FDI Policies

in India
Team 4

Scope

Foreign Direct Investment : Definition

Key regulatory authorities

Procedure for entry : FDI

Entry Structures

Eligibility for Investment in India

Instruments of Investment in India

Sectors where FDI is not allowed

FDI Cap limit for different sectors

Merits and De-merits

Incentives

Definition

FDI means investment by non-resident entity/person

resident outside India in the capital of an Indian company
under Schedule 1 of Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident Outside
India) Regulations 2000 .

Foreign Investment in India is governed by the FDI policy

announced by the Government of India and the provision of
the Foreign Exchange Management Act (FEMA) 1999. This
notification has been amended from time to time.

Key regulatory authorities

The key Indian regulatory authorities in the context of Foreign
Direct Investment (FDI)

Foreign Investment and Promotion Board (FIPB), which

formulates foreign investment policy

Reserve Bank of India (RBI), Indias central bank, with the

primary responsibility of implementing and enforcing foreign
exchange regulations and government policy.

Procedure for entry

AUTOMATIC ROUTE (RBI):

FDI Policy permits FDI up to 100 % from

foreign/NRI investor without prior in most
of the sectors including the services sector
under automatic route. FDI in
sectors/activities under automatic route
does not require any prior approval either
by the Government or the RBI.

GOVERNMENT ROUTE
(FIPB):

By exception Approval of Foreign

Investment Promotion Board needed.
Decision generally comes within 3-6
months .

Entry Structures
INCORPORATING A
COMPANY IN INDIA

can be a private or public limited company. Both wholly owned & joint
ventures are allowed. Private limited company requires minimum of 2
shareholders.

LIMITED
LIABILITY
PARTNERSHIPS:

Allowed under the Government route in sectors which has 100% FDI
allowed under the automatic route and without any conditions.

SOLE
PROPRIETORSHIP
/PARTNERSHIP
FIRM

Under RBI approval. RBI decides the application in consultation with

Government of India.

EXTENSION OF
FOREIGN ENTITY

Liaison office, Branch office (BO) or Project Office (PO). These offices
can undertake only the activities specified by the RBI. Approvals are
granted under the Government and RBI route. Automatic route is
available to BO/PO meeting certain conditions.

OTHER
STRUCTURES

Foreign investment or contributions in other structures like not for profit

companies etc. are also subject to provisions of Foreign Contribution

Eligibility for Investment in India

Resident Outside
India (Except
Pakistan)

NRIs , Residents
in Nepal and
Bhutan

Overseas
Corporate Bodies
(De-recognized
with effect from
2003)

SECTORS WITH CAPS

Petroleum
Refining by PSU 49%

Satellites 74%

Teleports 74%

Private security
agencies
49%

FM Radio - 26%

Private sector
74%
Public Sector

Print Media - 26%

Commodity exchange
49%

SECTORS WITH CAPS

Power exchanges 49%

Insurance 26%

Defence 49%

Infrastructure companies
49%

TV channels(News) - 26%

Civil Aviation 74%

FDI not allowed in

Lottery Business including Government /private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Chit funds
Nidhi company-(borrowing from members and lending to members only).
Real Estate Business (other than construction development) or Construction
of Farm Houses
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of
tobacco substitutes
Activities / sectors not open to private sector investment
Atomic Energy and Railway Transport
Services like legal, book keeping, accounting & auditing.

Merits

Inflow of equipment and technology

Access to low cost resources for investor

Competition

Financial resources for expansion

De-Merits:

Entry of MNC supermarket and

hypermarket chains would
cause severe displacement of
small and unorganised
shopkeepers and traders,
monopolisation may happen

Such foreign companies invest

more in machinery and
intellectual property than in
wages of the local people

Shrink Job opportunities

INCENTIVES
CENTRAL GOVERNMENT INCENTIVES :

Investment allowance (additional depreciation) at the rate of 15 percent to manufacturing

companies that invest more than INR 1 billion in plant and machinery available till to 31.3.2015.

Incentives available to units set-up in SEZ, NIMZ etc. and EOUs.

Exports incentives like duty drawback, duty exemption/remission schemes, focus products &
market schemes etc.

Areas based incentives like unit set-up in north east region, Jammu & Kashmir, Himachal
Pradesh, Uttarakhand.

STATE GOVERNMENT INCENTIVES :

Each state government has its own incentive policy, which offers various types of incentives
based on the amount of investments, project location, employment generation, etc. The
incentives differ from stateto state and are generally laid down in each states industrial policy.

The broad categories of state incentives include: stamp duty exemption for land acquisition,
refund or exemption of value added tax, exemption from payment of electricity duty etc.

Thank you