FDI ENTRY ROUTES INTO INDIA

Basically, there are two routes for FDI in India. There is the Automatic Route, where no
approval or authority is required by the private foreign investor. He can invest in any company it
wishes with no need for government approval.

And then there is the Government Route. In this route, there is no investment without the prior
approval of the Government of India.

SECTOR SPECIFIC CONDITION FOR FDI

PHARMACEUTICALS (BROWNFIELD) :

Main condition:

Brownfield

Other condition:

(i) ‘Non-compete’ clause would not be allowed in automatic or government approval route
except in special circumstances with the approval of the Government.

(ii) Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of
granting approval.

(iii) FDI in brownfield pharmaceuticals, under both automatic and government approval routes,
is further subject to compliance of following conditions:

(a) The production level of National List of Essential Medicines (NLEM) drugs and/or
consumables and their supply to the domestic market at the time of induction of FDI, being
maintained over the next five years at an absolute quantitative level. The benchmark for this
level would be decided with reference to the level of production of NLEM drugs and/or
consumables in the three financial years, immediately preceding the year of induction of
FDI. Of these, the highest level of production in any of these three years would be taken as the
level.

(b) R&D expenses being maintained in value terms for 5 years at an absolute quantitative level at
the time of induction of FDI. The benchmark for this level would be another article with
reference to the highest level of R&D expenses which has been incurred in any of the three
financial years immediately preceding the year of induction of FDI.

(c) The administrative Ministry will above-mentioned complete information pertaining to the
transfer of technology, if any, along with induction of foreign investment into the investee
company.
(d) The administrative Ministry (s) i.e. Ministry of Health and Family Welfare, Department of
Pharmaceuticals or any other regulatory Agency/Development as notified by Central
Government from time to time, will monitor the compliance of conditionalities.

Pharmaceuticals (Greenfield)

Main condition:

Greenfield

Other condition: Nil

FMCG

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing and
single-brand retail and 51 per cent in multi-brand retail

AUTOMOBILES : 100% FDI

Main condition:

Subject to the provisions of the FDI policy, foreign investment in ‘manufacturing’ sector is
under automatic route. Further, a manufacturer is permitted to sell its products manufactured in
India through wholesale and/or retail, including through e-commerce, without Government
approval.

AVIATION :

Main condition:

Maintenance and Repair organizations; flying training institutes; and technical training
institutions.

Other condition:

(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-
Scheduled Air Transport Services, helicopter and seaplane services.

(b) Foreign airlines are allowed to participate in the equity of companies operating Cargo
airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above.

(c) Foreign airlines are also allowed to invest in the capital of Indian companies, operating
scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up
capital. Such investment would be subject to the following conditions:

(i) It would be made under the Government approval route.

(ii) The 49% limit will subsume FDI and FII/FPI investment.

(iii) The investments so made would need to comply with the relevant regulations of SEBI, such
as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/Substantial Acquisition
of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations.

(iv) A Scheduled Operator’s Permit can be granted only to a company:

iv.a) that is registered and has its principal place of business within India;

iv.b) the Chairman and at least two-thirds of the Directors of which are citizens of India.

TELECOM :

FDI in the telecom sector was initially allowed at 74%. It was subject to the condition that
Companies bringing in FDI shall obtain necessary license from the Telecom Regulatory
Authority of India (TRAI) [1] for undertaking telecom activities.

Main condition:

All telecom services including Telecom Infrastructure Providers Category-I, viz. Basic, Cellular,
United Access Services, Unified License (Access Services), Unified License,
National/International Long Distance, Commercial V-Sat, Public Mobile Radio Trunked
Services (PMRTS), Global Mobile Personal Communications Services (GMPCS), All types of
ISP licenses, Voice Mail/Audiotex/UMS, Resale of IPLC, Mobile Number Portability Services,
Infrastructure Provider Category-I (providing dark fibre, right of way, duct space, tower) except
Other Service Providers

Other condition:

FDI in Telecom sector is subject to observance of licensing and security conditions by licensee
as well as investors as notified by the Department of Telecommunications (DoT) from time to
time, except “Other Service Providers”, which are allowed 100% FDI on the automatic route.

