Home > Trade & Commerce > FDI Policy and Procedures

» Policy on Foreign Direct Investment
» FDI Policy
» Procedure under automatic route
» Procedure under Government Approval
» Prohibited Sectors
» General permission of RBI under FEMA
» Industrial Licensing
» Procedure for obtaining an industrial license
» Small Scale Sector
» Locational restrictions
» Environmental Clearances
» Other approvals/clearances at State level

Policy on Foreign Direct Investment

India has among the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require prior approval of the Government:-

1. Sectors prohibited for FDI

2. Activities/items that require an industrial license

3. Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field.

4. Proposals for acquisitions of shares in an existing Indian company in financial service sector and where Securities and Exchange Board of India (substantial acquisition of shares and takeovers) regulations, 1997 is attracted.

5. All proposals falling outside notified sectoral policy/CAPS under sectors in which FDI is not permitted

Most of the sectors fall under the automatic route for FDI. In these sectors, investment could be made without approval of the central government. The sectors that are not in the automatic route, investment requires prior approval of the Central Government. The approval is granted by Foreign Investment Promotion Board (FIPB). In few sectors, FDI is not allowed.

After the grant of approval for FDI by FIPB or for the sectors falling under automatic route, FDI could take place after taking necessary regulatory approvals form the state governments and local authorities for construction of building, water, environmental clearance, etc.

A general overview of India’s FDI policy is available at :

Manual for FDI brought out by the Department of Industrial Policy and Promotion provides details about FDI Policy and Procedures is available at:

All Press Notes of Department of Industrial Policy and Promotion that provides details about FDI policy are available at :

FAQ’s on India’s FDI Policy is available at :

FDI policy is also notified by Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) and could be seen at

Recent FDI Policy Measures include the following:

1. 100% FDI is permitted in the telecom sector
2. 100% FDI is permitted in single brand retail
3. FDI in commodity exchanges, stock exchanges and depositories, power exchanges, petroleum refining by PSU’s, courier services under the government route has now been brought under the automatic route.
4. The FDI limit has been raised to 74% in credit information and 100% in asset reconstrution companies.
5. The FDI limit of 26% in the defence sector is raised to 49% under the government approval route. Foreign Portfolio Investment up to 24% permitted under the automatic route. FDI beyond 49% is also allowed on case to case basis with the approval of the Cabinet Committee on Security.
6. The construction, operation and maintenance of specified activities of the Railway sector opened to 100% FDI under the automatic route.

(Source: dipp.nic.in)

Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional Office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares of foreign investors.

Procedure under Government approval

FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of Foreign Investment Promotion Board (FIPB). Proposals of foreign equity inflow of and below Rs. 1200 crore is taken into consideration at the FIPB level. For foreign equity inflow of more than Rs.1200 crore the recommendations of FIPB is placed for consideration of Cabinet Committee of Economic Affairs (CCEA).

Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance.

Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at:

For more details please see FIPB brochure available at:

Application for NRI/OCB investment and 100% EOU cases should be presented to Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy and Promotion. (IL-FC form available at:

Entry strategies for Foreign Investors:

Make in India

The Make in India program includes major new initiatives designed to facilitate investment, foster innovation, protect intellectual property, and build best in class manufacturing infrastructure.

For detailed information please visit: www.makeinindia.com

Invest India

With a view to facilitating foreign investment into the country, Invest India will assist investors in accessing relevant information on investment policies and procedures,tax rates, skill availability, facilities provided by states,investment opportunities in different sectors, list of consultants etc.In addition, it will help investors in setting up their businesses in India. For this purpose, Invest India will coordinate with state governments on availability of land for industrial use, help in creating an investor friendly environment in states and establish a network with investors and consulting organizations.

For more information, please visit: www.investindia.gov.in

Prohibited Sectors

Sectors where foreign direct investment is prohibited:

» Lottery Business including Government /private lottery, online lotteries, etc.
» Gambling and Betting including casinos etc.
» Chit funds
» Nidhi company-(borrowing from members and lending to members only).
» Trading in Transferable Development Rights (TDRs)
» Real Estate Business (other than construction development) or Construction of Farm Houses
» Manufacturing 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 Transport (** does not include : construction, operation and maintenance of (i) Suburban corridor projects through PPP, (ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii) Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and (x) Mass Rapid Transport Systems.)
» Services like legal, book keeping, accounting & auditing.

(Source: dipp.nic.in)

General permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do no require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.

The companies are required to notify the concerned Regional Office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.

Industrial Licensing

With progressive liberalization and deregulation of the economy, industrial license is required in very few cases. Industrial licenses are regulated under the Industries (Development and Regulation) Act 1951. At present, industrial license is required only for the following: -

1. Industries retained under compulsory licensing
2. Manufacture of items reserved for small scale sector by larger units
3. When the proposed location attracts locational restriction

The following industries require compulsory license: -

» Alcoholics drinks
» Cigarettes and tobacco products
» Electronic aerospace and defense equipment
» Explosives
»Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives.

Procedure for obtaining an Industrial license

Process of applying for Industrial license made online through eBiz portal.
Please visit: www.ebiz.gov.in

for more details.

Small Scale Sector

Ministry of Agro and Rural Industries and Ministry of Small Scale industries have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises. http://msme.gov.in/

Locational Restrictions

Industrial undertakings to be located within 25 kms of the standard urban area limit of 23 cities having a population of 1 million as per 1991 census require an industrial license. Industrial license even in these cases is not required if a unit is located in an area designated as an industrial area before 1991 or non-polluting industries such as electronics, computer software, printing and other specified industries.

Environmental Clearances

Entrepreneurs are required to obtain Statutory clearances, relating to Pollution Control and Environment as may be necessary, for setting up an industrial project for 31 categories of industries in terms of Notification S.O. 60(E) dated 27.1.94 as amended from time to time, issued by the Ministry of Environment and Forests under The Environment (Protection) Act 1986. This list includes petrochemicals complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, papers etc.

Environmental clearance is necessary in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries.

For online submission of environmental clearances and more information please visit :

Other approvals/clearances at State level
Land, Water, Electricity, Registrations etc.