Foreign Direct Investment (FDI) in India, its Process and FEMA Laws
Foreign Direct Investment (FDI) is an investment made by an entity or individual resident of one country into the business activity of a foreign country. FDI is considered a cross-border investment and a major source of non-debt financial resources for the economic development of a country. Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act, (FEMA) 1999.
India is the fastest-growing economies which made it one of the most popular destinations in the world for FDI. The growing economy, infrastructure, manpower, incentives to foreign investors, growing demand, business opportunities, government policies are some of the reasons foreign nationals are attracted to and investing in India. As per the data released by the Department for Promotion of Industry and Internal Trade (DPIIT), the total FDI inflows in India in F.Y. 2022-23 (from April – September) is 26,210 US$ million.
Our team of experts are engaged in offering guidance, advisory and consultancy services with respect to laws and regulations of FEMA, RBI (Reserve Bank of India) and FDI policy to individuals and corporates including foreign clients. We offer FEMA consultancy that encompasses the entire gamut of foreign exchange law. These services are immensely appreciated in market due to their timely completion and cost-effectiveness. The offered services are rendered in varied forms and terms that meet the client’s demand. We hereby ensure that your business is in compliance with relevant laws applicable to foreign investments
The following FEMA & RBI related services are rendered by our experienced professionals
- Registration with RBI (Reserve Bank of India) on Firms portal.
- Inward remittances to India under FEMA (Foreign Exchange Management Act)
- Advisory services on FEMA, 1999 and RBI Act, 1934
- Compliances related to allotment or transfer of securities and related RBI reporting
- Obtaining necessary approvals under FEMA from RBI and Foreign Investment Promotion Board (FIPB)
- Compounding & Representation before RBI
- Export and import of Goods and Services
- Compliance of applicable FEMA and RBI provisions
- Issuing statutory certificates under FEMA & RBI regulations
- Raising of External Commercial Borrowings (ECB) by an Indian Company
- Preparing and filing FC-GPR (Foreign Currency Gross Provisional Return), FC-TRS (Foreign Currency Transfer of Share), FLA (Foreign Liabilities and Assets) Returns etc.
Routes for Foreign Direct Investment in India
Investments by a foreign entity/individual in India can be done either through Automatic Route or Government Route.
- Automatic route: Under the Automatic route, the non-resident investor or the Indian company does not require any approval from the Government of India for the investment.
- Government route: Under the Government route, prior approval of the Government of India is required for making investments.
Sectors where Foreign Direct Investment (FDI) is prohibited in India
As per FDI Policy, 2020, FDI in India is permitted in almost every sector. But still, there are some sectors where FDI is prohibited. Below mentioned are the sectors where FDI is not permitted in India.
- Lottery Business including Government/private lottery, online lotteries, etc.
- Gambling and Betting including casinos etc.
- Chit Funds.
- Nidhi Company.
- Trading in Transferable Development Rights (TDRs).
- Real Estate Business or Construction of Farm Houses
- Manufacturing of cigars, cheroots, cigarillos, and cigarettes, of tobacco or of tobacco substitutes.
- Activities/sectors not open to private sector investment (e.g. Atomic Energy and Railway Operations other than Railway Infrastructure)
Sectors where Foreign Direct Investment (FDI) is permitted in India
Below mentioned are the sectors/activities where FDI up to the limit as specified is permitted subject to applicable laws/regulations, security, and other condition as prescribed.
Sector/Activity |
% of FDI Cap |
Entry Route |
Ø Agriculture and Animal Husbandry | 100% | Automatic Route |
Ø Plantation | 100% | Automatic Route |
Ø Mining · Mining and Exploration of metal and non-metal · Coal & Lignite · Mining and mineral separation of titanium bearing minerals and ores, its value addition, and integrated activities |
100%
100%
100% |
Automatic Route
Automatic Route
Government Route |
Ø Petroleum and Natural Gas · Exploration activities of oil and natural gas fields, natural gas/pipelines, etc. · Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs. |
100%
49% |
Automatic Route
Automatic Route |
Ø Manufacturing · Manufacturing · Retail Trading, including through e-commerce in food products manufactured and/ or produced in India |
100%
100% |
Automatic Route
Government Route |
Ø Defence | 100% | · Upto 74% – Automatic Route · Beyond 74% – Government Route |
Ø Broadcasting Carriage Services · Teleports, DTH, Cable Networks, Mobile TV, HITS |
100% |
Automatic route |
Ø Broadcasting Content Services · FM Radio · Up-linking of ‘News & Current Affairs’ TV Channels · Uploading/Streaming of News & Current Affairs through Digital Media · Up-linking of Non- ‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels |
49%
49%
26%
100% |
Government Route
Government Route
Government Route
Automatic Route |
Ø Print Media · Publishing of newspapers and periodicals dealing with news and current affairs. · Publication of Indian editions of foreign magazines dealing with news and current affairs. · Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, subject to compliance with the legal framework as applicable · Publication of facsimile edition of foreign newspapers. |
26%
26%
100%
100% |
Government Route
Government Route
Government Route
Government Route |
Ø Civil Aviation · Airports (Greenfield projects & Existing projects) · Air Transport Services – Scheduled Air Transport Service*/ Domestic Scheduled Passenger Airline, Regional Air Transport Service – Non-Scheduled Air Transport Services – Helicopter services/seaplane services requiring DGCA approval · Other Services under Civil Aviation – Ground Handling Services – Maintenance and Repair organizations; flying training institutes; and technical training institutions. |
100%
100%
100%
100%
100%
100% |
Automatic Route
· Up to 49% – Automatic Route (Up to 100% for NRI’s) · Beyond 49% – Government Route Automatic Route
Automatic Route
Automatic Route
Automatic Route |
Ø Construction Development: Townships, Housing, Built-Up Infrastructure | 100% | Automatic Route |
Ø Industrial Parks | 100% | Automatic Route |
Ø Satellites – Establishment And Operation | 100% | Government Route |
Ø Private Security Agencies | 74% | · Upto 49% – Automatic Route · Beyond 49% & Upto 74% – Government Route |
Ø Telecom Services | 100% | · Up to 49% – Automatic Route · Beyond 49% – Government Route |
Ø Cash & Carry Wholesale Trading/ Wholesale Trading (including sourcing from MSEs) | 100% | Automatic Route |
Ø E-Commerce Activities | 100% | Automatic Route |
Ø Single Brand Product Retail Trading | 100% | Automatic Route |
Ø Multi Brand Product Retail Trading | 51% | Government Route |
Ø Duty Free Shops | 100% | Automatic Route |
Ø Railway Infrastructure | 100% | Automatic Route |
Ø Asset Reconstruction Companies | 100% | Automatic Route |
Ø Banking – Private Sector | 74% | · Upto 49% – Automatic Route · Beyond 49% & Upto 74% – Government Route |
Ø Banking – Public Sector | 20% | Government Route |
Ø Credit Information Companies | 100% | Automatic Route |
Ø Infrastructure Company In The Securities Market | 49% | Automatic Route |
Ø Insurance · Insurance Company · Intermediaries or Insurance Intermediaries |
74%
100% |
Automatic Route
Automatic Route |
Ø Pension Sector | 49% | Automatic Route |
Ø Power Exchanges | 49% | Automatic Route |
Ø White Label ATM Operations | 100% | Automatic Route |
Ø Financial Services Activities regulated by Financial Sector Regulators. | 100% | Automatic Route |
Ø Pharmaceuticals · Greenfield · Brownfield |
100% 100% |
Automatic Route · Up to 74% – Automatic Route · Beyond 74% – Government Route |