Site icon LawLex.Org

Know this Before Planning to Invest Outside India


The foreign investment policies of the country implemented in the year 1991 opened gates for foreign investments to enter Indian territory.Hence,the year 1991 turned out to be the golden year for the Indian economy.This also made Indian companies eligible to set up business abroad or making an investment abroad as the case may be. Prior to 1991, exports were the predominant way of expanding business abroad and hence the emphasis was on export promotion strategies with restrictions on cash outflows so as to conserve our foriegn exchange reserves.Till then, India’s economic integration with the rest of the world was limited and expansion and growth of business houses was felt necessary to increase their share in the world market not only by exporting their products by also by acquiring overseas assets and establishing their presence abroad. This requirement paved the way to formulate regulations to make investments abroad. Accordingly, the policy for outward capital flows has evolved.

In the year 1999, the introduction of FEMA (Foreign Exchange Management Act) changed the entire perspective on foreign exchange, particularly those relating to investments abroad.According to the Reserve Bank of India, Overseas Direct Investment means investments, either under the Automatic Route or Approval Route, by the way of contribution to the capital or subscription to the memorandum of a foreign entity or by the way of purchase of existing shares of foreign entity either by market purchase or private placement or through stock exchange.


  1. Company incorporated in India or a body created under the act of parliament 
  2. Limited Liability Partnership(LLP), registered under the Limited Liability Partnership Act,2008
  3. Partnership firm  registered under the Indian Partnership Act,1932
  4. Any other entity in India as may be notified by the Reserve Bank.



An Indian Party has been permitted to make investment/undertake financial commitment in overseas Joint Ventures(JV)/ Wholly Owned subsidiaries (WOS), as per the ceiling prescribed by the Reserve Bank of India from time to time.

The investments/financial commitments are further subjected to certain conditions as prescribed by the Reserve Bank of India.


Some proposals which require prior approval of Reserve Bank of India are :

  1. Overseas Investments in the energy and natural resources sector exceeding the prescribed limit of the net worth of the Indian Companies as on the date of the last audited balance sheet.
  2. Investments in Overseas Unincorporated entities in the oil sector by resident corporations exceeding prescribed limits and subject to further approval of certain other authorities.
  3. Overseas Investments by proprietorship concerns and unregistered partnership firms satisfying certain eligibility criteria.
  4. Investments by Registered Trusts/Societies engaged in the manufacturing/ educational / hospital sector is the same sector in a JV/ WOS outside India.
  5. Corporate guarantee by the Indian Party to second and subsequent level of Step Down Subsidiary(SDS)
  6. All other forms of guarantee which are offered by the Indian party to its first and subsequent level of SDS.





Image from

Subscribe to Latest Posts !
Exit mobile version