Are you looking to invest directly in India or business set up in India? But, not sure, what’s allowed and how it works? If yes, then this guide is just for you. Continue reading to get a quick glimpse of India’s Foreign Direct Investment (FDI) landscape.
The investment climate in India has undergone a paradigm change, since the liberalization of the economy in the 90s. Foreign Direct Investment (FDI) norms were relaxed, and today India ranks high on the Ease of Doing Business scale.
Foreign Direct Investments in India can be classified into two routes:
- Automatic Route – In this route, a non-resident investor doesn’t require any approval from the Government of India for investments in the country.
- Government Route – Under this route, the non-resident investor has to get prior approval from the GoI before investing and setting up a business in the country.
FDI in India is permitted under four different categories:
- Category 1 – 100% FDI permitted through the Automatic Route
- Category 2 – 100% FDI permitted through the Government Route
- Category 3 – Up to 100% FDI permitted through the Automatic + Government Route
- Category 4 – Up to 51% FDI permitted through the Automatic + Government Route
Different sectors fall under the various categories listed above.
Category 1 – Sectors under 100% FDI through the Automatic Route
- Agriculture and Animal Husbandry
- Plantation
- Mining and Exploration of Metals and Non-metals Ores
- Coal and Lignite Mining
- Retail trading, single brand, and duty-free shops
- Airports and Railway Infrastructure
- Transport Services
- Airport Services
- Construction Development Projects
- Cash and Carry Wholesale Trading
- Civil Aviation – Greenfield and Brownfield
- Broadcasting Carriage Services
- Exploration of Petroleum and Natural Gas
- E-commerce and marketplace
- Credit Information Companies and Asset Reconstruction
- Up-link of non-news and current affairs channels
- Financial services
- Pharmaceuticals – Greenfield and Medical Device Manufacturing
- White Label ATM Operations
- Industrial Parks
Category 2 – Sectors Permitted under 100% FDI permitted through the Government Route
- Mining and minerals separation of Titanium based ores and minerals
- Retail trading and ecommerce of foods produced and/or manufactured in India
- Publishing and printing of scientific journals, periodicals, and magazines
- Publication of facsimile edition of foreign newspapers
- Satellite Establishment and Operations
Category 3 – Sectors that permit Up to 100% FDI permitted through the Automatic + Government Route
| Sector | Percentage up to which Automatic Route is permitted | Percentage above which Government Route should be Taken |
| Telecom Services | Up to 49% | Above 49% |
| Defense Industry | Up to 49% | Above 49% |
| Pharmaceutical – Brownfield | Up to 74% | Above 74% |
| Air Transport Services | Up to 49% | Above 49% |
| Banking – Private Sector | Up to 49% | Above 49% (Up to 74%) |
| Private Security Agencies | Up to 49% | Above 49% (Up to 74%) |
Category 4 – Sectors permitted Up to 51% FDI permitted through the Automatic + Government Route
- Insurance – 49%
- Petroleum Refining – 49%
- Infrastructure Companies in Securities Companies – 49%
- Power Exchanges – 49%
- Pension Sector – 49%
- Up-linking of news channels – 49%
- Terrestrial broadcasting FM – 49%
- Multi-brand retail trading – 51%
- Banking public sector – 20%
- Print media publishing – 26%
Sectors under which FDI isn’t Allowed
There are a few sectors under which Foreign Direct Investment is prohibited.
- Lottery business including online lotteries
- Betting and gambling including casinos
- Nidhi company
- Chit funds
- Trading in TDR (Transferable Development Rights)
- Real-estate and construction of farm houses
- Manufacturing of cigarettes, cigars and other tobacco substances
- Sectors that are not open to private investment in the country like atomic energy, and so on
Who can invest in India under the FDI?
- Any non-resident individual or entity
- NRIs and citizens of Bhutan and Nepal
- OCB incorporated outside India and not under the notice of RBI
- A Company, partnership firm or trust incorporated outside India and owned by an NRI
- FPI in terms of FEMA, NRI as per schedule 3 and 4,
A foreign investor can commence business in India in three ways:
- As an Indian company – This can either be a joint venture or a wholly owned subsidiary
- As a Foreign company – This can be in the form of a
- Liaison Office – Representing the parent company in India
- Branch Office – In charge of activities like research, import, export, and consultancy
- Project Office – In charge of executing projects as per contract
- As a Limited Liability Partnership (LLP) – This is subject to the provisions of LLP Act, 2008.
If you are investing in India under the Government Route, then here’s the procedure to follow:
Procedures for Government Approval under the Government Route for Foreign Direct Investment (FDI)
- Filing of Application
You have to submit the proposal for foreign investment along with supporting documents. This can be filed online at www.fifp.gov.in, the Foreign Investment Facilitation Portal of India
- Internal Procedure for Approvals
Once you have filed your application, it goes for internal approval. It is sent to the concerned ministry/department within two days of applying. Once the proposal is received, it’s also sent to the RBI. The RBI has to reply in two days from the FEMA (Foreign Exchange Management Act) perspective.
If your proposal is from Bangladesh or Pakistan, it will be sent to the Ministry of Home Affairs for further clearance. You can expect a reply on your proposal within 4 to 6 weeks of submitting the online application. If required, additional clarifications/information may be requested from you. If your proposal exceeds $775 million, then it is placed for approval by the Cabinet Committee of Economic Affairs.
- Final Approval
Once all the steps are complete, your proposal gets approved within 8 to 10 weeks.
That’s just tip of the iceberg. Foreign Direct Investment in India, though a highly profitable venture, comes with its array of conditions and terms. Worry not, this is where marketing consulting company steps in. With years of experience and expertise in investing in India, we handle it all for you. Right from conducting market analysis, drawing a vision plan for your project to helping you to the business set up in India, we handle it all.
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