Foreign Direct

Investment Policy in
India

An Introduction

Army Institute of Law | 9 March 2015

Index
• General Conditions on FDI

• Calculation of Foreign Investment

• Foreign Investment Promotion Board

• Prohibited Sectors

• Permitted Sectors

• Press Notes - 2014

General conditions on FDI
Who can invest in India
• Non - Residents
• Foreign Institutional Investors/Foreign Portfolio Investors
• QFIs
• SEBI registered Foreign Venture Capital Investors

Entities into which FDI can be made

• Indian companies
• Partnership firms/ Proprietary concerns
• Indian Venture Capital Undertakings (IVCUs)/Venture Capital
Funds (FDI in Trusts other than VCFs is not permitted)
• Limited Liability Partnerships*

Types of instruments
• Equity shares
• Fully, compulsorily and mandatorily convertible debentures
and preference shares
• Foreign Currency Convertible Bonds/ADRs and GDRs
General conditions on FDI
Caps on Investments
• Investments can be made by non-residents in the capital of a
resident entity only to the extent of the percentage of the total
capital as specified in the FDI Policy

Routes for investment

• Government Route

• Automatic Route
Calculation of Foreign Investment
• Investment by a non resident entity in a resident company is
treated as FDI

• Investment by resident entities could comprise of both resident

and non resident investment thus leading to indirect foreign
investment

• For the purposes of computation, foreign investment shall

include all types of investments i.e. FDI, FPI, QFI,NRIs,
ADRs, GDRs , FCCBs, convertible preference shares and
debentures

Direct Foreign Investment : All investment made directly by a

non-resident entity into an Indian company is counted as foreign
investment
Calculation of Foreign Investment
Indirect Foreign Investment:
• Foreign investment through an investing Indian company is not
considered for calculation of indirect foreign investment in case
the investing Indian company is ‘owned or controlled’ by
resident Indian Companies or individuals

• Where the investing Indian Company is ‘owned or controlled’

by non- residents, the entire investment by the investing
company into the subject Indian company is to be treated as
FDI

• As an exception to this rule, indirect foreign investment in only

100% owned subsidiaries of operating-cum- investment
companies is limited to foreign investment in the
investing/holding company

• Downstream Investments – Indirect foreign investment by one

Indian company into another Indian company by subscription
or acquisition*
Foreign Investment Promotion Board
The FIPB comprises of the :

• Secretary to Government, Department of Economic Affairs,

Ministry of Finance - Chairperson

• Secretary to Government, Department of Industrial Policy &

Promotion, Ministry of Commerce & Industry

• Secretary to Government, Department of Commerce, Ministry

of Commerce & Industry

• Secretary to Government, Economic Relations, Ministry of

External Affairs

• Secretary to Government, Ministry of Overseas Indian Affairs

Foreign Investment Promotion Board
(contd.)
Levels of approval under Government Route:

• Minister of Finance considers recommendations of the FIPB on

proposals with total foreign equity inflow of and below INR
1200 Crores

• Cabinet Committee on Economic Affairs (CCEA) reviews

recommendations of the FIPB on proposals with total foreign
equity inflow Above INR 1200 Crores

Cases which do not require fresh approval

• Entities earlier under government route but now under

automatic route

• Entities the activities of which had sectoral caps earlier and

have now been revised*
Prohibited Sectors
FDI is prohibited in the following sectors:

• Lottery business including government/private lottery, online

lotteries

• Gambling and betting including casinos etc.

• Chit funds

• Nidhi Company

• Trading in transferable development rights (TDRs)

• Real Estate Business 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 for e.g.

Atomic energy
Permitted Sectors
Some key sectors where FDI is permitted:
• Agriculture

• Pharmaceutical

• Banking

• E-commerce

• Single Brand Retail Trading

• Multi-Brand Retail Trading

• Insurance

• Defence

• Railways
Press Notes
• Press Note 3 of 2015 – Review of FDI Policy on Insurance
sector

• Press Note 2 of 2015 – Special Carve out for medical devices

in the Pharmaceutical Sector

• Press Note 10 of 2014 – Review of the FDI Policy in the

Construction Development sector

• Press Note 8 of 2014 – Policy for Private Investment in Rail

Infrastructure through domestic and Foreign Direct Investment

• Press note 7 of 2014 – Review of Policy on FDI in Defence

Sector