Foreign Direct Investment (FDI) means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.

FDI means investment through capital instruments (equity shares, debentures, preference shares and share warrants) by a person resident outside India in an unlisted Indian company or in 10% or more of the post issue paid-up capital on a fully diluted basis of a listed Indian company.

FDI in India is regulated by the Foreign Exchange Management Act (FEMA) and the master circular/ directions issued by RBI from time to time.

Foreign Exchange Core Principles as a Concept Abstract

Recent important changes in FDI policy

1. Introduction of FIFP

The Foreign Investment Promotion Board (FIPB), which was the window for FDI approval under the Government route, has been abolished. The ‘Foreign Investment Facilitation Portal’ (FIFP), an administrative body to facilitate FDI applicants under approval route has been introduced.

  • FIFP is the new online single point interface of the Government of India for investors to facilitate Foreign Direct Investment.
  • The portal is being administered by DIPP.
  • This portal will continue to facilitate the single window clearance of applications which are through approval route.
  • Upon receipt of the FDI application, it shall be forwarded to the concerned ‘Competent Authority’ which shall process the application as per the ’Standard Operating Procedure (SOP)’.
  • The application shall be forwarded to the Reserve Bank of India (for comments from a foreign exchange law perspective) within 2 (two) days.
  • Proposals requiring security clearance (in sectors such as defence and telecommunication) shall also be forwarded to the Ministry of Home Affairs.

2. FDI in LLP

FDI is allowed in LLPs now.

An LLP, operating in sectors/activities where100% FDI is allowed under the automatic route (without FDI-linked performance conditions), is permitted to convert into a company.

Similarly, conversion of a company into an LLP is also now permitted under the automatic route, where FDI linked performance conditions are not there.

3. Start-up Companies

Concept of Start Up Companies has been included.  Start up Company’ is a private company incorporated under the Companies Act, 2013 and recognised as such in accordance with notification GSR 180(E) dated 17.2.2016 issued by DIPP and complies the conditions laid down by it.

Earlier reference to ‘entity’ included a private limited company, registered partnership firms and LLPs also.

Start ups can issue  ‘Convertible Notes’ to persons resident outside India,

Convertible notes (CN) is:

  • An instruments representing debt.
  • Repayable at the option of the holder, or-
  • Convertible into equity shares within 5 years from issue upon occurrence of specified events.
  • Automatic route, a Non-Resident may purchase CN for approx. INR 25 Lakh or more in a single tranche and the consideration shall be received by inward remittance through normal banking channels.
  • Start-ups engaged in sectors requiring government approval for FDI may issue CN only with government approval;
  • Non-Residents may acquire or transfer Convertible Notes from or to persons resident India or Non-Residents only in accordance with applicable pricing guidelines under the Indian foreign exchange regulations;
  • Start-ups issuing Convertible Notes must comply with reporting requirements prescribed by the Reserve Bank of India.

4. Start up in Manufacturing Sector

The Erstwhile FDI Policy, granted permission to an Indian manufacture to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without government approval.

As per earlier FDI policy, Indian Manufacturer’ was the owner of an Indian brand which manufactures in India at least 70% of its products in terms of value in house, and, sources at most 30% of its products from Indian manufacturers.

The New FDI Policy deletes the above provisions.

5. FDI in Broadcasting 

Under the earlier FDI Policy, FDI up to 49% under the automatic route was permitted in broadcasting carriages services and cable networks, beyond which government approval was required.

Now, 100% under automatic route is allowed.

6. FDI in Single Brand Retail Trading 

100% FDI under the automatic route for SBRT


  • For the initial five years, incremental sourcing by overseas companies, including their group companies for the specific brand will count towards the mandatory 30% local sourcing commitment.
  • The requirement of license agreement between brand owner and investor has been removed.
  • A Committee to be formed under the Chairmanship of Secretary, DIPP, with representatives from NITI Aayog concerned Administrative Ministry and independent technical expert(s) to examine the claim of applicants of the products being in the nature of “state-of-art” and “cutting-edge” technology, where local sourcing is not possible and give recommendations for such relaxation

7. FDI in investing Companies, NBFCs and CICs 

  • FDI in (i) investing companies not registered as (NBFCs) with the RBI and (ii) Core investment companies (CICs), both engaged in the activity of investing in the capital of other Indian entities should require prior Government approval.
  • FDI in NBFCs is under the 100% automatic route.

