The Indian companies can directly invest outside India 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 involves setting up a Joint Venture (JV) or a
Wholly Owned Subsidiary (WOS) abroad and does not include portfolio investment.
A joint venture abroad means a foreign concern formed, registered or incorporated
in a foreign country in accordance with the laws and regulations of that
country and in which investment has been made by an Indian entity. While
a wholly owned subsidiary abroad means a foreign concern formed, registered
or incorporated in a foreign country in accordance with the laws and regulations
of that country and whose entire capital is owned by an Indian entity.
Resident corporate entities and partnership firms registered
under the Indian
Partnership Act,1932 (Indian Party) are eligible to make direct investment
abroad in JVs/ WOSs. Also, a firm or a company or a body corporate registered
or incorporated in India as well as proprietary concerns are permitted
to open overseas branch. Besides such direct investment, listed Indian
Companies can invest upto 25% of the net worth in overseas companies,
listed on a recognized stock exchange, that have at least 10% share in
an Indian company listed on a recognized stock exchange in India as on
1st January of the year of investment or by way of rated debt securities
issued by the same companies. However, this 10 % holding should be a direct
holding and not through a subsidiary or a special purpose vehicle (SPV).
The proposal from Indian companies for overseas investment
in Joint Ventures (JVs) and Wholly Owned Subsidiaries (WOSs) abroad are
considered in terms of the guidelines issued in this regard by the Government
from time to time. Under the guidelines,
all applications for grant of approval for setting up joint ventures/wholly
owned subsidiaries are to be made and processed by the Reserve
Bank of India. There are two categories of applications for setting
up overseas JVs and WOSs :-
