce currency pressure.
Inflation & Economic Activity
Higher crude oil costs increase fuel prices domestically (petrol, diesel), which can ripple through the economy and raise inflation. Lower oil costs can reduce inflation and support consumer spending.
In 2025, analysts noted that OPEC+ production adjustments (including supply hikes directed at markets like India) helped moderate crude prices — a positive for downstream industries and import bills. The Times of India+1
What’s the Difference Between OPEC & OPEC+?
OPEC consists of 13 core oil-exporting countries coordinating production policy.
OPEC+ includes these 13 plus other major producers such as Russia, Mexico, and Kazakhstan, expanding coordination and market influence.
OPEC+ emerged to help the original OPEC bloc manage global supply more effectively in a world with rising non-OPEC production.
Frequently Asked Questions
1. What does OPEC latest news say about current oil production levels?
OPEC latest news suggests that OPEC and OPEC+ countries are maintaining a cautious stance on oil production. In early 2026, the group has chosen to pause planned output increases to balance global supply with weakening demand and prevent further price volatility in the oil market.
2. Why is OPEC latest news important for global oil prices?
OPEC latest news is crucial because production decisions taken by OPEC directly influence the global supply of crude oil. Any announcement regarding output cuts, pauses, or increases can immediately affect oil prices, fuel costs, and energy markets worldwide.
3. How does OPEC latest news impact inflation across countries?
According to OPEC latest news, stable or rising oil prices can increase transportation and manufacturing costs, leading to inflationary pressure. Conversely, when OPEC holds supply steady during weak demand, it can help contain inflation in oil-importing countries.
4. What is the connection between OPEC latest news and the global economy?
OPEC latest news plays a key role in shaping global economic conditions. Higher oil prices can slow economic growth by raising input costs, while controlled pricing through supply management can support economic stability and industrial activity.
5. How does OPEC latest news affect the Indian economy?
For India, OPEC latest news is especially significant because the country imports most of its crude oil. Changes in oil prices driven by OPEC decisions can impact India’s import bill, fuel prices, inflation levels, and overall economic growth.
6. What does OPEC latest news indicate about the Indian Rupee (INR)?
OPEC latest news often influences currency markets. Rising oil prices increase India’s demand for U.S. dollars to pay for imports, which can put downward pressure on the Indian Rupee. Stable oil prices, however, can ease this pressure.
7. How is OPEC latest news affecting stock markets globally?
Energy stocks often react immediately to OPEC latest news. Oil-producing companies may benefit from higher prices following supply restrictions, while broader markets may react negatively if rising energy costs threaten economic growth.
8. Does OPEC latest news include updates on OPEC+ countries?
Yes, OPEC latest news frequently covers OPEC+ decisions as well. OPEC+ includes major non-OPEC producers like Russia and Kazakhstan, and their coordinated actions significantly influence global oil supply and pricing trends.
9. Why do investors and businesses closely follow OPEC latest news?
Investors, importers, exporters, and policymakers track OPEC latest news because it affects fuel costs, inflation forecasts, currency movements, and financial planning across multiple industries.
10. Where can readers follow authentic OPEC latest news?
For accurate OPEC latest news, readers should follow official OPEC announcements, global financial news platforms, and energy market reports that analyze production decisions and their economic impact.
Foreign Trade Policy 2023 and Its Impact on Indian Exports
The Foreign Trade Policy 2023 (FTP 2023-28) introduced by the Indian government marks a significant step toward strengthening India’s export ecosystem and improving ease of doing business. Designed with a long-term vision, the policy focuses on export growth, trade facilitation, digitisation, and reduction of compliance burdens for exporters.
One of the most notable and exporter-friendly measures under Foreign Trade Policy 2023 is the introduction of a special one-time Amnesty Scheme aimed at resolving long-pending export obligation defaults under EPCG and Advance Authorizations.
What Is the Amnesty Scheme Under Foreign Trade Policy 2023?
According to the Directorate General of Foreign Trade (DGFT), the Amnesty Scheme under the Foreign Trade Policy 2023 allows exporters to regularise pending export obligation defaults under EPCG and Advance Authorization through a one-time compliance window.