E-COMMERCE :

As per the FDI policy, contained in the 'Consolidated FDI Policy Circular 2015' (FDI Policy) as
amended from time to time, FDI up to 100% under automatic route is permitted in Business to Business
(B2B) e-commerce. ... An Indian manufacturer is permitted to sell its own single brand products through
e-commerce retail.

Main condition:

“Subject to provisions of FDI Policy, e-commerce entities would engage only in Business to
Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.

Definitions:
i) E-commerce- E-commerce means buying and selling of goods and services including digital
products over digital & electronic network.

ii) E-commerce entity- E-commerce entity means a company incorporated under the Companies
Act 1956 or the Companies Act 2013 or a foreign company covered under section 2
(42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section2

(v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting
the e-commerce business.

Guidelines for Foreign Direct Investment on e-commerce sector

i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.

ii) FDI is not permitted in inventory based model of e-commerce.”

MEDIA :

Main condition:

1. Publication of facsimile edition of foreign newspapers

2. Publishing/printing of scientific and technical magazines/specialty journals/ periodicals,

subject to compliance with the legal framework as applicable and guidelines issued in this regard
from time to time by Ministry of Information and Broadcasting

Other condition:

(a) FDI should be made by the owner of the original foreign newspapers whose facsimile edition
is proposed to be brought out in India.

(b) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity
incorporated or registered in India under the provisions of the Companies Act, as applicable.

BANKING :

At present, FDI of up to 49 percent is allowed in private banks without the permission of the
government, and upto 74 percent can be invested with the government's approval. ... Raising the
permissible limit for FDI in the banking sector could improve services and help meet minimum capital
requirements.

PRIVATE BANK
Main condition:

Banking- Private Sector

Other condition:

(1) This 74% limit will include investment under the Portfolio Investment Scheme (PIS) by FIIs/
FPIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to
include IPOs, Private placements, GDR /ADRs and acquisition of shares from existing
shareholders.

(2) The aggregate foreign investment in a private bank from all sources will be allowed up to a
maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26 per cent of
the paid up capital will have to be held by residents, except in regard to a wholly-owned
subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existing private sector banks
also.

PUBLIC BANK

Main condition:

Banking- Public Sector subject to Banking Companies (Acquisition & Transfer of Undertakings)
Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate
Banks.

Other condition: Nil

INSURANCE:

FDI in insurance sector is restricted to 49 per cent. However, the government allows 100 per cent
foreign investment for other financial intermediaries. ADVERTISEMENT. Industry experts are of the
opinion that the insurance sector is being impacted due to weak distribution networks.

Main condition:

(i) Insurance Company

(ii) Insurance Brokers
(iii) Third Party Administrators
(iv) Surveyors and Loss Assessors
(v) Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999)

Other condition:
(a) No Indian Insurance company shall allow the aggregate holdings by way of total foreign
investment in its equity shares by foreign investors, including portfolio investors, to exceed
forty-nine percent of the paid up equity capital of such Indian Insurance company.

(b) The foreign investment up to forty-nine percent of the total paid-up equity of the Indian
Insurance Company shall be allowed on the automatic route subject to approval/verification by
the Insurance Regulatory and Development Authority of India.

(c) Foreign investment in this sector shall be subject to compliance with the provisions of the
Insurance Act, 1938 and the condition that Companies receiving FDI shall obtain necessary
license /approval from the Insurance Regulatory & Development Authority of India for
undertaking insurance and related activities.

(d) An Indian Insurance company shall ensure that its ownership and control remains at all times
in the hands of resident Indian entities as determined by Department of Financial Services/
Insurance Regulatory and Development Authority of India as per the rules/regulation issued by
them from time to time.

(f) Any increase in foreign investment in an Indian Insurance company shall be in accordance
with the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.

IT :

Main condition:

FDI is permitted up to 100% on the automatic route, subject to applicable laws/regulations;

security and other conditionalities.

