Doing Business in India: FAQ

1. Why Destination India?

As a result of a burgeoning yearly growth, deep capital markets and loosened

foreign direct investment (FDI) laws, the Indian Economy has seen a paradigm
swing and is on a strong growth curve. India is one of the limited economies to have
battered the recent global monetary crisis and its gross domestic product (GDP) has
been rising and will carry on rising in excess of 8 per cent per year. Indias economy
has strong rudiments and is host to eminent global corporate giants that are leaders
in their respective fields. It ranks higher than several countries in key factors such as
market size and innovation. Indian markets have noteworthy potential and offer
prospects of high profitability and a favorable regulatory regime for investors. The
fast and steadily growing economy of India in majority of its sectors has made India
the apple of investors eye, for most prolific, lucrative, and secure foreign
investment. According to a current survey by the United Nations Conference on
Trade and Development (UNCTAD), India has conspicuously emerged out as the
second most popular and desirable terminus in the entire world, after China, for
vastly profitable foreign direct investment. In recent years, majority of the investors
in Indian business segments of infrastructure, telecommunication, information
technology, computer hardware and software, and hospitality services, have been
from countries like US, UK, Mauritius, Singapore, and many others.

2. What are the main sectors for FDI in India?

The Foreign Direct Investment in Indian business sectors, can simply be made in a
variety of ways, through the Governmental and Automatic Routes. Though Joint
Ventures are the most popular and preferred forms of making investment in Indian
industry, the most lucrative business sectors for FDI in India have been
Infrastructure (Power, Steel, Railways, etc.); Telecommunications; Hospitality sector;
Education; Retail; Real Estate; Retail sector, Petroleum and Petroleum Products;
Biotechnology; Alternative Energy, etc.

3. What laws govern entry of FDI in India?

There are two routes for FDI approvals:

 1. The Automatic route via Reserve Bank of India (RBI)
No prior approval is required for FDI under the Automatic Route. Only
information to the RBI within 30days of inward remittances or issue of shares to
Non Residents is required. RBI has prescribed a new form, Form FC-GPR
(instead of earlier FC-RBI) for reporting shares issued to the Foreign Investors
by an Indian company.
2. Foreign Investment Promotion Board route (FIPB route)
Foreign Investment proposed not covered under the Automatic Route are
considered for Governmental Approval on the recommendations of the Foreign
Investment Promotion Board (FIPB).

4. What are the FDI restrictions?

FDI up to 100% is allowed under the automatic route in all activities/sectors except
those sectors, which require prior approval of the Government: Sectors prohibited
for FDI

Activities/items that require an industrial license

Proposals in which the foreign collaborator has an existing financial/technical
collaboration in India in the same field
Proposals for acquisitions of shares in an existing Indian company in financial
service sector and where Securities and Exchange Board of India (substantial
acquisition of shares and takeovers) regulations, 1997 is attracted.
Proposals falling outside notified sectoral policy/ CAPS under sectors in which
FDI is not permitted.

Most of the sectors fall under the automatic route for FDI. In these sectors,
investment could be made without approval of the central government. The sectors
that are not in the automatic route, investment requires prior approval of the Central
Government. The approval in granted by Foreign Investment Promotion Board
(FIPB). In few sectors, FDI is not allowed.

5. Which are the sectors where FDI is not allowed in India, both under the
Automatic Route as well as under the Government Route?

FDI is prohibited under the Government Route as well as the Automatic Route in the
following sectors:

i) Retail Trading (except single brand product retailing)

ii) Atomic Energy
iii) Lottery Business
iv) Gambling and Betting
v) Business of Chit Fund
vi) Nidhi Company
vii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal
Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under
controlled conditions and services related to agro and allied sectors) and Plantations
activities (other than Tea Plantations) .
viii) Housing and Real Estate business (except development of townships,
construction of residential/commercial premises, roads or bridges to the extent
specified in Notification No. FEMA 136/2005-RB dated July 19, 2005).
ix) Trading in Transferable Development Rights (TDRs).
x ) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of
tobacco substitutes.

6. What are the considerations to be made by any Investor?

Several factors need to be considered in order the commence business activity in

India such as selection and formation of the appropriate corporate vessel, forming
Joint ventures, applicable compliances, setting up subsidiaries, tax planning, project
financing, etc. A foreign company can commence operations in India by
incorporating a company under the Companies Act, 1956 through a Joint Venture or
through Wholly Owned Subsidiaries. Foreign equity in such Indian companies can
be up to 100% depending on the requirements of the investor, subject to equity caps
in respect of the area of activities under the Foreign Direct Investment (FDI) policy.
Details of the FDI policy, sectoral equity caps & procedures can be obtained easily.
Foreign Companies can set up their operations in India by forming strategic
alliances with Indian partners. Joint Ventures may bring along advantages to the
foreign investor by way of established distribution and marketing set up of the Indian
partner, availability of financial resources of the Indian partners and established
contacts of the Indian partners.

Foreign companies can also set up wholly owned subsidiary in sectors where 100%
foreign direct investment is permitted under the FDI policy. However, Joint Ventures
are the most common and preferred forms of making investment in Indian industry.
At present, the most rewarding business sectors for FDI in India are, Infrastructure
(Power, Steel, Railways, etc.); Telecommunications; Hospitality sector; Education;
Retail; Real Estate; Retail sector, Petroleum and Petroleum Products;
Biotechnology; Alternative Energy, etc.

Other Useful Links

Foreign Investment Promotion Board

http://www.fipbindia.com/

India Opportunities
http://www.india-opportunities.es/informationtechnology.php?lang=ing

Reserve Bank of India

http://www.rbi.org.in/scripts/FAQView.aspx?Id=26
American Chamber of Commerce of India

http://www.usaindiachamber.org/index.shtml

India opens up retail and aviation sector to FDI

http://in.reuters.com/article/2012/09/14/india-economy-instantview-
idINL3E8KE3MB20120914