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, the 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. All other cases where the automatic route is not applicable require prior specific approval from the Government of India.

Automatic Route

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

• All proposal that require an industrial license which includes:

(a) Items requiring an Industrial License under the Industries (Development & Regulation)      Act, 1951.

(b) Foreign investment being more than 24% (Twenty Four Percent) in the equity capital of      units manufacturing items reserved for small scale industries, and

(c) All items which require an industrial license in terms of the New Industrial Policy, 1991      notified by the Government of India.

• All proposals in which the Foreign Collaborator has a previous venture/ tie up in India (subject to certain exceptions-please check with us on case to case basis).
• All proposals relating to the acquisition of shares in an existing Indian Company in favour of a Foreign / NRI / OCB Investor.
• All proposals following outside notified sectoral policy / Caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board (FIPB) and not to avail of the automatic rule.

Furthermore, the Reserve Bank of India has announced two lists namely List A and List B. They broadly cover the following activities:-

LIST A

i. Banking

ii. NBFC`s activities in Financial Services Sector

iii. Civil Aviation

iv. Petroleum including exploration/ refinery/ marketing

v. Housing & Real Estate Development sector for foreign investment, other than NRI's and OCB

vi. Venture Capital Fund & Venture Capital Company

vii. Investing companies in Infrastructure & Service Sector

viii. Atomic Energy & related projects

ix. Defence and strategic industries

x. Agriculture (including Plantation)

xi. Broadcasting

xii. Postal Services
 

LIST B

i. Telecommunications

ii. Housing & Real Estate

iii. Coal and Lignite

iv. Drugs & Pharmaceuticals

v. Hotel & Tourism

vi. Mining

vii. Advertising

viii. Films

All activities not covered by List A and List B are eligible for Foreign Direct Investment under the Automatic Route of the Reserve Bank of India upto 100% of the capital, subject to compliance of notified conditions.

With respect to Items in List A, approval from the Government of India would be required. List B prescribes the limits of Foreign Investment. Automatic Approval is available only upto the cap indicated in List B. Proposals beyond the cap require approval from the Government of India.