Foreign Direct Investment

DEFINITIONS:

1. ‘Automatic route’ means the entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank of India or the Central Government.

2. ‘Capital’ means equity shares; fully, compulsorily & mandatorily convertible preference shares; fully, compulsorily & mandatorily convertible debentures and warrants.

3. ‘Capital account transaction’ means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions as per Section 6 of FEMA.

4. ‘FDI’ or ‘Foreign Direct Investment’ means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company;

Note:- In case an existing investment by a person resident outside India in capital instruments of a listed Indian company falls to a level below ten percent, of the post issue paid-up equity capital on a fully diluted basis, the investment shall continue to be treated as FDI;

Explanation: – Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

5. ‘Government Approval’ means the approval from the erstwhile Secretariat for Industrial Assistance (SIA), Department for Promotion of Industry and Internal Trade, Government of India and/ or the erstwhile Foreign Investment Promotion Board (FIPB) and/ or Competent Authority (Administrative Ministry/Department) of the Policy, as the case may be.

6. ‘Government Route’ means the entry route through which investment by a person resident outside India requires prior Government approval and foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.

Foreign Direct Investment

• A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
• Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or 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.
• Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government Route, are considered by respective Administrative Ministry/Department.
• Investments by non-residents can be permitted in the capital of a resident entity in certain sectors/activity with entry conditions. Such conditions may include norms for minimum capitalization, lock-in period, etc. The entry conditions in various sectors/activities are detailed in Chapter 5 of Consolidated FDI Policy 2020.
• Besides the entry conditions on foreign investment, the investment/investors are required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/local laws/regulations.

PROHIBITED SECTORS

FDI is prohibited in:

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

2. Gambling and Betting including casinos etc.

3. Chit funds

4. Nidhi company

5. Trading in Transferable Development Rights (TDRs)

6. Real Estate Business or Construction of Farm Houses

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

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

2. Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II) Railway operations

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

PERMITTED SECTORS

• In the following sectors/activities, FDI up to the limit indicated against each sector/activity is allowed, subject to applicable laws/regulations; security and other conditionalities.
• In sectors/activities not listed below, FDI is permitted up to 100% on the automatic route, subject to applicable laws/regulations; security and other conditionalities.