PROHIBITED SECTORS UNDER THE FDI POLICY GUIDELINES IN INDIA

Lottery business, including Government/private lottery, online lotteries etc.

Gambling and betting , including casinos etc.
Chit funds
Nidhi Company
Trading in Transferable Development Rights (TDRs)
Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

prohibited for Lottery Business and Gambling and Betting activities. FDI policy guidelines in India
thus not only protect the interest of the Indian business but also takes care of the growth of the
business sector.
Legal Status of Lotteries in India

Lotteries in India are governed by the Lotteries Regulation Act, 1998, according to which the
states are allowed to conduct a lottery following 11 conditions. A few years ago, the Supreme
Court of India permitted all state governments to ban or allow lotteries accordingly and refused
to make the sale of lottery a fundamental right. This law however does not allow the sale of one
digit lottery.

As of 2019 India doesn’t have an all India ban but all states have banned lotteries except for the
13 states that include Kerala, Goa, Maharashtra, Madhya Pradesh, Punjab, West Bengal, Assam,
Arunachal Pradesh, Meghalaya, Manipur, Sikkim, Nagaland and Mizoram. Lotteries are very
popular in these states and the social activists are continuously trying to raise awareness about
how the people are getting addicted to gambling.

Is the Ban Effective?

As all bans, the bans on lotteries is also not very successful as most trade is carried out
underground by illegal means and thus the trade still continues but the government does not get
revenues. Some of the lotteries function online that give small prizes for single digit lotteries
daily and big prizes for weekly draws. In spite of being banned, lotteries have not disappeared
completely and are very popular for earning money illegally. The online version of lotteries does
not require the players to disclose their identities and thus they can participate anonymously and
avoid getting caught.

 Legalising gambling is simply wrong

The Law Commission of India has recommended ‘regulated gambling and betting’ in sports to
check fraud and money laundering. It claims that regulation would not only empower the
government to identify and prevent instances of gambling by minors and “problem-gamblers”
but also enable it to “effectively curb the menace of black-money generation through illegal
gambling”.

The report titled ‘Legal Framework: Gambling and Sports Betting Including in Cricket in India’
suggests a three-pronged strategy — reforming the existing gambling (lottery, horse racing)
market, regulating gambling and introducing stringent and overarching regulations.

It is recommended that only licensed operators should offer gambling/betting and the money
transactions should be linked through PAN and Aadhaar cards to ensure transparency and state
supervision.

Chit Funds – Chit (also called as chit, chit fund, chitty, committee, kuri etc.) means a transaction by
which a person enters into an agreement with a specified number of persons that every one of them shall
subscribe a certain sum of money by way of periodical installments over a definite period and that each
such subscriber shall, in his turn, as determined by lot or by auction, be entitled to the prize amount”. A
chit fund company is a company that manages, conducts, or supervises a chit scheme. As per the policy,
no FDI can happen in this scheme.

Nidhi Company – A nidhi company is a type of company in the Indian non-banking finance
sector, recognized under section 406 of the Companies Act, 2013. Their core business is
borrowing and lending money between their members. They are also known as Permanent Fund,
Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company

Trading in Transferable Development Rights (TDRs) – Transfer of Development Rights (TDR)

means making available certain amount of additional built up area in lieu of the area relinquished or
surrendered by the owner of the land, so that he can use extra built up area either himself or transfer it to
another in need of the extra built up area for an agreed sum of money. Prohibited because Transfer of
Development Rights programs enable landowners within valuable agricultural, natural and
cultural resource areas to be financially compensated for choosing not to develop some or all of
their lands. . These landowners are given an option under municipal zoning to legally sever the
“development rights” from their land and sell these rights to another landowner or a real estate
developer for use at another location. The land from which the development rights have been
severed is permanently protected through a conservation easement or other appropriate form of
restrictive covenant, and the development value of the land where the transferred development
rights are applied is enhanced by allowing for new or special uses, greater density or intensity, or
other regulatory flexibility that zoning without the TDR option would not have permitted.

Manufacturing of cigars, cheroots, cigarettes, of tobacco or of tobacco substitutes.