8. FDI in Air Transport Services

100% FDI allowed as follows: −

1. Automatic route up to 49%

2. Government route- beyond 49%

3. 100% FDI under automatic route for NRIs.

FDI in Air India Limited allowed under approval route, subject to the following conditions: −FDI not to exceed 49%, either directly or indirectly;

−Substantial ownership and effective control shall continue to be vested in Indian Nationals.

9. FDI in Retail Estates Broking  

A new clause inserted, which states that real estate broking services do not amount to real estate business and 100% foreign investment is permitted under the automatic route.

10. FDI in Power Exchange

  • Foreign Institutional Investor/ Foreign Portfolio Investor permitted to invest even under the primary route (erstwhile only permitted under secondary route) within the overall cap of 49% in power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010.

11. Issue of Shares other than Cash 

  • Swap of capital instruments (permitted under the existing regulation); 
  • Import of capital goods/ machinery/ equipment (excluding second-hand machinery);
  • Against pre-operative/ pre-incorporation expenses (including payments of rent etc.)

12. FDI for Pre Incorporation expenses 

  • A WOS set up in India, in a sector having 100% FDI allowed in the automatic route with no FDI linked conditionalities, may issue equity shares or preference shares or convertible debentures or warrants to the said non-resident entity against pre-incorporation/ pre-operative expenses incurred by the said non-resident entity up to a limit of five percent of its capital or USD 500,000 whichever is less, subject to the conditions laid down below.:
  • Within thirty days from the date of issue of equity shares or preference shares or convertible debentures or warrants but not later than one year from the date of incorporation or such time as Reserve Bank of India or Government of India permits, the Indian company shall report the transaction in the Form FC-GPR to the Reserve Bank.
  • The valuation of the security issued shall be as per the Regulations.

A certificate issued by the statutory auditor of the Indian company that the amount of pre-incorporation/pre-operative expenses against which securities have been issued has been utilized for the purpose for which it was received should be submitted with the FC-GPR form.

Explanation: Pre-incorporation/pre-operative expenses shall include amounts remitted to Investee Company’s account, to the investor’s account in India if it exists, to any consultant, attorney or to any other material/service provider for expenditure relating to incorporation or necessary for commencement of operations.

13. Joint audit of Investee Company

Where a person resident outside India (PROI) who has made foreign investment, specifies a particular auditor/ audit firm with an international network, then the audit of the Indian investee company shall be undertaken by two or more auditors not forming part of the same network.

14. Establishment of offices in India

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of Reserve Bank of India is not required in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.

 15. Deferment of consideration 

  • Deferment of purchase consideration up to 25% of the total consideration, in transactions involving share transfers between residents and non-residents, within a period of 18 months from the date of transfer agreement.
  • Alternatively, the buyer and seller may enter into an escrow arrangement for an amount not more than 25% of the total consideration for a period not exceeding 18 months from the date of the transfer agreement.
  • Prior to the amendment, any transfer of shares inter-se residents and non-residents for deferred consideration would have triggered RBI approval.

 16. Reporting of DSI

  • Earlier downstream investments by eligible Indian entities/LLPs were required to be notified to SIA, DIPP and FIPB within 30 days of such investment.
  • With the abolishment of FIPB and formation of Foreign Investment Facilitation Portal by DIPP, Policy 2017 mandates such an entity to notify RBI and Foreign Investment Facilitation Portal of its downstream investment in the form available at within 30 days of such investment.

17. Introduction of FI-RMS Portal for reporting

  • Introduction of Single Master Form (SMF)-
  • FIRM portal has two phases-

– Entity user registration

– Business user Registration

  • Combines the below reporting at one place-




– Convertible Notes

  • No resubmission, rejection and the period is counted afresh. So needs to be filed as soon as possible.
  • No advance reporting is required to be done now.
  • Late submission fee are now introduced on late submission of the reporting.

Disclaimer: This article has been prepared in good faith on the basis of information available on the date of publication without any independent verification. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.

(Author – Sonika Bharati, FCS, LLB, is a Company Secretary in Practice from Delhi and can be contacted at

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February 2024