Foreign Direct investment in India is governed by Department of Industrial Policy and Promotion under Ministry of commerce and Industry. The government of India has put in place a policy framework on foreign direct investment. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year.

“Foreign investment is allowed under automatic route without prior government approval of Reserve Bank of India in all sectors as may be specified under regulation 16 of FEMA 20(R).”

Foreign Investment in India is permitted under two routes-

  1. Automatic routes –Foreign investment is allowed under automatic route without prior government approval of Reserve Bank of India in all sectors as may be specified under regulation 16 of FEMA 20(R).
  2. Government route: Certain Activities /sectors require prior approval from government before investment is made in those sectors.

Investment by non-residents can be permitted in the capital of resident entity in certain sectors to the extent of  percentage of total capital investment  as many be specified in the extant  FDI policy

ELIGIBLE INSTRUMENTS FOR FDI

  1. Equity Shares
  2. Share Warrants
  3. Compulsory Convertible Debentures
  4. Compulsory Convertible Prefernce Shares

PROHIBITED SECTORS

To safeguard the interest of nation and economy government has prohibited certain sectors .

Unless otherwise specifically stated in the Act or the rules or regulations framed thereunder, investment by a person resident outside India is prohibited in:

(1) Lottery Business including Government/ private lottery, online lotteries

(2) Gambling and betting including casinos

(3) Chit funds.

Explanation: The Registrar of Chits or an officer authorised by the state government in this behalf, may, in consultation with the State Government concerned, permit any chit fund to accept subscription from Non-resident Indians and Overseas Citizens of India who shall be eligible to subscribe, through banking channel and on non- repatriation basis, to such chit funds, without limit subject to the conditions stipulated by the Reserve Bank of India from time to time

(4) Nidhi company

(5) Trading in Transferable Development Rights (TDRs)

(6) Real Estate Business or Construction of Farm Houses.

Explanation: For the purpose of this regulation, “real estate business” shall not include development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.

(7) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

(8) Activities/ sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations

(9) Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

REPORTING FOR FOREIGN DIRECT INVESTMENTS

Any Indian company which has received foreign direct investment shall report the issue of such shares to the Reserve bank of India under whose jurisdiction registered office of the company is situated.

The said reporting shall be made as per FEMA 20 (R) within 30 days of issue of shares in form FC GPR along with the prescribed attachments on FIRMS-RBI, thereafter the company shall be liable to pay  late submission fees  for the same.