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Fundamentals of FDI in India and Sectoral caps

July 1, 2020     by Janvi Gupta

How long is COVID going to stay? Is it at all going to get over? Has any pandemic lived for ever? How do you foresee the future of any business after COVID, especially with cross border perspective? Well, you have your own understanding and wisdom to guide on all this. However, if at all you are thinking of investing in India, here is a very brief overview of the fundamentals on investing in India.

Query 1: How FDI could be routed in India?

There are two entry routes (for permitted sectors) for FDI in India which are discussed as under:

Query 2: How to proceed further if a foreign investor desires to bring FDI in India by forming a wholly owned subsidiary in India (holding 100% stake in it)?

Foreign investments in most of the sectors (more than 90 %) is under 100 percent automatic route. Once a company is incorporated in India, including a wholly owned subsidiary of a foreign Company, all are treated at par with domestic companies. All foreign investments are repatriable (net of applicable taxes).

A foreign investor could opt for incorporating a private limited company in India and thereby hold up to 100% stake in it.

Fundamentals for incorporating a private limited company

Query 3: How to know that particular FDI falls under Automatic Route or Government Approval Route?

The governing rules for FDI (Foreign Exchange Management (Non-debt Instruments) Rules, 2019) have tabled all the sectors with entry routes specified for each sector. Further, such rules also prescribe the sectoral caps for each sector i.e. the total foreign investment shall not exceed the sectoral or statutory cap.

Note: Not all sectors are permitted for FDI.

Query 4: What are the sectoral caps in the sectors where FDI is allowed?

The sectoral caps along with entry route to respective sectors are tabled below:

Note: The below table only provides a brief run through the various sectors and the same does not include any sub-categorises/ detailed sectoral conditions.

Sr. No Sector/Activity Sectoral Cap for Investment Entry Route
1. Agriculture and Animal Husbandry 100% Automatic
2. Plantation

Tea sector including tea plantations, Coffee plantations, Rubber plantations, Cardamom plantations, Palm oil tree plantations, Olive oil tree plantation

100% Automatic
3. Mining, Coal and Lignite 100% Automatic
Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities 100% Government
4. Petroleum and Natural Gas 100% Automatic
Petroleum refining by the Public Sector Undertakings (PSUs), without any disinvestment or dilution of domestic equity in the existing PSUs. 100%
Upto 49% Automatic Route
Beyond 49% Government Route
5. Manufacturing 100% Automatic
Trading, including through e-commerce in food products manufactured and/ or produced in India. Applications shall be processed in the Department of Industrial Policy and Promotion before being considered by the Government 100% Government
6. Defence 100%
Upto 49% Automatic Route
Beyond 49% Government Route
7. Broadcasting Carriage Services

  • Teleports (setting up of up-linking HUBs/ Teleports);
  • Direct to Home (DTH);
  • Cable Networks (Multi System Operators (MSOs) operating at National or State or District level and undertaking up-gradation of networks towards digitalization and addressability);

  • Mobile TV;
  • Head-end-in-the Sky Broadcasting Service (HITS)
  • Cable Networks (Other MSOs not undertaking up-gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)).

100% Automatic
Broadcasting Content Services

  • Terrestrial Broadcasting FM (FM Radio),
  • Up-Linking of ‘News & Current Affairs’ TV Channels
  • Up-linking of Non-‘News & Current Affairs’ TV Channels/ Downlinking of TV Channels

 

49%

 

49%

 

100%

 

Government

 

Government

 

Automatic

8. Print Media

  • Publishing of newspaper and periodicals dealing with news and current affairs
  • Publication of Indian editions of foreign magazines dealing with news and current affairs
26% Government
  • Publishing or printing of Scientific and Technical Magazine or specialty journals or periodicals
  • Publication of facsimile edition of foreign newspapers
100% Government
9. Civil Aviation

  • Airports /Air Transport Services
    • Greenfield projects;
    • Existing projects;
    • Non-Scheduled Air Transport Service;
    • Helicopter service or seaplane services.
  • Other Services under Civil Aviation sector
    • Ground Handling Services;
    • Maintenance and Repair organizations;
    • flying training institutes and technical training institutions.
100% Automatic
  • Air Transport Services
    • Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline
    • Regional Air Transport Service
100%
Upto 49% Automatic Route
Beyond 49% Government Route

 
Note: Automatic up to 100% for NRI’s and OCI’s

  • Other Services under Civil Aviation sector
    • Ground Handling Services subject to sectoral regulations and security clearance
    • Maintenance and Repair organizations; flying training institutes and technical training institutions
100% Automatic
10. Construction Development: Townships, Housing, Built-up infrastructure 100% Automatic
11. Industrial Parks 100% Automatic
12. Satellites – Establishment and operation 100% Government
13. Private Security Agencies 49% Government
14. Telecom services (including Telecom Infrastructure Providers Category-l) 100%
Upto 49% Automatic Route
Beyond 49% Government Route
15. Trading

  • Cash and Carry Wholesale Trading/ Wholesale Trading (including sourcing from MSEs)
  • E-Commerce only in B2B E-commerce activities
  • Market place model of e-commerce
100% Automatic
  • Single Brand Product Retail Trading
100%
Upto 49% Automatic Route
Beyond 49% Government Route
  • Multi Brand Retail Trading (MBRT)
51% Government
16. Duty Free Shops 100% Automatic
17. Pharmaceuticals

  • Greenfield
100% Automatic
  • Brownfield
100%
Upto 74% Automatic Route
Beyond 74% Government Route
18. Railway Infrastructure 100% Automatic
19. Financial Services   Government Route for services other than that mentioned in serial number “F” as stated in the table of (Foreign Exchange Management (Non-debt Instruments) Rules, 2019).

 
Query 5: Which are the sectors where FDI is not allowed in India or what are the prohibited sectors for foreign investment?

FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

  • Lottery Business including Government or private lottery, online lotteries, etc.
  • Gambling and Betting including casinos, etc. Foreign technology collaborations in any form including licensing for franchise, trademark, brand name, management contract is also prohibited.
  • Chit Funds
  • Nidhi Company
  • Real Estate business or construction of farm houses.
  • Trading in Transferable Development Rights (TDRs).
  • Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
  • Activities / sectors not open to private sector investment e.g Atomic energy and Railway Transportation

Query 6: How to take Government approval for FDI falling under Government Approval Route?

Proposals for foreign investment in sectors requiring Government approval are required to be filed online on the Foreign Investment Facilitation Portal.

Please refer our blog titled FDI: Government Approval Route.

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