Global Depository Receipt (GDRs) enables the elevation of equity capital of Indian companies in the global market. GDRs are usually calculated in foreign dollars and not subjected to any other currency or ceilings in terms of investments. The Indian companies who are seeking government's approval for enrolling in this sector are required to have a good track record in terms of financial performance or other matters for a minimum period of three years. For infrastructure projects such telecommunication, power generation, petroleum exploration and refining, airports, roads, and ports, this requirement of three years is not mandatory.
Foreign Investment through GDRs - Clearance from FIPB-
FIPB is responsible for the clearance of Euro-issue to be floated by a company or a group of companies in the financial year. For example, a manufacturing company, which is entitled to the regulations and norms of Annex-III of the New Industrial Policy, is likely to witness a 51 percent increase in the foreign direct investment amount after the proposed Euro issue. The manufacturing company therefore is required to seek the FIPB approval before obtaining the final approval from Ministry of Finance in case of a project, which does not abide by Annex-III of the New Industrial Policy.
Use of GDRs in Foreign Direct Investment-
The proceeds of GDRs are used for providing financial assistance to import capital goods, capital expenditure of domestic purchase or installation of plants, instrument and constructing and investment in software development procedures, defrayal or scheduled repayment of earlier external loans, and equity investment in JV/WOSs in India.
Restrictions in Foreign Investment through GDRs-
Foreign Direct Investments in stock markets and real estate market through GDRs are not allowed. The proceeds of investments can be stopped either in the foreign country from where the FDI is coming or in India depending on the use of funds that are being approved for end uses. FDI investments under every circumstance require prior approval of the Indian government.
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