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Foreign Direct Investment in India

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business in another country. It not only involves monetary transfer of funds, it also involves acquisition of ownership or controlling interest in a foreign company by the investing company.

As per the DIPP (Department of Industrial Policy and Promotion), the object of the Government is to attract more foreign investment into India so that technology and skills, domestic capital and most importantly the economic growth of the Indian subcontinent can be supplemented. FDI is different from portfolio investment in the sense that FDI is aimed at establishing a lasting interest in the economy other than the investor’s economy.

Entry routes for investment

The two entry routes for investment are: Automatic Route and the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment whereas under the Government Route, prior approval of the Government of India is required and investment proposals under Government route, are considered by respective Administrative Ministry/Department.

The Consolidated FDI Policy was last released by the DIPP, Ministry of Commerce and Industry on August 28, 2017 and the same can be accessed here.

The latest FDI Statistics in India can be accessed here.

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Below are the percentage of Foreign Direct Investment (FDI) allowed in different sectors in India

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.

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.

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

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.

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/specialty journals/periodicals.

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.

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

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.

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.

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.

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Meaning of Foreign Direct Investment (FDI) in India

A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company.[1]

Which legislation governs FDI policies?

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

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
  • Defense
  • 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

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

FDI has 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
  • The 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 residential/commercial premises, roads or bridges
  • Trading in Transferable Development Rights (TDRs).
  • Manufacture of cigars, cheroots, cigarillos, and cigarettes, of tobacco or of tobacco substitutes

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.

What is American Depository Receipt?

American Depository Receipt is 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.

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.

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.

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.

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, the investment can be made in shares issued by an unlisted Indian company subject to compliance with FEMA provisions such as pricing, reporting, etc.

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.


[1] https://www.investopedia.com/terms/f/fdi.asp

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For more information please contact us at : info@ssrana.com