Under the Foreign Trade Policy 2023, the Amnesty Scheme is a one-time opportunity provided to exporters who were unable to fulfil their export obligations due to genuine business challenges such as global slowdown, supply chain disruptions, or market volatility.
Export Promotion Capital Goods (EPCG) and Advance Authorization schemes allow duty-free imports subject to export commitments. However, failure to meet these obligations often results in heavy customs duties, interest, penalties, and prolonged litigation.
The Amnesty Scheme under Foreign Trade Policy 2023 provides relief by allowing exporters to regularise such defaults by paying proportionate exempted duties.
Amnesty Scheme for EPCG and Advance Authorization Defaults
Under this scheme:
Exporters can regularise all pending EO default cases
Duties are payable proportionate to unfulfilled export obligation
Interest is capped at 100% of exempted duties
Additional Customs Duty and Special Additional Customs Duty are exempt from interest
Litigation and enforcement actions are avoided
This structure significantly reduces the financial burden on exporters while offering legal certainty.
Key Benefits of the Amnesty Scheme Under Foreign Trade Policy 2023
Closure of long-pending cases, improving compliance records
Improved liquidity for exporters
Encouragement for business revival and export growth
Lower litigation and administrative costs
By addressing legacy issues, Foreign Trade Policy 2023 enables exporters to restart operations with confidence.
How the Amnesty Scheme Aligns With “Vivaad se Vishwas”
The Amnesty Scheme under Foreign Trade Policy 2023 aligns with the government’s broader philosophy of “Vivaad se Vishwas”, which focuses on dispute resolution through trust-based mechanisms rather than prolonged litigation.
The intent is to transform the relationship between exporters and authorities from enforcement-driven to facilitative, ensuring smoother trade operations.
Why Exporters Should Act Now Under Foreign Trade Policy 2023
Since this is a one-time amnesty, exporters with unresolved EPCG or Advance Authorization defaults should act promptly. Delaying may result in loss of benefits and revival of full penalties, interest, and legal action.
The Foreign Trade Policy 2023 Amnesty Scheme is not just a compliance window—it is an opportunity to reset, rebuild, and grow exports in a more stable regulatory environment.
FAQs – Foreign Trade Policy 2023 Amnesty Scheme
1. What is Foreign Trade Policy 2023?
Foreign Trade Policy 2023 is India’s five-year trade framework (2023–28) aimed at boosting exports, simplifying trade procedures, reducing litigation, and promoting ease of doing business through trust-based reforms.
2. What is the Amnesty Scheme under Foreign Trade Policy 2023?
The Amnesty Scheme under Foreign Trade Policy 2023 is a one-time compliance relief measure that allows exporters to regularise export obligation defaults under EPCG and Advance Authorization by paying proportionate duties with capped interest.
3. How is the Amnesty Scheme under Foreign Trade Policy 2023 linked to “Vivaad se Vishwaas”?
The Amnesty Scheme reflects the government’s “Vivaad se Vishwaas” approach by encouraging voluntary compliance instead of prolonged litigation. Under Foreign Trade Policy 2023, exporters are given a fair opportunity to settle disputes amicably, reduce legal conflicts, and rebuild trust with authorities.
4. Who is eligible for the Amnesty Scheme in the Foreign Trade Policy 2023?
Exporters who have pending or unresolved export obligation defaults under:
Export Promotion Capital Goods (EPCG), or
Advance Authorization
are eligible to apply under the Foreign Trade Policy 2023 Amnesty Scheme.
5. What payments are required under the Amnesty Scheme?
Under Foreign Trade Policy 2023, exporters must pay:
Customs duties proportionate to the unfulfilled export obligation
Interest capped at 100% of the exempted duty
In line with the Vivaad se Vishwaas philosophy, no interest is payable on Additional Customs Duty and Special Additional Customs Duty, reducing financial stress.
6. How does Vivaad se Vishwaas benefit exporters under Foreign Trade Policy 2023?
The Vivaad se Vishwaas approach under Foreign Trade Policy 2023 helps exporters by:
Avoiding lengthy court cases
Reducing financial uncertainty
Enabling faster case closure
Promoting a cooperative, trust-based trade environment
This allows exporters to focus on business growth rather than disputes.
