Since the beginning of economic liberalization in 1991, the attractiveness of India
as an investment destination has grown at a steady pace. According to a study by
Goldman Sachs, Indian economy is expected to continue growing at the rate of 5%
or more & is slated to become the fourth largest economy by 2050. Currently, as
per IMF figures India's annual growth rate even in the recessionary stage is pegged
between 7-8%. This favorable scenario has been made possible through an increased
level of flexibility & rationalization of the policies by the government as regards
foreign direct investment.
Under the existing policy, FDI up to 100% is allowed under the automatic route in
all activities/sectors except the following, which require the prior approval of
- Activities/Items that require an Industrial License
- Proposals in which the foreign collaborator has an existing financial/technical
collaboration in India in the 'same' field
- Proposals for acquisition of shares in an existing Indian Company in Financial
Services Sector and where Securities & Exchange Board of India (Substantial Acquisition
of Shares & Takeovers) Regulations is attracted.
All proposals falling outside notified sectoral policy/caps or under sectors in
which FDI is not permitted FDI in sectors to the extent permitted under the automatic
route does not require any prior approval either by the Government or Reserve Bank
of India (RBI).The investors are only required to notify the Regional office concerned
of RBI within 30 days of the receipt of inward remittances & file the required documents
within 30 days of the issue of shares to the foreign investors.
FDI activities not covered under the automatic route require prior Government approval
& are considered by the Foreign Investment Promotion Board (FIPB). An application
can be made online or on a plain paper accompanied by all the relevant documents.
The approvals are generally granted expeditiously.
The extant policy does not permit FDI in the following sectors:
- Retail Trading
- Atomic Energy
- Lottery Business
- Gambling & Betting
Note: The Government is considering FDI in retail trading and the suggestions from
the industry and stakeholders have been invited and liberalization in this sector
subject to some restrictions is on the cards.
The following comprise an illustrative list of the sectors not under the automatic
route (subject to sectoral regulations & guidelines as notified by the respective
- Petroleum Sector
- Existing Airport Projects
- Asset Reconstruction Companies
- Atomic Minerals
- Construction Development Projects (Resorts, Townships, commercial Premises etc.)
- Defence production
- Investing Companies in infrastructure / services sector (except telecom sector),
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- Satellites establishment & operation
Equity participation by International Financial Institutions such as ADB, IFC, CDC,
etc. in domestic companies is permitted through automatic route, subject to SEBI
/ RBI regulations & sector-specific cap on FDI. Free repatriation of capital investment
& profits is permitted subject to original investment having being made in convertible
foreign exchange. The policy further permits Indian companies to raise funds in
the international capital markets. The Indian capital market is also open to the
Foreign Institutional Investors under the Portfolio Investment Schemes.
FDI in EOUs / SEZs / Industrial Park / EHTP / STP
- FDI upto 100% is permitted under the automatic route for setting up of Special
Economic Zone (SEZ). Proposals not covered under the automatic route require approval
- FDI upto 100% is permitted under the automatic route for setting up 100% Export
Oriented Units (EOU), subject to sectoral policies. Proposals not covered under
the automatic route would be considered & approved by FIPB.
- FDI upto 100% is permitted under automatic route for setting up of Industrial
- Proposals for FDI / NRI investment in Electronic Hardware Technology Park (EHTP)
Units & Software Technology Park (STP) Units are eligible for approval under the
automatic route, subject to the parameters mentioned under the Automatic route.
For proposals not covered under automatic route, the applicant should seek separate
approval of the Government through the FIPB.