Foreign Direct Investment (FDI) Policy Features

By Team Legal Helpline India, January 30, 2017

A brief write up on Foreign Direct Investment (FDI) Policy of the Government of India by our experts. All advisory, as well as compliance services such as the launching of offshore companies for FDI, incorporation, are provided by us.


Since 1991, Government of India has slowly allowed Foreign Direct Investment or FDI by constantly updating its Foreign Direct Investment (FDI) Policy Features from time to time. Now the Foreign Direct Investment (FDI) Policy Features of India are very transparent, predictable and easily comprehensible. India has started receiving good amount of foreign exchange under its Foreign Direct Investment (FDI) Policy Features and $223 Bn of foreign exchange was received under the FDI in India during 2014-18, mostly in the sectors of Services, Computer software & hardware, Telecommunications, Trading and Construction.

India received record FDI of $223 Bn during 2014-18. Sectors such as Services, Computer software & hardware, Telecommunications, Trading, and Construction attracted the highest FDI.

The FDI under routes is now allowed in all sectors, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling. The policy as announced by the Government of India aims to attract foreign capital and investment in India as India is a fast-growing economy with tremendous scope for investment in these sectors.



(A) FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as per levels indicated below:

i) Merchant banking
ii) Underwriting
iii) Portfolio Management Services
iv) Investment Advisory Services
v) Financial Consultancy
vi) Stock Broking
vii) Asset Management
viii) Venture Capital
ix) Custodial Services
x) Factoring
xi) Credit Reference Agencies
xii) Credit Rating Agencies
xiii) Leasing & Finance
xiv) Housing Finance
xv) FOREX Broking
xvi) Credit card business
xvii) Money Changing Business
xviii) Micro Credit
xix) Rural Credit

(B) Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% – US$ 0.5 million to be brought upfront
ii) For FDI above 51% and up to 75% – US $ 5 million to be brought upfront
iii) For FDI above 75% and up to 100% – US $ 50 million out of which the US $7.5 million to be brought up front and the balance in24 months.

(C) Minimum capitalization norms for non-fund based activities:

The minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted on- fund based NBFCs with foreign investment.

(D) Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50 million as at (b) (iii)above (without any restriction on some operating subsidiaries without bringing in additional capital).

(E) Joint Venture operating NBFC?s that have 75% or less than75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii) above.

(F) FDI in the NBFC sector is put on the automatic route subject to compliance with the guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard Insurance FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining the license from Insurance Regulatory &Development Authority (IRDA).


i) FDI up to 40% permitted subject to no direct or indirect equity participation by foreign airlines.
ii) 100% investment by NRIs/OCBs
iii) The automatic route is not available
iv) For Airports Up to 100% with FDI, beyond 74% requiring Government approval.


i) In basic, cellular, value-added services and global mobile personal communications by satellite, FDI is limited to 49% subject to licensing and security requirements and adherence by the companies (who are investing and the companies in which the investment is being made) to the license conditions for foreign equity cap and lock-in period for transfer and addition of equity and other license provisions.

ii) In ISPs with gateways, radio-paging, and end-to-end bandwidth, FDI is permitted up to 74% with FDI, beyond 49% requiring Government approval. These services would be subject to licensing and security requirements. No equity cap applies to manufacture activities.

iv) FDI up to 100% is allowed for the following activities in the telecom sector:
a. ISPs not providing gateways (both for satellite and submarine cables)
b. Infrastructure Providers are providing dark fiber (IP Category
c. Electronic Mail; and
d. Voice Mail

The above would be subject to the following conditions:

a. FDI up to 100% is allowed subject to the condition that such companies would divest 26% of their equity for the Indian public in 5 years if these companies are listed in other parts of the world.
b. The above services would be subject to licensing and security requirements, wherever required.
c. Proposals for FDI beyond 49% shall be considered by FIPB on the case to case basis.


a. Under the exploration policy, FDI up to 100% is allowed for small fields through competitive (other than Refining) bidding; up to 60% for unincorporated JV; and up to 51% for incorporated JV with a No Objection Certificate for medium size fields.
b. For petroleum products and the pipeline sector, FDI is permitted up to 51%.
c. FDI is permitted up to 74% in infrastructure related to the marketing and marketing of petroleum products.
d. 100% wholly-owned subsidiary(WOS) is permitted for the purpose of market study and formulation.
e. 100% wholly-owned subsidiary (WOS) is permitted for investment/Financing.
f. For actual trading and marketing, a minimum of 26% of Indian equity is required over five years. The automatic route is not available.


a. FDI is permitted up to 26% in the case of public sector units (PSUs) PSUs will hold 26% and balance (Refining) 48% by public. The automatic route is not available.
b. In the case of private Indian companies, FDI is permitted up to 100% under the automatic route.


No foreign investment is permitted in this sector except for the development of integrated townships and Real Estate settlements where FDI up to 100% is permitted with prior Government approval. NRIs/OCBs are allowed to invest in the following activities.
a. Development of serviced plots and construction of built-up residential premises.
b. Investment in a real state covering construction of residential and commercial premises including business centers and offices.
c. Development of townships.
d. City and regional level urban infrastructure facilities, including both roads and bridges.
e. Investment in the manufacture of building materials, which is also open to FDI.
f. Investment in participatory ventures in (a) to (e) above.
g. Investment in housing finance institutions, which is also open to FDI as an NBFC.


