FOREIGN DIRECT INVESTMENT
1.What are the forms in which business
can be conducted by a foreign company in India?
Strategies for foreign investors" is available
under the "Policy & Procedures" menu of
the website by clicking "Secretariat for Industrial
Assistance" of DIPP Website (http://dipp.nic.in
can make investments or operate their business in a
number of ways as given below :-
Financial /Technical /Techno-financial
approval is given by
- Liaison/ representative office
- Project office 1
- Branch office 1
- Wholly owned subsidiary 2
- Joint venture company 2
1. Under Automatic route through RBI
2. Government/FIPB/RBI automatic approval is governed
Note No. 2 of 2000 subject to sectoral caps as given
in Annex IV.
Any company set up with FDI has to be incorporated
under the Indian Companies Act with the Registrar
of Companies and all Indian operations would be
conducted through this company.
2. Is foreign company treated as
Yes, a foreign company incorporated under the Companies
Act is treated at par with any domestic Indian company
within the scope of approval and subject to all Indian
3. How does a foreign company invest
a. Automatic Approval - by the country's Central Bank,
the Reserve Bank of
India (RBI), Mumbai, or
b. Through the Foreign Investment Promotion Board (FIPB)
i. Automatic Approval through Reserve Bank of India
is available for all items/activities except a few as
given in the Press
Note No.2(2000 series) dated 11.2.2000. The sector
specific guidelines in this regard are given in Annexure
IV of the Manual on Industrial Policy & Procedures
No prior approval required. The company is only required
to report to RBI within 30 days of receipt of foreign
equity/allotment of shares.
ii) FIPB approval is required for all other proposals
not eligible for Automatic Approval.
Applications to be submitted in
Form IL-FC or on plain paper with full details to
for Industrial Assistance (SIA) for the cases involving
NRI/OCB investment and 100% EOU. For remaining cases,
the applications may be submitted to Department of Economic
Affairs, Ministry of Finance. The proposals are considered
by the reconstituted FIPB in the Department of Economic
Affairs. IL-FC Form is available at Website in a downloadable
format on the DIPP Website (http://dipp.nic.in).
4. From where one can get NIC Codes
1987 for products/services, to be filled in IL-FC Form?
Investors are required to give the description of
activities as per the National
Industrial Classification of all Economic Activities
(NIC), 1987, while submitting applications to the
Copies of the NIC, 1987 published by the Ministry
of Statistics & Programme Implementation , Central
Statistical Organization, can be obtained on payment
from the Controller of Publications, 1 Civil Lines,
Delhi 110054 or from any authorised agent.
However, NIC Codes (1987) are also available on the
5. What is the FIPB?
FIPB is a competent body to consider and recommend
Foreign Direct Investment (FDI), which do not come under
the automatic route. The FIPB has been reconstituted
as under :
||Secretary, Department of Economic
||Secretary, Department of Industrial
Policy & Promotion
||Secretary, Department of Commerce
||Secretary (Economic Relations),
Ministry of External Affairs
The Board would be able to co-opt Secretaries to the
Government of India and other top officials of financial
institutions , banks and professional experts of industry
and commerce, as and when necessary.
6. What are the factors considered
by the FIPB while examining proposals?
To impart greater transparency to the approval process,
guidelines have been issued which govern the consideration
of FDI proposals by the FIPB. These are given at Annexure
III of the Manual
on Foreign Direct Investment in India - Policy &
7. Who is the Officer concerned
in your Department for FIPB related matters?
Director (Foreign Collaboration/Foreign Direct Investment
Policy) Mr. R.S. Julania (Tel:91-11-23013196, Fax 91-11-23015245
e-mail: firstname.lastname@example.org) may be contacted for FDI
policy matters. At Joint Secretary level, work is being
looked after by Shri Umesh Kumar (Tel : 91-11-23011983,
Fax: 91-11-23011034, Email : email@example.com ).
8. Please let us know the status
of the application made to FIPB?
The status of the FIPB application can be seen on the
website of Department of Economic Affairs (http://finmin.nic.in).
However, status for the applications involving NRI/OCB
investment and 100% EOU is available at "SIA Application
status" link on the opening page of the DIPP website
wherein following three categories are given.
