Foreign investment rules in India
Most sectors in India are open to 100% foreign ownership without asking anyone first. A few have limits or need government approval.
Two routes
- Automatic route: no prior approval needed; you invest and report to the RBI afterwards. Most manufacturing, IT, engineering, logistics and many services fall here.
- Government route: prior approval from the relevant ministry, through the National Single Window System. Applies to some sectors or above certain ownership levels.
Sectoral caps and conditions
Some sectors limit foreign ownership or attach conditions, for example parts of defence, insurance, telecom, media, multi-brand retail and some financial services. Caps and conditions are revised from time to time; check the current consolidated FDI policy and press notes from the Department for Promotion of Industry and Internal Trade.
Prohibited sectors
Foreign investment is not allowed in a small number of sectors, including lottery and gambling, chit funds, trading in transferable development rights, real estate business (as opposed to construction development), tobacco products, and certain activities reserved for the state.
Pricing and reporting
- Share issues to foreign investors must respect pricing guidelines.
- Inflows must come through banking channels.
- Investments are reported through the RBI's FIRMS portal within set deadlines.
- Annual returns on foreign liabilities and assets are required.
Our advice
- Classify your activity correctly; misclassification is a common problem.
- If you plan to expand into adjacent activities later, check those sectors too.
- Use advisers familiar with both FEMA (foreign exchange) rules and company law.
