1.1 A highly effective democratic regime, a well-developed administration, an independent judicial system, an educated, hard-working and skilled workforce, an ever-growing consumer base and low development costs, makes India a preferred emerging market destination for investment by multinational companies.
1.2 In addition to the aforementioned advantages, the Government of India’s positive policy regime has fueled an influx of foreign direct investment (FDI) into the country.
- FDI ENTRY ROUTE
2.1 The two routes through which FDI is allowed in India are (i) Automatic Route; and (ii) Government Route. Under the Automatic Route, FDI is allowed without the prior approval from the Government. Under the Government Route, prior approval from the Government will be required and the application for FDI will be considered by the concerned Ministries / Departments in consultation with the Department for Promotion of Industry and Internal Trade, Ministry of Commerce (DPIIT).
- PERMITTED SECTORS FOR FDI
3.1 Automatic Route
3.1.1 In majority of the sectors 100% FDI is permitted under the Automatic Route. Key sectors include air-transport services (non-scheduled and other services under civil aviation sector), airports (greenfield and brownfield), asset reconstruction companies, auto-components, automobiles, biotechnology (greenfield), capital goods, cash and carry wholesale trading, chemicals, construction development, e-commerce activities, electronic systems, food processing, healthcare, industrial parks, IT and BPM, leather, manufacturing, pharmaceuticals, single brand retail trading, textiles and garments, thermal power, tourism and hospitality.
3.1.2 In a few sectors less than 100% FDI is permitted under the Automatic Route. In sectors such as infrastructure company in the securities market, insurance, pension, petroleum refining, power exchanges, FDI to the extent of 49% is permitted under the Automatic Route.
3.2 Government Route
3.2.1 In the banking and public sector and the print media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news and current affairs), FDI of 20% and 26% respectively are permitted under the Government Route.
3.2.2 In relation to the sectors such as core investment company, food products retail trading , mining and minerals, print media (publications / printing of scientific and technical magazines / specialty journals / periodicals and facsimile edition of foreign newspapers) and satellite (establishment and operations), FDI of 100% is permitted under the Government Route.
3.2.3 In the multi-brand retail trading sector and the broadcasting content services sector, FDI of 51% and 49% respectively are permitted through the Government Route.
3.3 Automatic Route and Government Route combined
3.3.1 In sectors such as airport transport services (scheduled air transport services, regional air transport services), banking (private sector), defence and telecom services, FDI up to 49% is permitted under the Automatic Route and beyond which approval from the Government would be required.
3.3.2 In sectors such as biotechnology, healthcare, pharmaceuticals and private security agencies, FDI of up to 74% is permitted under the Automatic Route and beyond which approval from the Government would be required.
- FDI PROHIBITED SECTORS
4.1 The prohibited sectors in include lottery business, chit funds, trading in transferable development rights (TDR), manufacturing of tobacco products or tobacco substitutes, gambling and betting, real estate business (excluding the development of town ships, roads or bridges and real estate investment trusts (REIT’s) registered and regulated by SEBI). Sectors not open to private sector investments include atomic energy, railway operations (other than permitted activities mentioned under the consolidated FDI policy)
- PROCEDURE FOR INVESTMENT IN SECTORS UNDER GOVERNMENT ROUTE
5.1 Application with the proposal for foreign investment, along with supporting documents, must be filed at the Foreign Investment Facilitation Portal.
5.2 Based on the application received, the Department for Promotion of Industry and Internal Trade (DPIIT) will circulate the proposal within two days to the concerned department/ministry and also to the RBI for their observations from a Foreign Exchange Management Act, 1999 (FEMA) perspective.
5.3 The DPIIT may provide its observations within four weeks from the date of receipt of the online application including requesting for further information or documents.
5.4 In case of proposals for investments from certain countries identified by the Government, the application may be referred to the Ministry of Home Affairs for its observations. In the event the proposal for investment is beyond the threshold of INR50 billion, then the application would be placed before the Cabinet Committee on Economic Affairs for its observations.
5.5 Once all the relevant ministries / departments are satisfied with the application, then a final approval would be granted permitting such FDI.
Please note that the contents of this note are for general information purposes and not meant to be a substitute for obtaining legal advice. This note is only a brief introduction, which may not be up to date and we urge you to consult your lawyers for specific advice.