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FDI Laws Ecomerce India
FDI Laws Agriculture India
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FDI Laws FAQ in India
  1. What is Foreign Direct Investment (FDI)?

    Foreign direct investment (FDI) is an investment made by a company or individual in one country in business in another country. The investment can be in the form of either acquiring a new business or investing into an existing one in such a way that the investing company gets ownership or controlling interest in a foreign company.

  2. How can a foreign investor enter in the Indian market?

    A foreign company planning to set up business operations in India may:

    • Incorporate a company under the Companies Act, 2013, as a Joint Venture or a Wholly Owned Subsidiary.

    • Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

  3. How can a foreign investor enter as an Indian Company / Set up an Indian Company?

    As an Indian Company, Foreign Companies can set up their operations in India by strategic alliances with Indian Partners. Joint venture with an Indian Partner which has some advantages for a foreign investor like an already established distribution/ marketing set up by Indian Partner and established contacts of the Indian partners which help smoothen the process of setting up operations. Wholly Owned Subsidiary Company is also allowed with a 100% Foreign Direct Investment as permitted by the FDI policy.

  4. How can a Foreign Company set up its business operations in India?

    Foreign Companies can set up its business operations in India through:

    • Liason Office: Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office can not undertake any commercial activity directly or indirectly and cannot therefore earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.

    • Project Office: Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. Reserve Bank of India (RBI) has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

    • Branch Office: Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

      1. Export/Import of goods

      2. Rendering professional or consultancy services

      3. Carrying out research work, in which the parent company is engaged

      4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

      5. Representing the parent company in India and acting as buying/selling agents in India.

      6. Rendering services in Information Technology and development of software in India.

      7. Rendering technical support to the products supplied by the parent/ group companies.

      8. Foreign airline/shipping company.

      A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the RBI.

  5. What are the instruments for receiving Foreign Direct Investment in an Indian company?

    Foreign investment is reckoned as FDI only if the investment is made in equity shares, fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront. 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, shall be treated as eligible FDI instruments w.e.f. July 8, 2014 subject to compliance with FDI scheme.

    Any foreign investment into an instrument issued by an Indian company which:

    • gives an option to the investor to convert or not to convert it into equity or

    • does not involve upfront pricing of the instrument as a date would be reckoned as ECB and would have to comply with the ECB guidelines.

    The FDI policy provides that the price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations [valuation as per any internationally accepted pricing methodology on arm’s length basis for the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for the listed companies] without any assured return.

  6. What is the procedure for receiving Foreign Direct Investment in an Indian company?

    An Indian company may receive Foreign Direct Investment under the two routes as given under:

    1. Automatic Route: FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

    2. Government Route: FDI 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.

  7. What types of transfer of existing shares from non-residents to residents or residents to non-residents are allowed?

    The term ‘transfer’ is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien” {Section 2 (ze) of FEMA, 1999}.


    The following share transfers are allowed without the prior approval of the Reserve Bank of India;


    • Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met.

    • Transfer of shares from Resident to Non Resident.

    • Transfer of shares/ fully and mandatorily convertible debentures by way of Gift.

  8. Can a foreign investor invest in Preference Shares? What are the regulations applicable in case of such investments?

    Yes. Foreign investment through preference shares is treated as foreign direct investment. However, the preference shares should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as part of share capital under FDI.

  9. What will be the pricing norms for a non-resident permitted to acquire share on stock exchange under FDI scheme in India?

    The investor shall acquire shares at the ruling market price.

  10. Can a company issue debentures as part of FDI in India?

    Yes. Debentures which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of share capital under the FDI Policy.

  11. Can a foreign investor invest in shares issued by an unlisted company in India?

    Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in shares issued by an unlisted Indian company subject to compliance with FEMA provisions such as pricing, reporting, etc.

  12. Can a foreigner set up a partnership/ proprietorship concern in India?

    No. Only Non Resident Indians / Persons of Indian Origin are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.

  13. Can an escrow account be opened without RBI permission for the non-resident permitted to acquire share on stock exchange under FDI scheme?

    Yes, an escrow account for the purpose can be opened under General Permission under Regulation 5(5) of Foreign Exchange Management (Deposit) Regulations.

  14. Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?

    FCCBs can be issued by Indian companies in the overseas market in accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

  15. What is American Depository Receipt?

    American Depository Receipt are issued only by U.S. banks for foreign stocks that are traded on a U.S. exchange. The underlying security of the ADRs is held by an American financial institution overseas rather than by a global institution.