Government vides Press Note No. 4 (2001 series) permitted FDI up to 100% for the development of integrated townships, including housing, commercial premises, hotels, resorts, cities and regional levels urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials. The development of land and providing allied infrastructure will form an integrated part of the township development. 2. FDI in the development of integrated townships will be subject to the following guidelines:

i) The foreign company was intending to invest, shall be registered as an Indian Company under Companies Act 1956 and will henceforth be allowed to take up land assembly and its development as a part of Integrated Township Development. All such cases would be processed by FIPB on the recommendation of the Ministry of Urban Development & Poverty Alleviation and other concerned Ministries / Departments. Ministry of Urban Development & Poverty Alleviation will develop an exclusive cell to deal with such cases. 61

ii) The core business of the company seeking to make the investment should be integrated township development with a record of successful execution of such projects elsewhere.

iii) The minimum area to be developed by such a company should be 100 acres for which norms and standards are to be followed as per local bylaws/rules. In the absence of such bylaws/rules, a minimum of two thousand dwelling units for about ten thousand populations will need to be developed by the investor.

iv) The foreign investing company should achieve clear milestones once their proposal has been approved.

a) The minimum capitalization norm shall be US$ 10 million for a wholly-owned subsidiary and US$ 5 million for joint ventures with Indian partner/s. The funds would have to be brought in the upfront.

b) A minimum lock-in period of three years from completion of minimum capitalization shall apply before the repatriation of the original investment is permitted.c) A minimum of 50% of the integrated project development must be completed within a period of five years from the date of possession of the first piece of land. However, if the investor intends to exit earlier due to reasons beyond his control, it shall be decided by FIPB on a case-to-case basis.

v) Conditions regarding the use of land for commercial purposes, development charges, external development charges and other charges as laid down in Master Plan / Bylaws, preparation of layout and building plan, development of internal and peripheral development, development of other infrastructure facilities including the trunk services etc., will be the responsibility of the investor as per planning norms and standards on similar lines as those applicable to local investors. In the absence of such standards and norms, every State Government may decide their own conditions for which the Urban Development Plan Formulation and Implementation guidelines circulated by the Ministry of Urban Development & Poverty Alleviation may serve as a guiding principle.

vi) Land with an assembled area for peripheral services such as police stations, milk booths will be handed over free of cost to the Government / local authority/agency as the case may be.

vii) The Developer will retain the lands for community services such as (i) schools (ii) shopping complex (iii) community centers (iv) ration shop (v) hospital/dispensary. These services will be developed by the developer himself and shall be made operational before the houses are occupied.
viii) The developer, after properly developing playgrounds, park, will make it available to the local authorities free of cost.
ix) The developer will ensure the norms and standards as applicable under local laws/rules.
x) For companies investing in Special Economic Zones, Foreign Investment Promotion Board may accord exemption to any of the above-mentioned conditions on a case-to-case basis. This will, however, be an interim measure till guidelines are evolved in due course in a need-based manner


i. Private Indian companies setting up or operating power projects as well as coal or lignite mines for captive consumption are allowed FDI up to 100%
ii. 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
iii. FDI up to 74% is allowed for exploration or mining of coal or lignite for captive consumption.
iv. In all the above cases, FDI is allowed up to 50% under the automatic route subject to the condition that such investment shall not exceed 49% of the equity of a PSU.


Offshore Venture Capital Funds/Companies are allowed to invest in the domestic venture capital undertaking Fund (VCF) and as well as other companies through the automatic route, subject only to SEBI regulations and sector Venture Capital specific caps on FDI Company (VCC).


Trading is permitted under automatic route with FDI up to 51% provided it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house. However, under the FIPB route;
i. 100% FDI is permitted in the case of trading companies for the following activities:
? exports
? bulk imports with ex-port/ex-bonded warehouse sales? cash and carry wholesale trading? other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and not for third-party use or onward transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy;

a. Companies for providing after-sales services (that is not trading per se).
b. Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialized after-sales service.
d. Trading of items for the social sector.
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture provided such a test marketing facility will be for two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing.
i. FDI up to 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity for the Indian public in five years if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading.


In respect of the companies in infrastructure/service sector, where there is a prescribed cap for foreign in infrastructure/ investment, only the direct investment will be considered for the prescribed cap and foreign investment in service sector an investing company will not be set off against this cap provided the foreign direct investment in such investment company does not exceed 49%, and the management of the investing company is with the Indian owners. The automatic route is not available.


The following three activities are permitted to receive FDI/NRI/OCB investments through:
a. Mining and mineral separation.
b. Value addition per se to the products of (a) above.
c. Integrated activities (comprising of both (a) and (b) above).

The following FDI participation is permitted:

(i) Up to 74% in both pure value addition and integrated projects.

