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August 19, 2020

Know all about Foreign Direct Investment Policy of India

by shivam jaiswal in Compliance Law

Know all about Foreign Direct Investment Policy of India

1. FDI ENTRY ROUTES INTO INDIA

Investment climate in India has improved considerably since the opening up of the economy in 1991.

This is largely attributed to ease in FDI norms across sectors of the economy. India, today is a part of top 100 club on Ease of Doing Business (EoDB). FDI inflows in India stood at $45.15 bn in 2014-15 and have consistently increased since then.

FDI inflows in India increased to $55.56 bn in 2015-16, $60.22 billion in 2016-17, $60.97 bn in 2017-18 and the country registered its highest ever FDI inflow of $62.00 bn (provisional figure) during the last Financial Year 2018-19. Moreover, India has attracted more than $74 bn investments across sectors during 2019-20.

Total FDI inflows in the country in the last 191/2 years (April 2000- September 2019) are $642 bn while the total FDI inflows received in the last 51/2 years (April 2014- September 2019) are $319 bn which amounts to nearly 50% of total FDI inflow in last 191/2 years.

CATEGORY 1

100% FDI Permitted through Automatic Route

CATEGORY 2

100% FDI Permitted through Government Route

CATEGORY 3

100% FDI Permitted through Government + Automatic Route

Automatic 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.

Government Route

Under the Government Route, prior to investment, approval from the Government of India is required. Proposals for foreign direct investment under Government route, are considered by respective Administrative Ministry/ Department.

For detailed definitions, clarifications/ exceptions, please refer to:

2. SECTOR SPECIFIC CONDITION FOR FDI

SectorAutomaticGovernment
Air Transport Services (non-scheduled and other services under civil aviation sector)100%      —
Airports (Greenfield & Brownfield)100%       —
Autocomponents100%       —
Automobiles100%     —
Air Transport Services (Scheduled air transport services, regional air transport services)49%49%
Biotechnology (Greenfield)100%   —
Broadcast Content Services (Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels)  100%      —
Broadcasting Carriage Services100%49%
Broadcasting Content Services74%74%
Biotechnology (Brownfield)100% 
Capital Goods  
Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs)100% 
Chemicals100% 
Coal & Lignite100% 
Construction Development: Townships, Housing, Built-up Infrastructure100% 
Construction of Hospitals100% 
Duty Free Shops100% 
Digital Media 26%
Defence49%49%
E-commerce activities100% 
Electronic Systems100% 
Food Processing100% 
Food Products Retail Trading 100%
Gems & Jewellery (Manufacturing)100% 
Healthcare (Greenfield)100% 
Healthcare (Brownfield)74%74%
IT and BPM100% 
Leather100% 
Medical Devices100% 
Mining and Exploration of metal and non-metal ores100% 
Multi Brand Retail Trading 51%
Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities 100%
Other services under Civil Aviation sector (Maintenance and Repair organizations; flying training institutes; and technical training institutions.)100% 
Other services under Civil Aviation sector (Ground Handling Services subject to sectoral regulations and security clearance)100% 
Petroleum Refining (by PSUs)49% 
Petroleum & Natural Gas100% 
Pharmaceuticals (Greenfield)100% 
Ports and Shipping100% 
Print Media (Publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news and current affairs) 26%
Pharmaceuticals (Brownfield)74%74%
Print Media (Publication/ printing of scientific and technical magazines/specialty journals/ periodicals and facsimile edition of foreign newspapers) 100%
Railway Infrastructure100% 
Renewable Energy100% 
Roads & Highways100% 
Single Brand Product Retail Trading100% 
Textiles & Garments100% 
Thermal Power100% 
Tourism & Hospitality100% 
Telecom Services49%49%

Note: 

(i) All the information pertaining to the sectors as stated above, is in line with the extant Consolidated Foreign Direct Investment (FDI) Policy issued by DPIIT as amended from time to time.

(ii) In sectors/ activities not listed above, FDI is permitted up to 100% on the automatic route, subject to applicable laws/regulations; security and other conditionalities.

(iii) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment. Please refer press note 3.

For detailed definitions, clarifications/ exceptions, please refer to Consolidated FDI Policy

3. PROHIBITED SECTORS

  • Lottery Business including Government/private lottery, online lotteries, etc.*
  • Chit Funds
  • Trading in Transferable Development Rights (TDR)
  • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  • Gambling and Betting including casinos*
  • Nidhi Company
  • Real Estate Business or Construction of farm houses**
  • Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)

*Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

**Real estate business shall not include development of town shops, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014

4. PROCEDURES FOR GOVERNMENT APPROVAL

Filing of Application

Proposal for foreign investment, along with supporting documents to be filed online, on the Foreign Investment Facilitation Portal, at the following url: http://www.fifp.gov.in/

Internal Procedure for Approvals

DPIIT will identify the concerned Ministry/ Department and thereafter, circulate the proposal within 2 days. In addition, once the proposal is received, the same would also be circulated online to the RBI within 2 days for comments from FEMA perspective.

Proposed investments from Pakistan and Bangladesh would also require clearance from the Ministry of Home Affairs.

DPIIT would be required to provide its comments within 4 weeks from receipt of an online application, & Ministry of Home Affairs (if applicable) to provide comments within 6 weeks.

Pursuant to the above, additional information/ clarifications may be asked from the applicant which is to be provided within 1 week.

Proposals involving FDI exceeding INR 50bn (approx. $ 775 mn) shall be placed before the Cabinet Committee of Economic Affairs.

Final Approval

Once the proposal is complete in all respects, the same gets approved within 8-10 weeks.

5. FDI REPORTING REQUIREMENTS

Documents for Form FC-GPR (Foreign Currency – Gross Provisional Return) SMF

  • CS Certificate
  • Declaration by the Authorised Representative of the Indian Company/LLP
  • Pre and post shareholding pattern in the Indian company
  • Copy of government approval (if applicable)
  • Copy of the order of the High Court on the scheme of merger/ demerger/ amalgamation (if applicable)
  • RBI approval on the amount of refund with respect to the amount of the issue (if applicable)
  • Valuation certificate
  • Approval letter (if non-compliant with the guidelines – if applicable)
  • Relevant RBI approvals for an issue of equity shares against funds payable to the foreign investor
  • FIRC/ Debit statement
  • Know Your Customer (KYC)
  • Board Resolution

Note: 

As per the RBI notification on “Foreign Investment in India – Reporting in Single Master Form” of 7th June 2018, now provides for all the extant reporting structures of various types of foreign investments in India are now provided under a Single Master Form (SMF) which is required to be filed online.

As per the RBI Notification ARF and FC-GPR is merged into a single revised FC-GPR (SMF). All new filings for the Form FC-GPR (SMF) have to be done in Single Master Form only.

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