Consolidated FDI Policy (Effective from June 07, 2016)

Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India come with circular for consolidated policy of FDI. This consolidated policy effective from 7th June, 2016.

Consolidated FDI Policy Circular is a policy framework on Foreign Direct Investment, which consolidates all Press Notes/Press Releases/Clarifications/ Circulars issued by DIPP, which are in force. The first Circular was issued in March, 2010, which has been updated periodically. The last such Circular was released on 07.06.2016. ‘Consolidated FDI Policy Circular of 2016’ is the ninth edition of the series.

FDI Policy Circular, 2016 has been made simpler and investor friendly; and will serve as a ready reference for foreign investors on various provisions of the FDI policy.

Meaning of FDI: FDI means investment by below mentioned the capital of an Indian Company:-

  • Non- resident entity
  • Person resident outside India


Economic Growth: It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth.

It is also for “Make in India”

The clauses corresponding to the following Press Notes have been incorporated in the Consolidated FDI Policy Circular of 2016.

S. No. Press Note Issue
        i.              6 of 2015 Series Investment Limit for Cases involving FIPB/CCEA approval
     ii.              7 of 2015 Series Investment by NRIs, PIOs and OCIs
   iii.              8 of 2015 Series Introduction of Composite Caps
    iv.              9 of 2015 Series Partly Paid Shares and Warrants
      v.              11 of 2015 Series FDI in White Label ATM Operations
    vi.              12 of 2015 Series Review of FDI Policy on Various Sectors
 vii.              1 of 2016 Series Review of FDI Policy on Insurance Sector
viii.              2 of 2016 Series Review of FDI Policy on Pension Sector
    ix.              3 of 2016 Series Guidelines for Foreign Direct Investment (FDI) on E-commerce
      x.              4 of 2016 Series Review of FDI Policy on Asset Reconstruction Companies

Type of Securities Issued under FDI Policy:

  • Equity Shares: The equity shares issued in accordance with the provisions of the Companies Act, as applicable, shall include equity shares that have been partly paid
  • Preference Shares: Fully, compulsorily & mandatorily convertible preference shares Preference shares shall be required to be fully paid, and should be mandatorily and fully convertible.
  • Debenture: Fully, compulsorily & mandatorily convertible Debentures.

Debentures shall be required to be fully paid, and should be mandatorily and fully convertible.

  • Warrant: Fully, compulsorily & mandatorily convertible Warrant.

Further, ‘warrant’ includes Share Warrant issued by an Indian Company in accordance to provisions of the Companies Act, as applicable

I. Whether Company can issue Non-Convertible Preference Share or debenture to Foreign National.

No as per FDI Policy, Company can issue only Fully, compulsorily & mandatorily convertible Preference Share or Debenture. I Company issue non-convertible preference shares then it will be consider as Debt.

General Condition on FDI:

Eligible Investors:

Eligible Investor

I. A [1]non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

  • Citizen of Bangladesh:

A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.

  • Citizen of Pakistan:
  • A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route.
  • Restricted sectors/activities: other than defence, space and atomic energy and sectors/activities prohibited for foreign investment.

II.  A Non Resident Indian (NRI):

  • Citizen of Nepal & Bhutan: NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian Companies on repatriation basis.
  • Condition: The amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

III. A Overseas Corporate Body (OCBs): [2]OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities.


  • with the prior approval of Government of India if the investment is through Government route; and
  • with the prior approval of RBI if the investment is through Automatic route.

VI. Company/ Trust/ Partnership:

A Company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.

V. Only registered FIIs/FPIs and NRIs:

Only registered FIIs/FPIs and NRIs as per Schedules 2,2A and 3 respectively of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can invest/trade through a registered broker in the capital of Indian Companies on recognized Indian Stock Exchanges.

VI. National Pension Fund System:

A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA),


  • Such subscriptions are made through normal banking channels and
  • The person is eligible to invest as per the provisions of the PFRDA Act.
  • The annuity/ accumulated saving will be repatriable

VII. SEBI registered Foreign Venture Capital Investor (FVCI):

Automatic Route: A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute

  • up to 100% of the capital of an Indian company
  • Engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000,
  • Including startups irrespective of the sector in which it is engaged, under the automatic route.

**SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations

Investment in domestic venture capital fund: A SEBI registered FVCI can invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996 or a Category- I Alternative Investment Fund registered under the SEBI (Alternative Investment Fund) Regulations, 2012.


