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?

Foreign investment in the infrastructure sector is under the automatic route in most cases and therefore does not require prior approval of the Indian government. As a general rule, any foreign investment in India is required to comply with relevant sectoral caps and applicable conditions of investment, if any. Further, certain sectors are still restricted and any investment proposal beyond the permissible limit requires the prior approval of the relevant ministry. For instance, foreign investment in nuclear and atomic energy projects is restricted, and investment in the defence sector requires security clearance from the Ministry of Defence. As of now, there are no bilateral arrangements that may provide exemption to investments routed through a particular jurisdiction from sectoral caps applicable to sectors. However, India has signed bilateral investment protection treaties with around 83 countries. While no specific registration requirements are prescribed (other than where a foreign investment is made through avenues other than the foreign direct investment route, such as foreign portfolio investors and foreign institutional investors), each investment proposal or any proposed transfer of share capital of the investee company is required to be reported by way of completing and submitting the appropriate forms 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?

Typically, 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 (IRDA). Further, reinsurance arrangements also have to be approved by the respective insurance company’s boards in consultation with IRDA. Any remittance of any claim under any insurance cover by a creditor would be subject to exchange control regulations as prescribed by the RBI from time to time.

Foreign investment in the insurance sector is regulated, and any investment above 49 per cent of the equity capital of an insurance company requires prior approval of the government.

Worker restrictions

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

Foreign workers, technicians or executives are permitted to be employed by a foreign company engaged for execution of a project in India subject to certain conditions for obtaining an employment visa as issued by the Ministry of Home Affairs from time to time. 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 (including salary and other allowances). 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 resident in India are required to pay the appropriate taxes.

Equipment restrictions

What restrictions exist on the importation of project equipment?

Import transactions are regulated by the Directorate General of Foreign Trade under the Ministry of Commerce and Industry, Department of Commerce. Banks are permitted to provide credit facilities and allow remittances for import of goods unless the import of such goods is specifically restricted by the import policy in force.

In terms of applicable taxes, import of project equipment is subject to applicable customs and import duties and goods and services tax (GST) under the new GST regime in India. Further, 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. For instance, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 specifies certain end uses for which land and property may be acquired by the government.

There are no specific protections for foreign investment from the government’s ability to acquire or nationalise assets, except for judicial review of such acquisition 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 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 Korea.