Q&A: foreign investment issues for project companies in India

Foreign Investment Issues

Investment Restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

1. Foreign investment in the infrastructure sector is under the automatic route in most cases and therefore does not require the prior approval of the Indian government.
2. Any foreign investment in India is required to comply with relevant sectoral caps and applicable conditions of investment, if any.
3. Certain sectors are still restricted and any investment proposal beyond the permissible limit requires the prior approval of the relevant ministry.
4. India has entered into several bilateral and multilateral investment treaties with various countries to promote trade and commerce within the country.
5. No specific registration requirements are prescribed, but each investment proposal or any proposed transfer of share capital of the investee company is required to be reported to the government.

Insurance Restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

1. Assets situated in India cannot be insured by an insurer whose principal place of business is outside India without the permission of the Insurance Regulatory and Development Authority of India (IRDAI).
2. Reinsurance arrangements must also be approved by the respective insurance company’s board in consultation with the IRDAI.
3. Remittance of any claim under any insurance cover by an offshore creditor would be subject to exchange control regulations as prescribed by the Reserve Bank of India.
4. Foreign investment in the insurance sector is regulated, and any investment presently above 49% of the equity capital of an insurance company requires the prior approval of the government.

Worker Restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

1. Foreign workers, technicians or executives are permitted to be employed by a foreign company engaged in the execution of a project in India subject to certain conditions for obtaining an employment visa as issued by the Ministry of Home Affairs.
2. A foreign national being sponsored for an employment visa may be required to draw a minimum annual salary in excess of US$25,000 per annum.
3. Long-term visa recipients are required to register themselves with the concerned appropriate government authority within 14 days of their arrival.

The recipients of e-visas are protected under employment welfare laws as applicable to their Indian counterparts. From a taxation perspective, foreign employees are subject to Indian tax laws and if taken to be residents in India are required to pay the appropriate taxes.

Equipment Restrictions

What restrictions exist on the importation of project equipment?

1. Import transactions are regulated by the Directorate General of Foreign Trade under the Ministry of Commerce and Industry, Department of Commerce.
2. Banks are permitted to provide credit facilities and allow remittances for the import of goods unless the import of such goods is specifically restricted by the import policy in force.
3. Importing project equipment is subject to applicable customs and import duties and goods and services tax (GST) under the new GST regime in India.
4. An anti-dumping duty may be levied if the government determines a good is being imported at below fair market price.

Nationalisation Laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The Constitution of India enables the government to enact laws to acquire or appropriate any property or assets. All natural resources, such as airwaves, minerals or oil, are considered to be the property of the state and may be leased or licensed to private parties according to extant policies.

There are no specific protections for foreign investment from the government’s ability to acquire or nationalise assets, except for judicial review of such acquisitions in light of prevailing laws in India. However, certain bilateral investment treaties entered into by India extend protection to relevant foreign investors in the event of expropriation or nationalisation. These treaties clearly reiterate that any appropriation of investments from a contracting country will not be made except in accordance with applicable law on a non-discriminatory basis coupled with a reward of fair and equitable compensation.

While India is not a signatory to the International Centre for Settlement of Investment Disputes (ICSID), the bilateral agreements occasionally provide for reference of disputes to ICSID, for example, the Comprehensive Economic Partnership Agreement between India and South Korea.

SDGs, Targets, and Indicators in the Article

1. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.1: Develop quality, reliable, sustainable, and resilient infrastructure
   • Target 9.2: Promote inclusive and sustainable industrialization
   • Target 9.3: Increase access to financial services for small-scale enterprises

2. SDG 10: Reduced Inequalities

   • Target 10.2: Empower and promote the social, economic, and political inclusion of all

3. SDG 16: Peace, Justice, and Strong Institutions

   • Target 16.3: Promote the rule of law and ensure equal access to justice for all
   • Target 16.5: Substantially reduce corruption and bribery

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The issues highlighted in the article are connected to SDG 9 (Industry, Innovation, and Infrastructure), SDG 10 (Reduced Inequalities), and SDG 16 (Peace, Justice, and Strong Institutions).

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the specific targets that can be identified are:

• Target 9.1: Develop quality, reliable, sustainable, and resilient infrastructure
• Target 9.2: Promote inclusive and sustainable industrialization
• Target 9.3: Increase access to financial services for small-scale enterprises
• Target 10.2: Empower and promote the social, economic, and political inclusion of all
• Target 16.3: Promote the rule of law and ensure equal access to justice for all
• Target 16.5: Substantially reduce corruption and bribery

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article does not explicitly mention any indicators to measure progress towards the identified targets. However, some indicators that can be implied from the article include:

• Number of foreign investments in infrastructure projects
• Level of compliance with sectoral caps and investment conditions
• Number of bilateral and multilateral investment treaties signed
• Number of foreign workers, technicians, and executives employed in projects
• Level of taxation on foreign employees
• Level of restrictions on the importation of project equipment
• Number of nationalization or expropriation cases
• Number of disputes referred to the International Centre for Settlement of Investment Disputes (ICSID)

4. Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: lexology.com

Join us, as fellow seekers of change, on a transformative journey at https://sdgtalks.ai/welcome, where you can become a member and actively contribute to shaping a brighter future.