Over the years the investment climate in India has changed significantly, thanks to the new and better government reforms and liberalism. The most significant change perhaps is the opening up of the economy since 1991 and changes made in the FDI norms. This has, in turn, paved the path for FDI in India across all sectors of the Indian economy.
Not surprisingly, India today ranks on the top position in the global Greenfield FDI ranking. The fact that the country has received more than $ 60.1 billion in Foreign Direct Investment in the financial year 2016 -2017 has helped it to be a major part of the top 100 clubs on EoDB or Ease of Doing Business.
There are typically three specific categories in which one can make foreign investment in India. The first category allows 100% FDI through the automatic route just as it is allowed through the government route in the second category. The third category includes both governments as well as the automatic route that also allows 100% FDI.
Automatic and government route
There are two specific routes in which one can make foreign investment in India, namely the automatic and the government route. The primary difference between the two is in the need for approval.
- As per the automatic route, any non-resident investor or any Indian company does not need the approval from Indian government to make an investment of any amount.
- On the other hand in the government route, all investors need to obtain the approval of the government of India prior to making the investment.
The proposal for approval for foreign investment under the government route is usually considered and issued by the Administrative Ministry or the respective department.
You can come to know about all relevant info, clarifications, detailed definitions, exceptions and requirements to obtain such an approval by referring to the Consolidated FDI Policy which has come in effect since August 28, 2017. You may also refer to the Amendment to FDI policy made in January 2018 as well for that matter.
However, there are a few things you need to note here such as:
- All information pertaining to the specific sectors in which you want to invest must be in line with the existing consolidated foreign direct investment policy as issued and amended from time to time by the DPIIT and
- There are specific sectors or activities that may not be allowed to receive 100% FDI on the automatic route.
However, all FDI proposals are subject to the laws and regulations framed and applicable along with the compliance with the security requirements and all other conditionality.
Few prohibited sectors
There are a few prohibited sectors wherein foreign direct investment is not allowed. These specific sectors of the Indian economy include:
- Any lottery business including private, government and online lotteries
- Any gambling, betting, and casinos
- Any chit funds
- Any real estate business
- Any Trading in Transferable Development Rights or TDR
- Any construction of farm houses and
- Any company involved in manufacturing of cigars, cheroots, cigarettes, cigarillos made from tobacco or its substitutes.
One cannot make any foreign investment in Indian company that is not open to any sort of private sector investments. These specific types of industries involve railway operations, atomic energy, and any other activities that are specifically mentioned under the consolidated foreign direct investment policy.
A to Z of permitted sectors
Therefore, while making an investment you must know those specific industries wherein you are allowed to do so to prevent legal obligations and also loss in investment.
You can make 100% investment through either automatic or government route in companies such as:
- A’s: Agriculture, Animal Husbandry, Airport transport Services that are non-scheduled and under civil aviation sector, regional air transport services, auto components, asset reconstruction companies, and automobiles
- B’s: Broadcasting carriage and content services such as up-linking non- news and current affairs or down-linking of TV channels, and banking in private sector
- C’s: Cash & Carry wholesale trading, chemicals, coal and lignite, construction development and infrastructure, construction of hospitals, CIC or Credit Information companies, and core investment company
- D: Defense
- E’s: Electronic systems, and e-commerce activities
- F’s: Food processing and retail trading of food products
- G: Gems and jewelry manufacturing
- H: Brownfield healthcare
- I’s: Industrial parks whether it is new or existing, and infrastructure companies in the Securities Market
- L: Leather
- M’s: Manufacturing and medical devices, mining and exploration of metal and non-metal ores, mining and mineral separation of ores containing titanium, and multi-brand retail trading
- P’s: Pension, petroleum refining by PSUs, plantation, ports and shipping, power exchanges, and print media such as the publishing of periodicals, newspaper, or Indian editions of any foreign magazines that deals with news and current affairs
- R’s: Renewable energy, and roads and highways
- S’s: Satellite establishment and operation and single brand product retail trading
- T’s: Telecom services, thermal power, tourism and hospitality and
- W: White label ATM operation.
If you miss the O’s it includes all other services that are under Civil Aviation sector and involves maintenance and repair establishments; technical and flying training institutes as well as the ground handling services that are subject to security clearance or sectorial regulations.
You can make 49% FDI in airports, public sector banking, capital goods, duty free shops, insurance, IT, BPM, PNG, pharmaceuticals, scientific and technical print media, private security agencies, railway infrastructure and textiles and garments or 20% in biotechnology, 74% in Greenfield biotechnology and healthcare, 51% in other financial services.