7. Is the Amnesty Scheme under Foreign Trade Policy 2023 a one-time opportunity?
Yes. The Amnesty Scheme under Foreign Trade Policy 2023 is a one-time measure, consistent with the Vivaad se Vishwaas principle of resolving legacy disputes and moving forward without recurring litigation.
8. Why should exporters act quickly under Foreign Trade Policy 2023?
Exporters should act promptly because once the amnesty window closes, the Vivaad se Vishwaas–based relief will no longer be available, and regular enforcement actions, penalties, and interest may apply.
FDI is a procedure whereby the citizen of one nation buys the right to manage the production and other operations of an organization in another (host country).
Regarding FDI
Foreign Direct Investment (FDI) is the word used to describe the transfer of money in the kind of long-term investments from one nation to another. It takes place when an investor creates a long-term position in a foreign company by purchasing a controlling interest or starting a new venture. Developing nations like India rely on FDI to expand and flourish because it delivers not only finance but also technology, managerial know-how, and access to new markets.
For instance, the USA will make investments in the Indian company while India serves as the home country. Therefore, FDI refers to an American company investing in an Indian business.
Kinds of FDI
Horizontal FDI: In this type of FDI, money is invested internationally in the same sector. In other words, a business may invest in a foreign firm that manufactures comparable goods. For example, a US board company, Nike, might buy Puma, a firm with headquarters in Germany.
Vertical FDI: an organization invests in a foreign company that it might sell to or supply as part of a supply chain, rather than immediately in the same industry.
Conglomerate FDI: With this sort of FDI, a purchase is undertaken in a completely unrelated sector of the economy. It has no immediate connection to the investor’s company. For example, a US store might buy stock in the German automaker BMW.
How can an Indian company receive foreign investment?
For FDI to enter India, there are two entrance points: the Automatic Route and the Government Route.
Automatic method: Under this method, investments in shares of equity, entirely and obligatory converted bonds, or completely and obligatory converted preferred stock of an Indian company do not need the government of India’s consent.
Governmental Route: Foreign investments in particular industries and endeavors must receive prior government authorization in India. The relevant Administrative Ministry/Department evaluates proposals. If an Indian firm with foreign investment has been founded and isn’t controlled or owned by a local entity, government authorization is required.
b. By fusion, merger, demerger, or acquisition, control of an existing Indian firm that is controlled or owned by resident Indian people or Indian companies is being given to a non-resident entity.
c. The ownership of an existing Indian company, owned or controlled by resident Indian citizens or Indian companies, is being transferred to a non-resident entity through amalgamation, merger, demerger, or acquisition.
The entities which can invite FDI in India:
Indian Companies: They can issue capital against FDI.
Partnership Firms/Proprietary Concerns: NRIs can invest under certain conditions, while other non-residents need prior approval from the Reserve Bank. Certain restrictions apply to investments in agricultural, plantation, real estate, and print media businesses.
Trusts: FDI is not permitted, except in Venture Capital Funds (VCF) regulated by SEBI and ‘Investment vehicles’.
Limited Liability Partnerships (LLPs): Foreign investment is allowed under specific conditions and compliance with the LLP Act, 2008.
Investment Vehicles: Entities regulated by SEBI or other designated authorities, including REITs, InvITs, and AIFs, are permitted to receive foreign investment subject to specific terms and conditions.
Startup Companies: Startups can issue equity, equity-linked instruments, debt instruments, or convertible notes to foreign investors, subject to certain conditions and regulations.
Prohibited Sectors for FDI in India
While the Indian government has liberalized its FDI to encourage foreign investment in most sectors, there are certain areas where investments by non-residents are prohibited. These include:
Lottery businesses, including government/private lottery and online lotteries.
Gambling and betting activities, such as casinos.
Cheque money.
Nidhi businesses.
Transferable development rights (TDRs) trading.
Farmhouse construction or real estate businesses. This restriction does not apply to the development of townships, the building of homes or businesses, the building of roads or bridges, or the creation of Real Estate Investment Trusts (REITs) that are registered and subject to regulation by the SEBI (REITs) Regulations, 2014.
Manufacturing tobacco goods, such as cigars, pipes, cheroots, cigarillos, and nicotine replacement products.
Sectors or activities that are off-limits to investments from the private sector, such as the railway industry and atomic energy.
Any type of foreign technological partnership, including franchising, trademark, brand name, or management contract licensing in connection with lotteries, gaming, or betting operations.
