Introduction: Foreign direct investment (FDI) plays a significant role in the economic development of countries. In this article, we will compare the foreign investment sectors in two countries: India and Bhutan. Both countries have their own policies and regulations governing foreign investment, which impact the sectors open to foreign investors.

Foreign Investment Sector

Foreign Investment Sectors in India:

India, being one of the world’s fastest-growing economies, offers numerous opportunities for foreign investors. The Indian government has implemented several measures to attract FDI in various sectors. Some key sectors open for foreign investment in India include:

i. Manufacturing Sector:

  • India encourages FDI in the manufacturing sector through initiatives like Make in India.
  • Sectors like automobiles, electronics, textiles, pharmaceuticals, and food processing offer significant investment potential.

ii. Information Technology and Business Process Management (IT-BPM):

  • India is renowned for its IT and software services.
  • The IT-BPM sector attracts foreign investment due to its skilled workforce and favorable business environment.

iii. Infrastructure and Construction:

  • The Indian government promotes FDI in infrastructure development, including roads, railways, airports, and smart cities.
  • Public-Private Partnerships (PPPs) are encouraged to facilitate foreign investment in this sector.

iv. Renewable Energy:

  • India aims to increase the share of renewable energy in its energy mix.
  • Foreign investors can explore opportunities in solar power, wind energy, and other clean energy projects.

v. Financial Services:

  • India’s financial services sector, including banking, insurance, and asset management, welcomes FDI.
  • Reforms have been introduced to liberalize this sector and attract foreign investors.

Foreign Investment Sectors in Bhutan:

Bhutan, a small Himalayan country, has its own set of regulations for foreign investment. Although the economy is relatively smaller compared to India, Bhutan offers certain sectors open to foreign investors. Here are some key sectors in Bhutan:

i. Manufacturing and IT Service Industries:

  • Newly established manufacturing and IT service industries in Bhutan enjoy income tax exemption on convertible currency earnings from exports for ten years.
  • This incentive aims to attract foreign investment in these sectors and promote export-oriented industries.

ii. Reinvestment Allowance:

  • Bhutan provides a reinvestment allowance of 25% to manufacturing and service industries.
  • This incentive encourages businesses to reinvest their profits and promote economic growth.

iii. Adoption of Modern Technologies:

  • Businesses in Bhutan can avail tax rebates for up to 15% of the expenses incurred in adopting modern environmentally-friendly technologies.
  • This measure promotes sustainable practices and technological advancements.

iv. Small and Micro Businesses:

  • Income tax holidays are granted to small and micro businesses in Bhutan.
  • This incentivizes the establishment and growth of small-scale enterprises.

v. Sector-Specific Incentives:

  • Bhutan offers sector-specific incentives as per the provisions and rules of the Fiscal Incentive Act.
  • These incentives vary across industries and aim to boost investment in specific sectors.

Comparative Chart – Foreign Investment Sector – India and Bhutan

Particular India Bhutan
Regulating Laws Foreign Exchange Management Act 1999 (FEMA), Foreign Direct Investment (FDI) policy issued by Department of Industrial Policy & Promotion (DIPP), Income Tax Act 1961, Finance Act, Reserve Bank of India Foreign Direct Investment Policy, Foreign Direct Investment Rules and Regulations, Companies Act, Fiscal Incentives Act, Income Tax Act, The Royal Monetary Authority of Bhutan.


Investment Promotion Agency Invest India is the Investment Promotion & Facilitation Agency of India. It acts as the first point of reference for investors in India.

Invest India was set up in 2009 as a non-profit venture under the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India.

Foreign Direct Investment Division, Department of Industry functions as an investment promotion agency and provides single window services to Foreign Direct Investment businesses in the country as detailed in the Foreign Direct Investment Rules & Regulations issued by the ministry from time to time.
Free Trade Agreements (FTAs)  FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them. The major bilateral FTAs are signed with countries including Sri Lanka, Malaysia, Japan, Singapore, South Korea. In addition to this, India has Multilateral FTAs like, South Asia Free Trade Agreement (SAFTA) and India ASEAN Trade in Goods Agreement.  Bhutan has signed Bilateral Trade agreements many countries including, India, Korea, Bangladesh, China and USA to facilitate intra-regional trade and to facilitate better access to the global market and to improve trade and economic relations. 
Business Vehicle Used The business vehicle that can be sued by a foreign investor are – 

1. As an incorporated entity by incorporating a company under the Companies Act, 2013 through a:

– Joint Venture; or

– Wholly Owned Subsidiary

2. As an office of a foreign entity through:

– Liaison Office / 

  Representative Office

– Project Office

– Branch Office

3. As a Limited Liability Partnership

Foreign Direct Investment (FDI) in an existing domestic entity: 

FDI in an existing domestic entity is allowed subject to the same terms and conditions as applicable to the new entities incorporated in Bhutan with maximum foreign investor’s shareholding of 74 %. 

FDI Company:

An FDI company shall be a business incorporated or registered in the country for the purpose of undertaking commercial activity in which 20% or more of the equity in the business is owned by foreign investors. An individual foreign investor shall own a minimum of 10 % of the equity.

Notwithstanding the above, in case of foreign institutional investors, a FDI company shall be one in which 10% or more of the equity is owned by foreign institutional investor. 

Tax Rates The corporate tax at present is fixed at 25% (plus surcharge and cess) for domestic companies (any company incorporated in India) with annual turnover of up to Rs 400 crore (INR 4 billion) and for other domestic companies, the tax rate is 30% (plus surcharge and cess).  

