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FDI Policy in India

The FDI Policy is relevant to foreign entities seeking to establish an Indian presence either by setting up a wholly owned company in India or joint venture with an Indian Partner or acquiring a stake in an existing Indian Company.

Over the last two decade, the government of India has significantly liberalized the FDI Policy for foreign investment in India. Currently, the FDI Policy permits up to 100% foreign investment in most sectors, including service sector.

Under the current FDI Policy, foreign investment is permitted by all categories of investors and in all sectors except the prescribed prohibited sectors. Apart from these prohibited sectors, foreign investments can be made in other sectors under:

• Automatic route, i.e., no prior approvals, under delegated powers exercised by the Reserve Bank of India (RBI)
• Approval route, i.e., by the Government through the Foreign Investment Promotion Board (FIPB) under the Ministry of Finance

In sectors referred to as ‘Automatic Route’, FDI does not require any prior approval from government of India; however, the Indian Company is required to undertake reporting with RBI on receipt of consideration and issue of shares.

Prohibition of FDI in the following sectors

The Indian Government does not permit the FDI in the following sectors:

• Atomic energy and railways
• Lotteries, gambling and betting
• Agriculture (excluding floriculture, horticulture, seed development, animal husbandry, pisciculture, aquaculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors)
• Plantations (excluding tea plantations)
• Real estate (except construction development projects)
• Chit funds, nidhi companies, or trading in transferable development rights
• Manufacturing of cigars, cheroots, cigarillos and cigarettes, and tobacco and tobacco substitutes

FDI of up to 100 per cent is allowed in the following sectors in India:

Automatic Route	Automatic Route with Conditions	Approval Route
Food processing Brewing and distillation of alcohol IT and IT enabled services Manufacture of consumer and industrial products (except the ones that are reserved for small scale sectors, require industrial license or are prohibited) Transportation services Hotels and tourism Power Advertising and films Data processing and software development Business and management consultancy services Market research services Construction of infrastructure Construction of ports and harbours Accounting and book-keeping services Health and medical services Storage and warehouse services Greenfield pharmaceutical projects Greenfield airport projects	18 Non-banking financial services Merchant banking Underwriting Investment advisory Financial consultancy Portfolio management services Stock broking Asset management Venture capital Custodial services Factoring Credit rating agencies Leasing and finance Housing finance Forex broking Credit cards Money changing Micro credit and rural credit Wholesale trading Construction and development of townships Agriculture and animal rearing Helicopter and seaplane services Maintenance and repair services Flying and technical training institutes Industrial parks Coal and lignite	Broadcasting of non-news channels Publishing/Printing of specialty magazines Courier services Test marketing activities Single brand retail trading Tea plantation Titanium mining Brownfield pharmaceutical companies Telecom

FDI ranges between 26 per cent and 74 per cent in the following sectors:

Asset Reconstruction Company	Airports (Existing Projects)	Air Transport services	Banking
Broadcasting	Civil Aviation Services	Commodity Exchange	Defence
Insurance	Multi-Brand retail trade	Petroleum and natural gas	Satellites: Establishment operations
Security agencies in the private sector	Stock exchanges, depositories, corporations	Telecom

 

Gautam Khurana
India Law Offices
29th January 2015

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