(ii.) For pure value addition projects as well as integrated projects with value addition to any intermediate stage, FDI is permitted up to 74% through joint venture companies with Central/State PSUs in which equity holding of at least one PSU is not less than 26%.

(iii.) In exceptional cases, FDI beyond 74% will be permitted subject to clearance of the Atomic Energy Commission before FIPB approval.


Foreign Direct Investment, including NRI/OCB investment, is permitted up to 26% with prior Government strategic industries approval subject to licensing and security requirements.

12. AGRICULTURE (INCLUDING PLANTATION): No FDI/NRI/OCB investment is permitted other than Tea sector, where FDI permitted up to 100% in the Tea sector, including tea plantations, with prior Government approval and subject to following conditions:

Prior State government approval required in case of any future land-use change.The above dispensation would apply to all fresh investments (FDI) made in this sector.


The following FDI participation in Indian entities publishing News Papers and Periodicals is permitted:

(a) FDI up to 74% in publishing scientific/technical and specialty magazines/periodicals/journals.

(b) FDI up to 26% in publishing News Papers and Periodicals dealing in News and Current Affairs subject to verification of antecedents of a foreign investor, keeping editorial and management control in the hands of resident Indians and ensuring against the dispersal of Indian equity. The detailed guidelines had been issued by the Ministry of Information and Broadcasting.


a) TV Software Production 100% foreign investment allowed subject to:

(i) All future laws on broadcasting and no claim of any privilege or protection by approval accorded, and

(ii) not undertaking any broadcasting from Indian soil without Government approval.

b) Setting up hardware facilities, such as uplinking, HUB, etc. Private companies incorporated in India with permissible FII/NRI/OCB/PIO equity within the limits (as in the case of telecom sector FDI limit up to 49% inclusive of both FDI and portfolio investment) to set up linking hub (teleports) for leasing or hiring out their facilities to broadcasters Footnote: As regards satellite broadcasting, all TV channels irrespective of management control to uplink from India provided they undertake to comply with the broadcast (program & advertising) code.

c) Cable Network Foreign investment allowed up to 49% (inclusive of both FDI and portfolio investment) of paid-up share capital. Companies with a minimum of 51% of paid-up share capital held by Indian citizens are eligible under the Cable Television Network Rules (1994) to provide cable TV services.

d) Direct-to-Home Company with a maximum of foreign equity including FDI/NRI/OCB/FII of 49% would be eligible to obtain DTH License. Within the foreign equity, the FDI component not to exceed 20%.

e) Terrestrial Broadcasting FM, The licensee, shall be a company registered in India under the Companies Act. All shareholding should be held by Indians except for the limited portfolio investment by FII/NRI/PIO/OCB subject to such ceiling as may be decided from time to time. The company shall have no direct investment by foreign entities, NRIs, and OCBs. As of now, the foreign investment is permissible to the extent of 20% portfolio investment.

f) Terrestrial TV No private operator is allowed in terrestrial TV transmission.

14. POWER:

Up to 100%, FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.


FDI up to 100% is permitted under the automatic route for manufacture of drugs and Pharmaceuticals provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell/tissue targeted formulations FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology, and specific cell/tissue targeted formulations will require prior Government approval.


FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads, Ports, and Harbours. Highways, vehicular bridges, toll roads, vehicular tunnels, Ports, and Harbours.


100% FDI is permissible in the sector on the automatic route. The term hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and catering and food facilities to tourists. Tourism-related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wildlife experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organizations For foreign technology agreements, automatic approval is granted under the following circumstances;

i. up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc.

ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and

iii. up to 10% of gross operating profit is payable for the management fee, including incentive fee.


i. For exploration and mining of diamonds and precious stones, FDI is allowed up to 74% under the automatic route.

ii. For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy, and processing FDI is allowed up to 100% under the automatic route.

iii. Press Note No. 18 (1998 series) dated 14.12.98 would not be applicable for setting up 100% owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area or the particular mineral.


FDI up to 100% is permitted in courier services with prior Government approval excluding distribution of letters, which is reserved exclusively for the state.


FDI up to 100% in both manufacturers of pollution control equipment and consultancy for integration and management of pollution control systems is permitted on the automatic route.


a) Advertising sector FDI up to 100% allowed on the automatic route.

b) Film sector (film production, exhibition, and distribution including related services/products) FDI up to 100% allowed on the automatic route with no entry-level condition.


FDI up to 100% is permitted on the automatic route in the mass rapid transport system in all metros Transit System including associated real estate development.


FDI up to 100% is permitted for the development of integrated townships including houses, commercial Development premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit system; and manufacture of building materials. Development of land and providing allied infrastructure will form an integral part of the township?s development. FDI in this sector would be permissible with prior Government approval.


FDI up to 74% is permitted with prior Government approval Operation of a satellite.


The government has reiterated the prohibition of foreign direct investment gambling & betting (FDI) / foreign technical collaboration (FTC) in any form in the lottery business, gambling, and betting sector.

We hope now you have understood Foreign Direct Investment(FDI) Policy Features.

Comment down if you have any queries.

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