The domestic companies are given with an option to pay tax at a reduced rate of 22% (plus surcharge and cess), provided they do not claim certain deductions under the Income Tax Act.  The effective tax rate will be 25.17% including surcharge and cess. The rate is to be effective from Financial Year i.e. 2019-20.

New local manufacturing companies (those incorporating after 1st October 2019 and commencing manufacturing before 1st April 2023) will be eligible to opt for special corporate tax @ 15% (plus surcharge and cess), provided that the company does not claim other deductions or exemptions under Income Tax Act. The effective tax rate will be 17.01%, inclusive of surcharge and cess. 

Business Income Tax is a non-corporate business tax. It is levied @ of 30%. 

The companies registered under Companies Act of Bhutan are chargeable with Corporate Income Tax.  It is levied @ of 30% on net profit

Key  Incentives

1. Export Promotion

Applicability: SEZ units operational before 1st April 2020

Incentive: Deduction of 100% of profits and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years. 

2. Research & Development

Applicability: Companies in respect of any expenditure on R&D in an approved in-house facility

Incentive: Weighted tax deduction of 200% granted to companies

Validity: 31st March 2020

3. Investment-linked

Incentive: To incentivize investment in certain sectors, any capital expenditure incurred for specified businesses is allowed as a deduction in the year in which it is incurred. 

4. Startup India Scheme

Incentive: Tax incentives granted to eligible start-ups are the tax holiday for any consecutive 3 years (from initial 5 years) in respect to 100% of their profits, including fast-tracking of patent applications with 80% rebate.

5. International Financial Services Centre

Applicability: Caters to customers outside the jurisdiction of the domestic economy. Such centers deal with flows of finance, financial products and services across borders.

Incentives: Tax concessions on capital gains, Minimum Alternate Tax and Dividend Distribution Tax.

The incentives provided by the Bhutan government are – 

Income tax exemption of 10 years on convertible currency earnings from export by newly established manufacturing and IT service industries.

2. Reinvestment Allowance (RA) of 25% to Manufacturing and Service industries.

3. Tax rebate of up to 15% of the up-gradation expenses for adopting modern environmentally – friendly technologies.

4. Income tax holiday to Small and Micro businesses

5. Tax rebate of 10% shall be allowed to business employing 100% Bhutanese nationals with no less than 20 employees.

6. Income tax holiday of 5 years to companies going for an Initial Public Offer

There are other Sector Specific Incentives provided by the government as per the provisions and rules of Fiscal Incentive Act of Bhutan. 

Land and Property Ownership by Non-Resident Regulated by – FEMA and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. Non-Resident Indian (NRI) and Person of Indian Origin (PoI) are permitted to purchase or transfer any immovable property in India unless otherwise specified. 

Foreign nationals of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India.

A person (RoI) who has established in India, a branch/project office or other place of business (excluding a liaison office) in accordance with the provisions of FEMA and rules thereunder, for carrying on in India any activity can acquire any immovable property in India that is necessary for or incidental to carrying on such activity, subject to compliance with other applicable laws and RBI reporting in a prescribed format.

Lease – A foreign national of non-Indian origin can acquire or transfer immovable property in India, on lease, not exceeding 5 (five) years with the prior permission of the RBI.

Regulated by – Land Act of Bhutan and amendments thereto.

Companies incorporated in Bhutan: The land of a corporation shall be registered, in the name of a corporation registered under the prevailing Company’s Act of the Kingdom of Bhutan, or, in the name of the body corporate established under the relevant law. 

Business started in partnership with local entities: 

Local partners of the foreign business shall be allowed to capitalize freehold land as their equity contribution.


Restricted sectors/


The present foreign trade policy prohibits Foreign Direct Investments in the following sectors- 

1.Lottery Business including Government/private lottery, online lotteries, etc.*

2.Gambling and Betting including casinos*

3.Chit Funds

4.Nidhi Company

5.Trading in Transferable Development Rights (TDR)

6.Real Estate Business or Construction of farmhouses **

7.Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

8.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.

Conclusion: India and Bhutan have their own unique foreign investment sectors and policies. While India’s vast economy offers diverse investment opportunities in manufacturing, IT-BPM, infrastructure, renewable energy, and financial services, Bhutan focuses on attracting foreign investment in manufacturing, IT services, adoption of modern technologies, and support for small and micro businesses. Investors interested in either country should carefully consider the regulations and incentives applicable to their desired sectors before making investment decisions.

Ref: /uploads/2017/07/FDI-Policy-2019.pdf. foreign-direct-investment. /BS_ViewMasCirculardetails.aspx?id=8095. wp-content/uploads/2016/09/ The-Land-Act-of-Kingdom-of-Bhutan-2007-English.pdf . wp-content/uploads/2014/07/Rules_FI2017.pdf. /files/bill_files/Taxation %20Laws%20%28 Amendment%29%20 Ordinance%2C%202019.pdf wp-content/uploads/2017/07/ FDI-Policy-2019.pdf. /trade/FAQ_on_FTA_9April2014.pdf?id=9 &trade=i&id=9& amp;amp;amp;trade=i. wp-content/uploads/2017/07/ FDI-Policy-2019.pdf. wp-content/uploads/2019/08/ FDI-Rules-Regulations-2019.pdf.

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Qualified Company Secretary and Founder of NIRA Associates, Company Secretaries Firm. An experienced professional with a demonstrated history of working in the secretarial industry. Reach out for Legal and Statutory Compliance matters regarding Corporate Laws, Employment Laws, Labour Law, Finance, View Full Profile

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