Outward Direct Investment (ODI)

Outward Direct Investment means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange but does not include portfolio investment. Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) outside India have been recognized as important avenues for promoting global businesses by Indian entrepreneurs.

Outward Direct Investment:

Under the current ODI Policy, outward investment by specified Indian parties into a Joint Venture or Wholly Owned Subsidiary outside India in all sectors is permitted except the prescribed prohibited sectors. The Outward Direct Investment can be made as under:

1. Automatic Route – No prior approval from Reserve Bank of India. The Indian party is required to reportwith the Reserve Bank of India through an Authorised Dealer.
2. Approval Route – Require approval from the Reserve Bank of India.

Indian parties are prohibited from making an investment (or financial commitment) in a foreign entity engaged in real estate but do not include development of townships, construction of residential/commercial premises, roads or bridges), banking business or specified financial products linked to Indian Rupee, without the prior approval of the Reserve Bank of India.

Automatic Route - Outward Direct Investment:

An outward investment not exceeding USD$ 1 billion is permitted within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet). The total outward investment of the Indian Party in all the Joint Ventures / Wholly Owned Subsidiaries shall comprise of the following:

1. 100% of the number of equity shares and/ or Compulsorily Convertible Preference Shares (CCPS)
2. 100% of the number of other preference shares
3. 100% of the amount of loan
4. 100% of the amount of guarantee (other than performance guarantee) issued by the Indian Party
5. 100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the Indian Party
6. 50% of the amount of performance guarantee issued by the Indian Party

Valuation Norms:

An eligible Indian party can acquire either a partial stake (JV) or the entire stake (WOS) in an already existing entity overseas subject to the valuation norms prescribed by the Reserve Bank of India.

Compliances under Outward Direct Investment:

The applicable compliances under Outward Direct Investment (under automatic route) are as below:

1. Pre- Investment Compliances – The Indian party is required to submit the Form ODI with the following annexures along with Form A2 to the Authorised Dealer:
   • Certified Copy of the Board Resolution,
   • Statutory Auditors certificate and
   • Valuation report (in case of acquisition of an existing company) as per the valuation norms

In cases where the investment is being made jointly by more than one party, Form ODI is required to be submitted individually by all the parties. After examination, the Reserve Bank of India allots a Unique Identification Number (UIN) for that particular JV/WOS. Subsequent investments in the same JV / WOS can be made only after the allotment of the UIN.

2. Post – Investment Compliances - The Indian party is required to do the following compliances post-investment:
   • Submit the share certificates/ any other documentary evidence of investment in the JV / WOS outside India to the Authorised Dealer within 6 months of investment.
   • Submit the Annual Performance Report in respect of each JV / WOS outside India by 31 December every year.