Documents required for FDI approval in India:
Certificate of incorporation
Memorandum of Association(MOA)
Board Resolution
Audited financial statement of last financial year
Article of association
Importance of FDI in India
Economic growth: FDI is a vital source of capital for India’s economic growth. It supplements domestic capital, enables infrastructure development, and fuels industrialization.
Employment generation: FDI helps create job opportunities by establishing new businesses, expanding existing ones, and increasing production capacities.
Technological advancement: FDI brings state-of-the-art technology and expertise, promoting innovation and competitiveness in the Indian market.
Access to global markets: FDI allows Indian businesses to integrate with global supply chains, fostering the export of goods and services.
Balance of payments: FDI inflows help improve India’s balance of payments, strengthening the country’s foreign exchange reserves.
FDI policy 2020:
As of April 2020, the government has received over 120 FDI proposals worth Rs. 12000 crore from China. India received the highest-ever total FDI inflow of $ 81.72 billion during the financial year 2020-2021 and it is 10% higher as compared to the last financial year 2019-2020 worth US$ 74.39 billion.
Holding and subsidiary company:
Holding company:-A company that purchases 51% of shares that company is known as a holding company (host country)
The subsidiary company:-A company that sales its shares as its shares are purchased by another company is called the subsidiary company
Two ways of FDI:
Foreign companies purchase shares or debentures of the Indian company and invest in the Indian company
The foreign company comes to India and establishes its own company in India
Examples of FDI in India:
Google picked up 7.73% of Reliance’s JIO platform for USD 4.5 Billion it is one of the biggest deals in India’s corporate fundraising session.
General Atlantic, one of New York’s most equity USD 900 million for a picket in reliance’s JIO platform in JUNE 2020.
The following rules apply to the issuing and exchange of shares under the FDI policy:
Capital instruments must be issued 60 days after the inward remittance is received. The money shall be returned within 15 days following the 60-day period if they are not issued within that time limit. Non-compliance results in a violation of FEMA, which is punishable.
The issue price for shares should follow certain rules:
a. SEBI’s rules for listed businesses
b. A fair valuation for unlisted companies by a Chartered Accountant or Merchant Banker registered with SEBI.
c. The Reserve Bank of India pricing rules for preferred allocation
3. Following RBI regulations, Indian enterprises that are permitted to distribute shares to outsiders may keep the subscription money in an overseas bank account.
4. Shares and convertible debt transfers:
General approval is provided for the transfer of shares, subject to particular criteria and requirements, and non-resident investors may invest in Indian enterprises by purchasing/acquiring existing shares, according to the FDI sectoral policy.
The AD Category-I Bank must receive Form FC-TRS following sixty days of the date of the transfer of funds or receipt/remittance of monies, whichever comes first.
Sale consideration must undergo a KYC check by the remittance receiving AD Category-I bank.
Non-resident investors, including NRIs, who hold control by SEBI regulations, can acquire shares of a listed Indian company on the stock exchange.
Escrow accounts can be opened and maintained by AD Category-I banks without prior RBI approval, subject to terms and conditions.
Deferred payment for share transfer between resident and non-resident is allowed up to 25% of total consideration, not exceeding 18 months from the transfer agreement date. Escrow arrangements or indemnity provisions can be made within these limits. The total consideration must comply with applicable pricing guidelines.
Remittance and restoration of sales profits guidelines:
Remittance of sale proceeds, remittance upon winding up, and company liquidation:
Are governed by FEMA’s 2000 Foreign Exchange Management (Remittance of Assets) Regulations.
Provided the security has been held on a repatriation basis, the sale complies with established rules, and a NOC/tax clearance certificate from the Income Tax Department is produced, AD Category-I banks may permit the transfer of sale proceeds to sellers who reside outside of India.
Remittance on winding up/liquidation of companies is allowed by AD Category-I banks, subject to payment of applicable taxes and submission of required documents, including a tax clearance certificate, auditor’s certificates, and confirmation of no pending legal proceedings.
Dividend repatriation is allowed without restriction (net of any appropriate tax deductions made at the source or payment of dividend taxes).
Interest repatriation is unrestricted (net of any applicable taxes) for completely, mandatorily, and compulsorily convertible debentures.
