Foreign Direct Investment: The India Forward!

The concept ‘direct foreign investment’ means foreign investment received by an Indian company from a person resident outside India in terms of Schedules 1, 2, 2A, 3, 6, 8 and 10 of the Notification No. FEMA.20/2000-RB dated May 3, 2000, as amended from time to time.

Foreign Direct Investment (FDI) in India is undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India. The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India issues.

Methods of Foreign Direct Investment

Foreign direct investments can be made in a variety of ways, including

  • the opening/incorporating of a subsidiaryor associate company in a foreign country,
  • acquiring a controlling interest in an existing foreign company, or
  • by means of a merger or joint venture with a foreign company.


Who can invest in India?
  • A non-resident entity (other than citizens of Pakistan and Bangladesh or an entity incorporated in Pakistan or Bangladesh who can only invest with a prior approval of FIPB) can invest in India, subject to the FDI Policy.
  • NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis.
  • Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route and with the prior approval of RBI if the investment is through Automatic route.


Entity into Which FDI Can Be Made
  1. Indian Company
  2. Partnership Firm/Proprietary Concern
  • Venture Capital Fund
  1. Limited Liability Partnerships


Entry routes for investments in India

Under the Foreign Direct Investments (FDI) Scheme, investments can be made in shares, mandatorily and fully convertible debentures and mandatorily and fully convertible preference shares of an Indian company by non-residents through two routes:


Automatic Route

Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Annex B of Schedule 1 to Notification No. FEMA  20.


Government Route

Foreign investment in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL,

The Indian company receiving FDI either under the automatic route or the government route is required to comply with provisions of the FDI policy including reporting the FDI and issue of shares to the Reserve Bank of India.


Foreign Direct InvestmPROHIBITED SECTORSent –
  • Gambling and Betting including casinos etc.
  • Lottery business (including government/ private lottery, online lotteries etc)
  • Activities /sectors not open to private sector investment (e.g., atomic energy /railways)
  • Retails trading (expect single-brand product retailing)
  • Business of chit fund
  • Nidhi company
  • Real estate business or construction of farm houses
  • Trading in transferable development rights (TDRs)
  • Manufacturing of tobacco, cigars, cheroots , cigarillos, cigarettes and other tobacco substitutes
  • Agriculture (excluding floriculture, horticulture, apiculture and cultivation of vegetables and mushrooms under controlled conditions, the development and production of seeds & planting materials, animals husbandry including the breeding of dogs, viniculture & aquaculture under controlled conditions and services related to the agro and allied sector)


An Indian Company can receive foreign investment by issue of
  1. Equity shares issued in accordance with the provisions of the Companies Act, 2013;
  2. Fully and mandatorily convertible preference shares, and fully and mandatorily convertible debentures.
  3. Partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, as applicable,

Permitted sectors

As mentioned above, FDI is permissible in certain with a cap on the maximum permissible foreign holding.

Sector wise FDI Limits
FDI Limit
1 Agriculture & Animal Husbandry- Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions, Development and Production of seeds and planting material, Animal Husbandry(including breeding of dogs), Services related to agro and allied sectors 100%
2 Plantation Sector- Tea sector including tea plantations, Coffee plantations, Rubber plantations, Cardamom plantations, Palm oil tree plantations, Olive oil tree plantations 100%
3 Mining- Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores 100%
4 Mining (Coal & Lignite) 100%
5 Petroleum & Natural Gas-Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas. 100%
6 Petroleum & Natural Gas-Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs. 49%
7 Defense Manufacturing (Automatic up to 49%
Above 49% under Government route).
8 Broadcasting- Teleports(setting up of up-linking HUBs/Teleports), Direct to Home (DTH), Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking up gradation of networks towards digitalization and addressability, Mobile TV, Head end-in-the Sky Broadcasting Service(HITS).. 100%
9 Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels 100%
10 Civil Aviation – Airports- Green Field Projects & Existing Projects 100%
11 Construction Development: Townships, Housing, Built-up Infrastructure 100%
12 Industrial Parks 100%
13 Cash & Carry Wholesale Trading- Construction, operation and maintenance of the following

Suburban corridor projects through PPP, High speed train projects, Dedicated freight lines, Railway Electrification, Signaling systems, Freight terminals, Passenger terminals, Mass Rapid Transport Systems.

14 Duty Free Shops 100%
15 Railway Infrastructure 100%


FDI Limit
1 Mining- Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities. 100%
2 Broadcasting Content Services- Terrestrial Broadcasting FM(FM Radio), Up-linking of ‘News & Current Affairs’ TV Channels. 49%
3 Print Media- Publishing of newspaper and periodicals dealing with news and current affairs, Publication of Indian editions of foreign magazines dealing with news and current affairs. 26%
4 Satellites- establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO 100%
5 Multi Brand Retail Trading 51%
6 Banking- Public Sector 20%
7 Food products manufactured or produced in India- Trading, including through e-commerce, in respect of food products manufactured or produced in India. 100%




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