In today’s globalized economy, India’s participation in cross-border investment activities continues to grow. Whether it’s foreign entities investing in Indian companies (FDI) or Indian enterprises expanding abroad (ODI), valuation under Foreign Exchange Management Act (FEMA) plays a central role in ensuring regulatory compliance and fair price adherence. 

Understanding RBI Valuation Guidelines for FDI and ODI

Under the RBI law and FEMA regulations, valuation report are mandatory for all FDI and ODI transactions to 

ensure the price is in line with fair market standards and exchange control principles.
●    For FDI, the valuation price acts as the minimum price.

●    For ODI, the valuation price stands as the maximum price.

This pricing standard ensures capital inflow and outflow happen at a fair and arm’s length valuation, avoiding money laundering risks and capital flight.

What is Foreign Direct Investment (FDI)?

Foreign Direct Investment refers to capital investment by a non-resident entity into an Indian company, involving ownership, management influence, or control. FDI includes:
●    Equity Capital

●    Reinvested Earnings

●    Other Capital

Why Do Foreign Companies Invest in India?

●    Relatively lower wages

●    Special incentives and exemptions

●    Huge consumer base and growth potential

●    Ease of Doing Business reforms

●    Tax and regulatory benefits

Who Can Conduct FDI Valuation?

●    Unlisted Indian Company: SEBI Registered Merchant Banker or Chartered Accountant

●    Listed Company: As per SEBI Pricing Guidelines

For large transactions or share swaps involving foreign entities, only Category-I SEBI Registered Merchant Bankers are permitted.
What is Overseas Direct Investment (ODI)?
ODI refers to Indian investment in a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) outside India. These investments can be made by:
●    Contributing to capital

●    Subscribing to Memorandum of foreign company

Acquiring shares through private placement, market purchase, or stock exchange

Who Can Conduct ODI Valuation?

The Authorized Dealer (AD) Bank ensures compliance by verifying valuation based on any internationally accepted pricing methodology. The AD may engage:
●    SEBI Registered Merchant Banker

●    Registered Valuer

●    Any recognized valuation professional

Timing: When Is Valuation Required?

Valuation must be conducted and completed within 90 days from the date of the report. If the transaction is not executed within this period, a fresh valuation is needed.
Pricing and Valuation Guidelines under FEMA
The Pricing Guidelines are governed by:
●    FEMA, 1999

●    Foreign Exchange Management (Non-Debt Instruments) Rules, 2019

●    RBI Notifications and Circulars

Valuation for unlisted companies should be based on internationally accepted pricing methodologies, such as the Discounted Cash Flow (DCF) method, and must be certified by an eligible professional.

Valuation Methodologies for FDI and ODI

For Listed Companies:

●    As per SEBI pricing regulations

For Unlisted Companies:

●    Discounted Cash Flow (DCF) Method

●    Net Asset Value (NAV)

●    Comparable Company Method (CCM)

●    Other internationally accepted methods with appropriate weighting

These methodologies assess future projections, industry risks, discount rates, and economic factors.

Trends in Foreign Direct Investment in India

According to DPIIT:
●    Total FDI equity inflow in India from April 2000 to June 2023 stood at US$ 645.39 billion

●    FDI Inflows increased from US$ 55.56 billion (2015-16) to US$ 71.36 billion (2022-23)

Future Outlook

India is projected to receive US$ 120-160 billion annually in FDI by 2025, supported by:

●    Relaxation of FDI norms

●    Investor-friendly reforms

●    Sectoral liberalizations (Insurance, Defense, Telecom, etc.)

●    Massive startup ecosystem and digital infrastructure

Benefits of Following Proper Valuation Guidelines
●    Ensures compliance with RBI, FEMA, and SEBI rules

●    Avoids penalties and prosecution for under/overvaluation

●    Facilitates smooth cross-border transactions

●    Provides credibility to international investors

●    Improves contractual clarity and reduces risk of disputes

Frequently Asked Questions (FAQs)

Q1. When is Valuation Required for FDI?

A: During issue or transfer of shares or capital instruments between resident and non-resident parties.

Q2. Who can do FDI Valuation?

A: For unlisted companies – SEBI Registered Merchant Banker or CA. For larger deals or share swaps – Only Merchant Bankers.

Q3. When is ODI Valuation required?

A: When forming a JV/WOS or acquiring/transferring shares in a foreign entity.

Q4. Who can conduct ODI Valuation?

A: AD Bank verifies compliance and may recommend valuation by a Merchant Banker, Registered Valuer, or suitable professional.

Q5. What is the validity of a Valuation Report?

A: Valid for 90 days. The transaction must be completed within this period.

Q6. What valuation methods are used?

A: Mostly DCF Method for unlisted companies; SEBI pricing for listed firms.

Cross-border investment advisor compliance starts with accurate and timely valuation. Whether you are bringing foreign capital into India or expanding your Indian business globally, understanding and complying with FDI and ODI valuation norms under RBI law is non-negotiable.