Overseas Direct Investment (ODI) in India

Overseas Direct Investment means having investments by Indian entities in foreign companies. This can be done either through equity acquisition or subscription. This allows Indian businesses to expand into international markets and benefit from the other nation’s assets.

Eligibility and Limits for Overseas Direct Investment

Investors can be Indian companies, LLPs, and registered partnership firms, plus resident individuals.
In Overseas Direct Investment, financial commitments cannot exceed 400% of the net worth as per the last audited balance sheet. Or it should not exceed $1 billion.
Lastly, Resident individuals are limited to $250,000 per year under the Liberalised Remittance Scheme.

Prohibited Sectors under Overseas Direct Investment in India

Overseas Direct Investments are prohibited in sectors like real estate and gambling.
Investments tied to the Indian Rupee or certain financial sectors need RBI’s explicit approval before investing overseas.

Step-by-Step Overseas Direct Investment Process

The first step is to submit relevant documents to an Authorised Dealer (AD) Bank after having AD Code Registration.
The next step is to get verification of documents by the AD Bank to ensure compliance with the automatic route.
Generation of a Unique Identification Number (UIN) for initial investments and processing of outward remittances. This UIN will be used for subsequent transactions and necessary reporting.
Lastly, you have to comply with Indian regulations, including submission of share certificates and Annual Performance Reports.

Two Main Routes for Overseas Direct Investment in India

Automatic Route: Automatic Route allows investments without prior approval from the Reserve Bank of India. However, it is not allowed in specific sectors like financial services. In this case, approvals from both host and home country(India) are needed.
Approval Route: The approval route under overseas direct investment in India is required for entities that do not meet the conditions of the automatic route. As a result, proposals under this route the RBI must review it. It happens only after following a recommendation from an AD Bank.

Required Documents for RBI Approval

The following documents should be submitted to the RBI along with Sections D and E of

Form ODI – Part I by the designated AD bank:

A sealed letter from the designated AD bank detailing:
- Transaction number.
- Brief information about the Indian and overseas entities involved.
- Proposal background, if any.
- Transaction details.
- Reasons for seeking approval under existing FEMA regulations.
AD bank’s observations on:
- The viability of the joint venture or wholly-owned subsidiary outside India.
- Benefits such as contributions to external trade that India would gain from the investment.
- Financial status and business history of both the Indian and foreign entities.
- Experience and expertise of the Indian party in activities related to the joint venture or wholly-owned subsidiary
Recommendations by the designated AD bank.
- A letter from the Indian party (IP) to the designated AD bank.
- A board resolution for the proposed transactions.
- A diagram showing the organisational structure of the IP, including all subsidiaries, their stakes, and whether they are operating companies or special purpose vehicles (SPVs).
- Certificates of incorporation and valuation for the overseas entity.

What is the Liberalised Remittance Scheme under ODI in India?

The LRS(Liberalised Remittance Scheme) is established by the Reserve Bank of India (RBI). It allows resident individuals, including minors, to send a certain amount of money abroad each financial year without seeking prior approval.
Under the LRS scheme, individuals can remit up to USD 250,000 per financial year. You can use this amount for capital, current account transactions, or even making investments abroad.