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Doing Business in India - An Overview

Foreign Direct Investment and Sectoral Caps

India has removed the hurdles for Foreign Direct Investment (FDI) and a foreign entrepreneur can do business in almost all sectors.

Foreign equity participation under the Automatic Route is allowed upto 100% in certain sectors. In certain other sectors, foreign investment is limited to a prescribed percentage ceiling. A Company eligible to issue shares under the Automatic Route can receive foreign inward remittance and issue shares without obtaining any prior approval subject to certain reporting requirements. In all other cases where the automatic route is not applicable, prior specific approval from the Government of India should necessarily be obtained.

Automatic Route

All items/activities except the following fall under the Automatic Route for FDI/Non-Resident Indians (NRI)/Overseas Corporate Bodies (OCB), with investment units upto 100%.

The automatic route, as the title suggests, allows FDI up to the limits specified under schedule 1 of regulation 5 of the FDI scheme, without prior government approval. Any investment beyond the limits prescribed in the said schedule would necessarily require prior government approval and falls under the approval route.

The schedule with the requisite details is provided below in order to proffer a bird’s eye view of the said scheme and the restrictions therein with respect to FDI.

Annexure A provides for activities that are not available and are prohibited for FDI.

Annexure A

A –Activities not available for FDI.

1) Petroleum sector (except for private sector oil refining)/Natural gas/ LNG pipelines

2) Investing companies in infrastructure & service sector

3) Defense and strategic industries

4) Atomic minerals

5) Print media

6) Broadcasting

7) Postal service

8) Courier services

9) Establishment and operation of satellite

10) Development of integrated township

11) Tea sector

12) Asset reconstruction companies.

B – List of activities prohibited for FDI.

Sectoral cap - 100% – Non-Banking Financial Companies, petroleum refining (private sector), petroleum product marketing, oil exploration in both small and medium sized fields, petroleum product pipelines, construction development projects (including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure and townships. However, FDI is not allowed in real estate business), power, drugs & pharmaceuticals, roads and highways, ports and harbours, hotel & tourism, advertising and films, mass rapid transport system, pollution control and management, special economic zones, any other sector/activity (if not included in annexure A), township, housing, built-up infrastructure and construction development project, Air Transport Service (domestic airlines) for Non Resident Indians. This Sectoral cap also includes Agriculture (including floriculture, horticulture, development of seed, animal husbandry, pisiculture, aqua-culture and cultivation of vegetables and mushrooms under controlled conditions and services related to agro and allied sectors) and Tea Sector, including tea plantation. However, besides the above, FDI is not allowed in any other agricultural sector/activity and any other plantation sector/activity.

Sectoral cap - 74% - Private Sector Banking, Telecommunication, mining, airports

Sectoral cap - 26% - Insurance

Sectoral cap - 74% to 100% - Coal & lignite

Sectoral Cap - 51% - Trading

Sectoral Cap - 49% - Air Transport Service (domestic airlines)

Sectoral Cap is subject to SEBI Regulations - venture capital fund and Venture Capital Company

India - An attractive investment
destination

Foreign Direct Investment and
Sectoral Caps

Sectoral Caps in Infrastructure Sector

Environmental Clearances

Vehicles for doing business in India

Investment By Non-Resident Indians &
Overseas Corporate Bodies