Updated on July 02, 2025 11:09:22 AM
Foreign investment in India is primarily governed by the FDI policy formulated by the secretariat for industrial assistance (SIA), the Department of Industrial policy and promotion (DIPP), the foreign investment promotion board (FIPB) and foreign exchange regulations, which are governed by the RBI. Under the present policies and regulations, foreign investment in India is possible through the following avenues:
In the wake of liberalization in 1980s and the introduction of the new industrial policy of 1991, substantial policy changes were made to pull down administrative barriers to allow for the free flow of foreign capital and international trade. The FDI regime has been progressively liberalized, largely by removing restrictions on foreign investment and simplifying procedures. As a result, among the emerging economies, India has one of the most liberal and transparent foreign investment regimes.
The government of India releases a compendium of FDI policy every six months. Foreign investment in India can be made either through the automatic route or the approval route.
Under the automatic route, no prior regulatory approval is required from either the RBI or FIPB. Under this route, investors are required to notify the concerned regional office of the RBI within 30 days of receiving investment money in India and to file the required documents and details of the shares allotted, with the same regional office, within 30 days of issuing such shares to the respective foreign investors.
FDI in business sectors not covered under the automatic route requires prior approval from the Government of India. Applications for foreign investments that need prior governmental approval are required to be submitted to the FIPB.
FDI under the automatic route is not permitted for the following sectors. Hence, prior approval of the FIPB is required.
FDI in the following sectors is prohibited completely:
The following documents are required to be uploaded along with the proposal.
Please note, this list is not exhaustive – other documents may be required based on specific cases.
FDI in an Indian company
This is subject to sectoral caps, pricing conditions and other conditions.
NRIs and PIOs can invest in the capital of the partnership firm or proprietary concern in India, on a non- repatriation basis, in accordance with the following conditions:
Restricted Sector: The firm or proprietary concern is not engaged in any agriculture/plantation, real estate or print media business.
Route for Inward Remittance: Any amount so invested it brought in by inward remittances or out of an NRE/FCNR (B)/ NRO account maintained with an authorized dealer (AD) or other authorized banks.
Remittance Outside India: Any amount so invested cannot be remitted outside India.
Prior approval of the RBI (NRIs and PIOs): NRIs and PIOs may, however, seek the prior approval of the RBI for investment in partnership firms or proprietary concern with an option to repatriate funds out of India and the RBI, in consultation with the, government will decide on each application based upon the merits of the specific case.
Prior approval of the RBI (Non-Resident): A non- resident other than an NRI or a PIO can apply and seek the approval of the RBI to invest in the capital of partnership firms/proprietary concerns and the RBI, in consultation with the government will decide on each application based upon the merits of the specific case.
Government/approval route or Automatic Route: Under the government/approval route, FDI is permitted in LLPs operating in business sector in which 100 percent FDI is allowed under the automatic route, subject to the condition that there are no FDI linked performance conditions.
Route for Inward Remittance: LLPs with FDI are not permitted to operate agriculture/plantation activity and a real estate or print media business.
Conversation of a company with FDI into a LLPs: Conversation of a company with FDI into a LLPs is allowed only if the above conditions are met and with prior approval of the FIPB.
FVCIs and FIIs are not allowed: FVCIs and FIIs are not allowed to invest in LLPs, and LLPs are not permitted to avail of external commercial borrowing (ECBs)
Permission only by cash consideration: Foreign investment in LLPs are permitted only as cash consideration received by inward remittances, through normal banking channels or by debit to NRE/FCNR accounts maintained by an ad or authorized bank, expect in the case of conversation of an existing company into an LLPs.
Downstream investment: An Indian company with FDI is permitted to make further downstream investments in an LLP if both the company and the LLP are operating in business sector in which 100 percent FDI is allowed under the automatic route, subject to the condition that there are no FDI linked performance conditions. However, LLPs with FDI are not permitted to make further downstream investment.
Indian companies can issue equity shares, fully compulsorily & mandatorily convertible debentures and fully compulsorily & mandatorily convertible preference shares, subject to the following:
Pricing guidance’s and valuation norms: Compliance with pricing guidance’s and valuation norms prescribed under the FEMA.
Price/Conversation formula: Determination of the price/conversation formula for convertible instruments upfront at the time of the issue
Price of convertible instruments: The price of convertible instruments at the time of conversation cannot be less than the fair value determined as per the FEMA guidance at the time of issue.
Put and call options: The RBI has recently specified amendments with respects to put and call options. It has clarified that shares or convertible debentures containing an optionality clause but without an option to exit at an assured price shall be eligible instruments.
Minimum lock-in: The instruments should be subject to a minimum lock in of 1 year or as prescribed, whichever is higher.
Exit in the case of a listed company: Exit in the case of a listed company is at the market price determined on the recognized stock exchange.
Exit in the case of an Unlisted company: Exit in the case of a listed company is at the market price determined on the recognized stock exchange.
Exit in the case ofpreference shares or debentures: In case of preference shares or debentures, exit is at a price worked out as per any internationally accepted pricing methodology at the time of exit, duly certified by a chartered accountant or SEBI registered merchant banker.
Issue of foreign currency convertible bond (FCCBs): An Indian company can also raise funds from abroad through the issue of foreign currency convertible bond (FCCBs) and depository receipts in accordance with the relevant regulations and guidelines issued by the government of India.
Issue of NCPS or OCPS: Other type of instruments such as non-convertible or optionally convertible preference shares are treated as debt and therefore have to follow the ECBs regulations issued by the RBI.
Prior approval of the FIPB is also required in the following cases:
Foreign investment exceeding 24 percent: Foreign investment exceeding 24 percent of the equity capital of an industry undertaking that is not a micro or small scale enterprise (MSE) but manufactures items reserved exclusively for the MSE sectors.
Indian Co. engaged only in the activity of investing: Foreign investment exceeding 24 percent of the equity capital of an industry undertaking that is not a micro or small scale enterprise (MSE) but manufactures items reserved exclusively for the MSE sectors.
Indian Co. engaged only in the activity of investing: Foreign investment in an Indian company engaged only in the activity of investing in the capital of other Indian companies, regardless of the amount or extend of the foreign investment.
Non Operating Co. or any downstream investments: Infusion of foreign investment in an Indian company that does not have any operations or any downstream investments, regardless of the amount or extend of the infusion.
Application for investment: An application for investment under the approval route should be made to the FIPB/Ministry of Finance.This application can be made on plain paper or online by either the investment company or by the foreign investor. It will however, be necessary to provide the full details of the proposal to the FIPB.
At Professional Utilities, we leverage our industry knowledge and expertise to help businesses navigate complex regulations, minimize risks, and optimize operations for maximum efficiency and profitability.
Yes. Anyone can start a company in India, by complying with the provisions of the Companies Act and approval from Reserve Bank of India as necessary.
A company outside India can form a wholly owned (100%) subsidiary in India. There has to be one local Indian Resident Director.
Foreign Companies can set up a company in India as its subsidiary.
For all practical purposes, the branch will be treated as local company and will have to comply with all local filing and compliances
All local laws will be applicable to foreign Companies having office in India / Indian subsidiaries as applicable to any Indian company
For any company other than ‘Non Banking Financial Company’ an amount of minimum of INR 1 lakh in the form of share capital is required
Yes. Mere setting up of a company (Other than NBFC or negative list) is a straightforward process and not time consuming
Based on the area of work/ activities and approvals required, the minimum period will be 4 weeks is required. It may take upto maximum 24 weeks.
Yes, any company can have its offices in any part of India by complying all the local rules as applicable
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