Status of Applications for NRI / OCB investment and
100% EOU for the week.
Status of Applications for NRI/OCB Investmebt and 100%
EOU for the week ending
Date of posting of approval letters of applications
for NRI/OCB investment and 100% EOU
The cases that are listed but do not figure in the
approved / rejected categories, fall under the deferred
category viz. cases which are still under consideration.
It may be possible that applications in such cases,
need additional clarification from other Ministries
or attracts on policy angle because of which it may
take some more time. The link for the status of FIPB
applications has also been provided at the front page
of DIPP website (http://dipp.nic.in).
9. Which are the sectors, which
attracts limit on foreign ownership?
The following activities attract equity cap for FDI:
||FDI cap (in %)
basic, cellular, value-added services, global
mobile personal communications by satellite internet
service providers with gateways, radio paging
and end-to-end bandwidth
public sector undertakings
other than public sector undertakings
for exploration & mining of coal or lignite
for captive consumption
and mining of diamonds and precious stones
sector (subject to obtaining license from IRDA)
direct or indirect equity participation by foreign
(Other than refining)
in unincorporated joint venture
in incorporated joint venture
petroleum products and pipelines sector
in infrastructure related marketing and marketing
of petroleum products
for public sector undertakings
companies in Infrastructure/Service sectors
through such vehicle is treated as resident equity
and mineral separation;
arms and ammunition and allied items of defence
equipment, defence aircraft and warships
Setting up hardware facilities, such as uplinking,
Terrestrial Broadcasting FM
20 (portfolio investment)
Private companies incorporated in India with
permissible FII/NRI/OCB/PIO equity within the
limits (as in the case of telecom sector FDI limit
up to 49% inclusive of both FDI and portfolio
investment) to set up up linking hub (teleports)
for leasing or hiring out their facilities to
Footnote: As regards satellite broadcasting,
all T.V. Channels irrespective of the ownership
or management control to uplink from India provided
they undertake to comply with the broadcast (programme
and advertising) code
Foreign investment allowed up to 49% (inclusive
of both FDI and portfolio investment) of paid
up share capital. Companies with minimum 51% of
paid up share capital held by Indian citizens
are eligible under the Cable Television Network
Rules (1994) to provide cable TV services.
Companies with a maximum of foreign equity including
FDI/NRI/OCB/FII of 49% would be eligible to obtain
DTH License. Within the foreign equity, the FDI
component not to exceed 20%.
The licensee shall be a company registered in
India under the Companies Act. All share holding
should be held by Indians except for the limited
portfolio investment by FII/NRI/PIO/OCB subject
to such ceiling as may be decided from time to
time. Company shall have no direct investment
by foreign entities, NRIs and OCBs. As of now,
the foreign investment is permissible to the extent
of 20% portfolio investment. No private operator
is allowed in terrestrial TV transmission
Scale Industries (SSI) sector
FDI in an SSI unit exceeds 24% of the paid up capital,
the company loses its SSI status. Further, if the
item/s of manufacture is/are reserved for SSI sector,
the company has to obtain an industrial license
and undertake a minimum export obligation of 50%
of annual production on such products
and operation of Satellites
FDI permitted in Tea sector, including tea plantations
requiring prior Government approval
* subject to compulsory divestment of 26% equity
of the company in favour of an Indian partner/Indian
public within a period of five years.
In Indian entities publishing scientific/technical
and speciality magazines/periodical/journals
In Indian entities publishing newspapers and
** subject to guidelines notified by Ministry
of Information & Broadcasting from time to
10. What is the Government Policy
for Telecom Sector?
For major sector specific guidelines including Telecom
Sector, please refer to Annexure IV at the Manual
on FDI in India - Policy & Procedures in India
of the website.
11. What is the investment policy
for trading companies?