  • Such investments shall also be subject to the extant FEMA regulations and extant FDI policy including sectoral caps, etc.
  • The investment can be made in equities or equity linked instruments or debt instruments issued by the company (including start-ups and if a startup is organised as a partnership firm or an LLP, the investment can be made in the capital or through any profit-sharing arrangement) or units issued by a VCF or by a Category-I AIF
  • either through purchase by private arrangement either from the issuer of the security or from any other person holding the security or on a recognised stock exchange.

Domestic Asset Management Company: It may also set up a domestic asset management company to manage its investments.

VIII. Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI):

Portfolio Investment Scheme

Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) may in terms of Schedule 2 and 2A of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be, respectively Invest in the capital of an Indian company under the Portfolio Investment Scheme.


  • Which limits the individual holding of an FII/FPI below 10% of the capital of the company; and
  • The aggregate limit for FII/FPI investment to 24% of the capital of the Company.
  • Increase more than 24%: This aggregate limit of 24% can be increased to the Sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI
  • The aggregate FII/FPI investment, individually or in conjunction with other kinds of foreign investment, will not exceed Sectoral/statutory cap.

Reporting requirement of Company:

An Indian company which has issued shares to FIIs/FPIs under the FDI Policy for which the payment has been received directly into company’s account should report these figures separately under item no. 5 of Form FC-GPR.

Reporting Custodian Bank:

A daily statement in respect of all transactions (except derivative trade) has to be submitted by the custodian bank in soft copy in the prescribed format directly to RBI and also uploaded directly on the OFRS web site. (

Eligible investee entities:

Eligible Investee

I.  FDI in an Indian Company:

Indian companies can issue capital against FDI

II.  FDI in Partnership Firm/Proprietary Concern:

A. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the CAPITAL of a firm or a proprietary concern in India on non-repatriation basis :


  • Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks.
  • Restricted Activity: The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
  • Amount invested shall not be eligible for repatriation outside India

B. Investments with repatriation option:

  • NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option.
  • The application will be decided in consultation with the Government of India

C. Investment by non-residents other than NRIs/PIO:

  • Prior Approval of RBI: Person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India
  • Consultation with GOVT of India: The application will be decided in consultation with the Government of India.
  • Restricted Activity: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.


Restricted Activities for Investment by NRI or PIO:

In the Firm or Proprietorship engaged in:

  • Agriculture activity
  • Plantation Activity
  • Real Estate Business
  • Print Media

III. FDI in Trust:

FDI is not permitted in Trusts

Except: ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle’ can invest in the Trust.

IV. FDI in Limited Liability Partnerships (LLPs):

FDI in LLPs is permitted


  • Automatic Route:
    • FDI is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed, through the automatic route and
    • There are no FDI-linked performance conditions.
  • Down Stream Investment:
    • An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and
    • There are no FDI-linked performance conditions


Downstream investment only in LLP or Company which are working in the section in which are 100% FDI allowed.

  • FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008

V.  FDI in other Entities:

FDI in resident entities other than those mentioned above is not permitted.

VI. Investment Vehicle:


An entity being ‘investment vehicle’ registered and regulated under relevant regulations framed by SEBI or any other authority designated:-

For the purpose including: Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014, Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012 and notified under Schedule 11 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000

Is permitted to receive foreign investment from a person resident outside India (other than an individual who is citizen of or any other entity which is registered / incorporated in Pakistan or Bangladesh), including an Registered Foreign Portfolio Investor (RFPI) or a non-resident Indian (NRI).

Instruments of investments, issue/transfer of shares etc.

  • Types of instruments for investment and provisions relating to issue/ transfer of shares are given at Annexure 2 & Annexure 3 respectively.
  • Specific conditions of compliance for certain cases are given in Annexure-4.

Brief of Annexure 2:

  i. Type of issue of security as given at page No. 1

 ii. Optionality clauses are allowed in equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares under FDI scheme, subject to the following conditions

iii. Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are considered as debt.

iv. Acquisition of Warrants and Partly Paid Shares

Entry Routes for Investment:


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 Approval Route: Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB

Caps on Investments

Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy (will discuss in separate article).

Condition for Entity:

Entry Conditions

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 the Circular (will discussed separately).

Other Conditions:

The investment/investors are required to comply with all relevant

  • Sectoral Laws,
  • Regulations,
  • Rules,
  • Security Conditions,
  • and State/Local Laws/Regulations

Remittance, Reporting and Violation

The Government has provided elaborated scheme for remittance, reporting and violation of FDI policy. These are available at Annexure-6.

[1] Non-resident entity’ means a ‘person resident outside India’ as defined under as defined at Section 2(w) of FEMA, 1999.

[2] OCBs have been derecognized as a class of investors in India with effect from September 16, 2003.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written.

CS Divesh Goyal(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at [email protected])

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