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Managing Money in India

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Financing a foreign venture can present a range of issues and this section provides you with some essential background on meeting your financial needs as a Slovak company operating in India.

Professional financial advice is essential to ensure that you know the best way to fund your investment in India and to help you identify which export and trade finance is right for your business.


Most Slovak banks will handle basic trade finance products (such as letters of credit) for SMEs exporting goods or services to India. Internatational Slovak firms with a larger presence in the Indian market will probably choose to use multinational banks which offer the full range of traditional as well as structured banking products to corporate and institutional clients from the EU.

All major international banks do business in India and offer a variety of banking services to businesses such as cheque deposit/withdrawal facilities, foreign exchange platform, cash management services, online banking, remittances, credit, trade and working capital, treasury and insurance.


A Slovak company can fund its Indian venture through the following channels:

Equity capital – Issuing equity shares is the conventional means of funding a local Indian subsidiary. The amount of equity capital a company can issue is limited by the authorised capital specified in its Memorandum of Association. A non-resident entity can infuse funds in an Indian LLP as contribution to capital subject to the conditions prescribed in the FDI.

Preference share capital – Slovak investors can invest in a company in India is through the issue of preference share capital. Foreign investments through convertible preference shares, which are compulsorily convertible into equity shares, are treated as FDI. Preference shares that are not compulsorily convertible into equity shares are construed as External commercial borrowings (ECB) and hence, need to conform to the ECB guidelines.

Debentures and borrowings – Companies can raise funds by issuing debentures, bonds and other debt securities. They can also raise funds by accepting deposits from the public. Debentures can be redeemable; perpetual, bearer or registered; and convertible or non-convertible. Foreign investments through convertible debentures, which are convertible into equity shares, are treated as FDI. Debentures that are not compulsorily convertible into equity shares are construed as ECBs and hence, need to conform to ECB guidelines.

External commercial borrowings – Debts raised in foreign currency by an Indian company (from internationally recognised sources) fall within the purview of the definition of ECBs, and are regulated by the Ministry of Finance and Reserve Bank of India. ECB can be accessed under two routes — the automatic route and the approval route. Under the approval route, prior permission from the RBI is required for raising ECBs. Under the automatic route, post facto intimation filings must be made periodically, as prescribed under the FEMA regulations.

Global depository receipts (GDRs), American depository receipts (ADRs) and foreign currency convertible bonds (FCCBs) – Investment through GDRs, ADRs and FCCBs is also treated as FDI. Qualifying Indian companies are allowed to raise equity capital overseas through the issue of ADRs, GDRs or FCCBs. Investments through these instruments may be made through the automatic route or the approval route according to the relevant sectoral policy/guidelines. There are no end-use restrictions on ADRs or GDRs, except for a ban on the deployment of such funds in real estate or the stock market.


Foreign investment is classified as FDI in India only if the investment is made in equity shares, fully and mandatorily convertible preference shares and debentures with the pricing being decided upfront based on a formula or as a figure. An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by:

(i) inward remittance through normal banking channels.
(ii) debit to NRE / FCNR account of a person concerned maintained with an Authorised Dealer (AD) category I bank.
(iii) conversion of royalty / lump sum / technical know how fee due for payment or conversion of ECB, shall be treated as consideration for issue of shares.
(iv) conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of Foreign Investment Promotion Board (FIPB).
(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.


India does not yet have full capital account convertibility. However, there have been significant relaxations in recently for the withdrawal of foreign exchange for both current account and capital account transactions. The payments due in connection with foreign trade, other current business, and services are regarded as current account transactions and are generally permissible. Some of the relevant current account payments are discussed below.

Dividends: Dividends declared by an Indian company can be freely remitted overseas to foreign shareholders without any prior approval or dividend balancing requirement.

Foreign technology collaboration: Payments for royalty, lumpsum fees for transfer of technology and payments for use of trademark/brand name can be done under the automatic route without any restrictions /ceilings.

Consultancy services: Remittances up to $1 mn per project ($ 10 mn for specified infrastructure projects) can be made without any prior approval of the RBI. However, no such prior approval is necessary if the remittance exceeding this ceiling is made out of an Exchange Earners’ Foreign Currency (EEFC) account of the Remitter.

Import of goods: Payments in connection with import of goods and services in the ordinary course of business are generally permissible and can be undertaken freely through direct filing of required documents with the AD Bank.

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