Trading is permitted under automatic route with FDI
up to 51% provided it is primarily export activities,
and the undertaking is an export house/trading house/super
trading house/star trading house. However, under the
FIPB route :
i. 100% FDI is permitted in case of trading companies
for the following activities:
- bulk imports with ex-port/ex-bonded
- cash and carry wholesale trading,
- other import of goods or services
provided at least 75% is for procurement and sale
of goods and services among the companies of the same
group and not for third party use or onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted,
subject to provisions of EXIM Policy:
a. Companies for providing after sales services ( that
is not trading per se)
b. Domestic trading of products of JVs is permitted
at the wholesale level for such trading companies who
wish to market manufactured products on behalf of their
joint ventures in which they have equity participation
c. Trading of hi-tech items/items requiring specialised
after sales service
d. Trading of items for social sector
e. Trading of high-tech, medical and diagnostic items.
f. Trading of items sourced from the small
scale sector under which, based on technology provided
and laid down quality specifications, a company can
market that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company
has approval for manufacture provided such test marketing
facility will be for a period of two years , and investment
in setting up manufacturing facilities commences simultaneously
with test marketing.
i. FDI upto 100% permitted for e-commerce activities
subject to the condition that such companies would divest
26% of their equity in favour of the Indian public in
5 years, if these companies are listed in other parts
of the world. Such companies would engage only in business
to business (B2B) e-commerce and not in retail trading
12. Whether wholesale trading activity
is covered on the automatic route?
No, prior approval of FIPB is required.
13. Whether FIPB approval is required
for 100% EOUs involving FDI from foreign companies?
Only where the activity proposed does not fall on the
14. How are investments in 100%
Export Oriented Units (EOUs) allowed?
There are four schemes for such units. They are the
100% EOUs, Electronics Hardware Technology Parks (EHTPs)
, Software Technology Parks (STPs) and Special Economic
Zones (SEZ) . FDI/NRI/OCB investment up to 100% in these
units is eligible for automatic route subject to fulfilling
parameters prescribed in Press
Note No.2 (2000 series) dated 11.2.2000. This Press
Note is available on the website
15. Is a 100% foreign owned subsidiary
allowed? Whether FIPB approval is required?
Yes, except in sectors that attract equity cap. The
criteria for allowing such investments have been detailed
in the guidelines given at Annexure IV of the Manual
on Industrial Policy & Procedures in India.
FIPB approval is required if the activity does not
fall on the automatic route.
16. Is investment by Non-Resident
The Government attaches importance to investments by
NRIs and Overseas Corporate Bodies(OCBs) i.e. corporate
bodies in which NRIs hold at least 60% of equity. Government
has provided a liberalised policy framework for approval
of NRI investments through both the Automatic and the
Government route. NRI/OCBs are permitted to invest upto
100% equity in the Real Estate and Civil Aviation Sectors.
Automatic Approval is given by the RBI to all NRI/OCB
proposals with their investment upto 100% for all items/activities
except a few exceptions mentioned in Press
Note 2 (2000 series) read with sector specific guidelines.
Government approval is given for all proposals not qualifying
for Automatic Approval.
17. How is FDI permitted in the
Small Scale Sector?
Equity participation in the Small Scale Sector up to
24% by any other Industrial undertaking is allowed.
For equity participation in excess of this or if a non-SSI
unit whishes to manufacture a reserved
item, it would be required to obtain industrial
licence and undertake a minimum export obligation of
50% of production.
18. Can profits, dividends, royalty,
knowhow payments be repatriated from India?
All profits, dividends, royalty, knowhow payments that
have been approved by the Government/RBI can be repatriated.
Some sectors like NRI Investment in real estates may
attract a lock-in period.
19. Whether FDI is permitted in
"Online Lottery Business"?
The lottery business, including "Online Lottery
Business" is not opened to foreign direct investment.
20. What is the procedure of issuing
shares to foreign collaborator?
The issue of shares to the foreign collaborator is
governed by the guidelines issued by RBI
/ SEBI and Companies
21. While calculating ceiling on
foreign holdings, are preference shares included?
Yes, if it is convertible into equity shares. Non-convertible
redeemable preference shares are not included for calculating
22. Is FIPB approval required for
the swap of shares?
Yes, FIPB approval is required.
23. Whether issue of preference
shares can be made on the automatic route?
Yes, subject to the activity concerned falling under
the automatic route.