  16. What is Global Depository Receipt?

    A Global Depositary Receipt (GDR) is a bank certificate issued in multiple countries for shares in a foreign company. The shares of a GDR trade as domestic shares. They are offered for sale globally through various banks

  17. Which are the sectors in which FDI is permitted in India?

    In the following sectors/activities, FDI is allowed, subject to applicable laws/regulations; security and other conditionality.

    • Agricultural and animal husbandry

    • Tea plantation

    • Mining and petroleum and natural gas

    • Manufacturing of items reserved for production in MSMEs

    • Defence

    • Broadcasting services

    • Print media

    • Civil Aviation

    • Courier services

    • Construction development

    • Industrial parks

    • Satellites

    • Private security agencies

    • Telecom services

    • Trading

    • E- Commerce activities

    • Single brand product retail trading

    • Multi-brand product retail trading

    • Railway infrastructure

    • Financial services

    • Insurance

    • Pharmaceuticals

    • Power Exchanges

  18. Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?

    FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

    • Atomic Energy

    • Lottery business (including government/ private lottery, online lotteries etc)

    • Gambling and Betting

    • Business of Chit Fund

    • Nidhi company

    • Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations)

    • Housing and Real Estate business (except development of townships, construction of residen¬tial/commercial premises, roads or bridges

    • Trading in Transferable Development Rights (TDRs).

    • Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

  19. Which legislation governs FDI policies?

    FDI in India is regulated by Foreign Exchange Management Act, 1999 (FEMA).

  20. What is the percentage of FDI allowed in the Automobiles sector in India?

    100% Foreign Direct investment (FDI) is allowed under the automatic route in the auto sector, subject to all the applicable regulations and laws.

  21. What is the percentage of FDI allowed in the Defence Manufacturing sector in India?

    100% FDI in Defence sector: Up to 49%, automatic route; FDI above 49%, through Government route where it is likely to result in access to modern technology or for other reasons to be recorded.

  22. What is the percentage of FDI allowed in the Food Processing sector in India?

    100% FDI is permitted under the automatic route in food processing industries. 100% FDI is allowed through approval route for trading, including through e-commerce in respect of food products manufactured and/or produced in India.

  23. What is the percentage of FDI allowed in the Pharmaceutical sector in India?

    100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield projects. For brownfield project investments, up to 100% FDI is permitted under the government route. The government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approvals

  24. What is the percentage of FDI allowed in the Print Media sector in India?

    26% FDI under the government approval route is allowed in the publishing of newspapers and periodicals dealing with news and current affairs. 26% FDI under the government approval route is allowed in the publication of Indian editions of foreign magazines dealing with news and current affairs. 100% FDI under the government approval route is allowed in publishing/printing of scientific and technical magazines/ speciality journals/periodicals.

  25. What is the percentage of FDI allowed in Media and Entertainment sector in India?

    Foreign Direct Investment (FDI) in Teleports, DTH, Multi-System Operator, cable networks in DAS areas, mobile TV, Headend-in-the-Sky Broadcasting Services are allowed up to 74% with FDI, up to 49% under the Automatic route. FDI beyond 49% (up to 74%) is permitted under the government route. FDI in local cable networks and MSO in non-DAS areas is allowed up to 49% under the Automatic route.

  26. What is the percentage of FDI allowed in Mining sector in India?

    FDI up to 100% is allowed in exploration, mining, minerals processing and metallurgy under the automatic route for all non-fuel and non-atomic minerals including diamonds and precious stones. Mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities fall under the government route of foreign direct investment up to 100%. FDI in coal mining is allowed for captive consumption only.

  27. What is the percentage of FDI allowed in Railways sector in India?

    100% FDI under automatic route is permitted for the following:

    • Construction, operation and maintenance of suburban corridor projects through Public Private Partnership

    • High speed train projects

    • Dedicated freight lines

    • Rolling stock including train sets and locomotive/coaches manufacturing and maintenance facilities – Under this policy, setting up of traction alternator factory at Vidisha has been sanctioned in 2012-13 for manufacturing 100 Traction Alternators and overhaul of 100 locos set of traction motor or High Horse Power Diesel Locomotives per annum

    • Railway electrification

    • Signaling systems

    • Passenger terminals

  28. What is the percentage of FDI allowed in Information Technology (IT) sector in India?

    100% FDI is allowed in the Information Technology department in India.

  29. What is the percentage of FDI allowed in Tourism and Hospitality sector in India?

    100% FDI is allowed under the automatic route in tourism and hospitality, subject to applicable regulations and laws. 100% FDI allowed in tourism construction projects, including the development of hotels, resorts and recreational facilities. For further information on FDI in Tourism and Hospitality sector in India, please write to us at

For more information on FAQ Foreign Direct investment in India please write to us at:



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