As one of the fastest growing economies, the Indian economy consistently attracts large foreign investments. The Indian market offers a large and diverse consumer base with a flourishing middle class with increased spending capacity, skilled workforce, favorable policies, astounding growth in certain sectors such as manufacturing, technology, pharmaceuticals, and a strategic location in the Asian continent. With a vast potential for growth, favorable demographics and a plethora of opportunities, the Indian market has been the favorite pick of investors across the globe.
The regulatory framework governing foreign investments comprises of a comprehensive set of laws and guidelines. Various regulatory bodies such as the Reserve Bank of India, Securities Exchange Board of India, Ministry of Corporate Affairs etc. have their own set of compliances and regulations in addition to the sector specific bodies such as the Central Drugs Standard Control Organization (CDSCO) in the pharmaceutical industry. It is extremely critical for a foreign company looking to expand to India, to fulfil all compliance mandates to avoid any operational disruption, assigning of liability for non-compliance, cancellation of licenses and permits etc. Strong compliance record not only helps in smooth operations but also helps in mitigating legal risks and managing goodwill and repute.
A. Understanding the Regulatory Environment
The entry of foreign companies in India is regulated by different departments of the state. As already discussed above government entities such as SEBI, RBI, MCA have separate regulations. Additionally, sector wise regulations are also enforced by their respective regulatory bodies. Understanding the scope of regulations of these departments is imperative to understand the extent to which their regulations apply to a particular business. A brief overview of key regulatory bodies in India and the primary statutes they enforce is given below:
- Ministry of Corporate Affairs: Corporate affairs in India are regulated by the Ministry of Corporate Affairs under the Companies Act, 2013 and other related statutes and regulations. As the regulatory body responsible for the management of corporate affairs, the MCA oversees registration of companies, compliance with corporate laws and maintaining higher standards of corporate governance. From incorporation to winding up, restructuring in the form of mergers and acquisitions to regular maintenance of company records, all activities are regulated and governed by the procedure laid down by the MCA.
- Reserve Bank of India: The monetary policies of India are regulated by the central banking institution, Reserve Bank of India. As the regulator of foreign exchange transactions, RBI regulates the flow of foreign investments in India through the enforcement of The Foreign Exchange Management Act, 1999. From granting approvals for FDI to monitoring the foreign exchange transactions, RBI’s policies have direct impact on foreign players seeking to expand in India.
- Securities and Exchange Board of India: The securities market in India is regulated by the Securities Exchange Board of India. SEBI’s primary objective is to keep a check on the market, protect investors’ rights and interests and promote market development. SEBI works towards maintaining market transparency through regular checks of companies for compliance and regulatory requirements. It regulates the trading and issuance of securities and works towards maintaining the integrity of the market.
For a foreign company entering the Indian market, navigating through the regulatory framework may be challenging. From registration of business to FDI approvals, the companies have to engage with the regulatory framework right from the very beginning. Some of the most common licenses, permits, and approvals required for foreign companies are:
- Registration of business: Foreign companies setting up business in India have to register their business with the Registrar of Companies within 30 days of setting up such business under the Companies Act, 2013. The process involves submission of various documents such as the articles of association, memorandum of the company, attested copy of approval from RBI etc.
- FDI approval: Depending on the sector a foreign company invests in, FDI approvals have to be taken from the bodies regulating FDI in the country which are Reserve Bank of India and the Department for Promotion of Industry and Internal Trade. Sector specific approvals may also be required depending on the FDI policy at such time pertaining to such sector.
- Tax Registration: A foreign company is required to register themselves for GST depending on whether their business activity falls within its scope. Obtaining a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) from the Income tax department is also essential.
- Labour Approvals: Registration with the Employees’ Provident Fund Organisation and the Employees State Insurance Corporation is another mandate that foreign companies have to comply with. Government approvals for expatriate employees may also be required.
- Industry specific approvals: Foreign companies seeking to enter the Indian market in the manufacturing industry may be required to obtain environmental clearances from the Ministry of Environment, Forest and Climate Change. Similarly, foreign companies entering the food industry are required to seek licenses from the Food Safety and Standards Authority of India (FSSAI).
B. How can a General Counsel help in securing regulatory approvals for foreign companies?
- Legal Expertise in obtaining licenses and permits: A general counsel’s knowledge of Indian laws and regulatory framework can help a foreign company prepare in advance for the approvals and licenses required to set up business in India. From preparing all relevant documentation and initiating the process of registration on time, a General Counsel can help a foreign company avoid any delay in beginning business activity in India.
- Navigating government approvals: A General Counsel can help a foreign company in understanding the different kinds of approvals required for a specific industry. They also educate the companies on the timeline within which such approvals may be obtained helping the company plan operations and strategize better.
- Engagement with local bodies: A General Counsel may be of great help in facilitating effective communication with regulatory and government bodies in the process of seeking approvals and licenses.
- Assistance in adapting to evolving regulatory landscape: A General Counsel ensures that the company remains updated with new regulations that may require fresh approvals and compliances. They may also train the company employees to ensure continued compliance and smooth operations.
- Risk Management and Strategic Planning: A General Counsel helps in identifying and mitigating legal risks associated with regulatory non-compliance and provides advice on legal strategies to ensure smooth business operations.