Sector/Activity	% of Equity/ FDI Cap	Entry Route
AGRICULTURE & ANIMAL HUSBANDRY a) Floriculture, Horticulture, and Cultivation of Vegetables & Mushrooms under controlled conditions; b) Development and Production of seeds and planting material; c) Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, Apiculture; and d) Services related to agro and allied sectors Besides the above, FDI is not allowed in any other agricultural sector/activity	100%	Automatic
PLANTATION SECTOR a) Tea sector including tea plantations b) Coffee plantations c) Rubber plantations d) Cardamom plantations e) Palm oil tree plantations f) Olive oil tree plantations Besides the above, FDI is not allowed in any other plantation sector/activity.	100%	Automatic
MINING a) Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957. b) Coal & Lignite c) Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities	100% 100% 100%	Automatic Automatic Government
PETROLEUM & NATURAL GAS Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.	100%	Automatic
MANUFACTURING Subject to the provisions of the FDI policy, foreign investment in ‘manufacturing’ sector is under automatic route. Manufacturing activities may be either self-manufacturing by the investee entity or contract manufacturing in India through a legally tenable contract, whether on Principal to Principal or Principal to Agent basis. Further, a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without Government approval. Notwithstanding the FDI policy provisions on trading sector, 100% FDI under Government approval route is allowed for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India.
DEFENCE Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951 and Manufacturing of small arms and ammunition under the Arms Act, 1959	100%	Automatic up to 74% Government route beyond 74% wherever it is likely to result in access to modern technology or for other reasons to be recorded
BROADCASTING CARRIAGE SERVICES 1. Teleports (setting up of up-linking HUBs/Teleports); 2. Direct to Home (DTH) 3. Cable Networks 4. Mobile TV 5. Headend-in-the Sky Broadcasting Service Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval.	100% 49%	Automatic
BROADCASTING CONTENT SERVICES 1. Terrestrial Broadcasting FM (FM Radio), subject to such terms and conditions, as specified from time to time, by Ministry of Information & Broadcasting, for grant of permission for setting up of FM Radio stations 2. Up-linking of ‘News & Current Affairs’ TV Channels 3. Uploading/Streaming of News & Current Affairs through Digital Media 4. Up-linking of Non- ‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels	49% 49% 26% 100%	Government           Government Government Automatic
PRINT MEDIA 1. Publishing of newspaper and periodicals dealing with news and current affairs 2. Publication of Indian editions of foreign magazines dealing with news and current affairs	26%	Government
AIRPORTS 1. Greenfield projects 2. Existing projects	100%	Automatic
AIR TRANSPORT SERVICES 1. Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and Regional Air Transport Service 2. Non-Scheduled Air Transport Services 3. Helicopter services/seaplane services requiring DGCA approval	100% 100% 100%	Automatic up to 49% (Automatic up to 100% for NRIs) Government route beyond 49% Automatic Automatic
OTHER SERVICES UNDER CIVIL AVIATION SECTOR 1. Ground Handling Services subject to sectoral regulations and security clearance 2. Maintenance and Repair organizations; flying training institutes; and technical training institutions.	100%	Automatic
CONSTRUCTION DEVELOPMENT: TOWNSHIPS, HOUSING, BUILT-UP INFRASTRUCTURE Construction-development projects (which would include development of townships, construction of residential/commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, townships)	100%	Automatic
INDUSTRIAL PARKS Industrial Parks -new and existing	100%	Automatic
SATELLITES- ESTABLISHMENT AND OPERATION Satellites- establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO	100%	Government
PRIVATE SECURITY AGENCIES	74%	Automatic up to 49% Government route beyond 49% and up to 74%
TELECOM SERVICES (including Telecom Infrastructure Providers Category-I)	100%	Automatic up to 49% Government route beyond 49%
TRADING Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs)	100%	Automatic
E-commerce activities	100%	Automatic
Single Brand Product Retail Trading	100%	Automatic
Multi Brand Retail Trading	51%	Government
Duty Free Shops	100%	Automatic
RAILWAY INFRASTRUCTURE	100%	Automatic
FINANCIAL SERVICES Foreign investment in other financial services, other than those indicated below, would require prior approval of the Government.
ASSET RECONSTRUCTION COMPANIES	100%	Automatic
BANKING- PRIVATE SECTOR	74%	Automatic up to 49% Government route beyond 49% and up to 74%
BANKING- PUBLIC SECTOR	20%	Government
Credit Information Companies	100%	Automatic
Infrastructure Company in The Securities Market	49%	Automatic
Insurance Company	49%	Automatic
Intermediaries or Insurance Intermediaries	100%	Automatic
Pension Sector	49%	Automatic
Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010.	49%	Automatic
White Label ATM Operations	100%	Automatic
PHARMACEUTICALS 1. Greenfield 2. Brownfield	100% 100%	Automatic Automatic up to 74% Government route beyond 74%

REPORTING REQUIREMENTS:

After receipt of Money, Investee Indian Company has to call Board Meeting and allot securities as per provisions of Companies Act, 2013. Investee Indian Company has to file e-form PAS-3 with the ROC within 30 days of Allotment.

Investee Indian Company has to additionally file form FC-GPR with the RBI in firms portal of RBI.

FCGPR (Foreign Currency-Gross Provisional Return) Form – An Indian company issuing equity instruments to a person resident outside India should file FCGPR Form, within 30 days from the date of issuance of the equity instruments.

FLA Return

Annual return on Foreign Liabilities and Assets (FLA) has been notified under FEMA 1999 and it is required to be submitted by all the Indian resident companies which have received FDI and/ or made overseas investment in any of the previous year(s), including the current year.

Companies exempted from filing FLA return

1. Companies that have only issued shares on a non-repatriable basis to the non-residents of India are exempt from filing FLA return.

2. Companies that do not have any outstanding balance of FDI or ODI by the end of the financial year are exempt from filing FLA return.

3. Companies that have only received share application money and have not received any FDI or not made any ODI, are exempt from filing FLA return.

If the company’s accounts are not audited before the due date of submission, i.e. July 15 (or extended date), then the FLA Return should be submitted based on unaudited (provisional) account. Once the accounts get audited and there are revisions from the provisional information submitted by the company, they are supposed to submit the revised FLA return based on audited accounts by end – September i.e. 30th September.