24. What are the formalities a
joint venture company has to do to increase the foreign
The following formalities are required for the joint
venture that want to increase in their foreign equity
holding by acquisition of shares or by any other means.
a) If only the quantum of foreign equity increased
without change in percentage then Press
Note no. 7 (1999 series) may be followed.
b) For increase in percentage of foreign equity by
way of expansion of capital base, automatic route or
FIPB / Government route would apply depending upon the
nature of proposal in terms of Press
Note No. 2 (2000 series)
c) Cases involving increase in percentage in foreign
equity by way of acquiring existing shares in an Indian
company would necessarily require prior approval of
d) In cases involving inclusion of an additional foreign
collaborator, guidelines laid down in Press
Note No. 18 (1998 series) would have to be satisfied.
25. What is the policy of conversion
of non-repatriable shares into repatriable shares?
FIPB approval is required. Where original investment
was made in foreign exchange, the change is allowed
without any conditions; if not, the sale proceed will
have to be repatriated to India by opening an NRO account.
26. Is there any time limit within
which Indian company have to make their Euro issues
or ADRs/GDRs after having received the approval from
There is no time limit as per extant guidelines.
27. In a public limited company
having less than 100% foreign equity participation under
the automatic route, whether it can be increased to
100% equity participation under the automatic route?
As long as the activity is covered on the automatic
route and there is no sectoral cap and no acquisition
of existing shares is involved.
28. Is it possible that a foreign
company provide a non interest bearing or interest bearing
loan to an Indian company?
Yes, subject to conformity with the ECB
Guidelines of Ministry of Finance .
29. Whether FIPB approval is required
for consultancy services, research and development,
software development etc.?
The above activities fall under automatic route and,
therefore, do not require FIPB approval.
30. How are foreign technology
Approval is granted by two routes
a. Automatic approval by RBI;
i) Available for any proposal with lumpsum payment
not exceeding US$ 2 million, and royalty of upto 5%
on domestic sales and 8% on exports.This is applicable
to technical collaborations with technology transfer.
There is no limit on duration of royalty payment by
a WOS to its offshore parents.
ii) Payment of royalty up to 2% of exports and 1% for
domestic sales on use of trade marks and brand name
of the foreign collaborator without technology transfer
b. Government approval in all other cases.
31. Whether royalties for technology
transfer and other royalty can be paid for same product
on use of trademarks and brand name?
No, both royalties cannot be paid together on the same
i) Cases involving transfer of technology will be eligible
for royalty payment at the prescribed rate on the automatic
ii) Cases not involving any transfer of technology
and only involving the use of brand names and trademarks
will be eligible to payment of trademarks or brand name
royalty at the prescribed rate on the automatic route.
32. Is it possible to use foreign
brand names/trade marks in India and is lump sum fee
permissible under royalty payment for use of brand name
Yes, it is possible to use foreign brand names/trade
marks in India. However, lump sum fee is not permissible,
only running royalty payment is permissible as per prescribed
33. What is the mechanism for publicizing
the changes in the FDI Policies?
Changes in FDI policies are brought out in the form
of Press Notes by Department of Industrial Policy &
Promotion (DIPP) . Soon after releasing the Press Notes
to the media, it is also loaded on the Departmental
34. What proposals require an Industrial
Licence(IL) and how is it obtained?
In the New
Industrial Policy, all industrial undertakings are
exempt from licencing except for those products given
in Annexure I and II and those reserved
for the Small Scale Sector. The project should not
be located within 25 kilometres of a city with a population
of more than one million (Annexure v).
The Government has substantially liberalised the procedures
for obtaining an Industrial Licence. An IL is approved
by the Government.
The application in form
IL-FC should be filed with the SIA.
Approvals normally granted within 6-8 weeks.
35. What is the procedure for a
An Industrial undertaking exempted from licencing needs
only to file information in the Industrial Entrepreneurs
Memorandum (IEM) with the SIA
, which will issue an acknowledgement. No further approvals
36. Where can one get the information
on Indian Standards for any product?
Please refer to the website of Bureau of Indian Standards
37. How to contact the Nodal Officers
of the Department of Industrial Policy & Promotion
who are responsible for monitoring the approved Projects
of a particular state?
Please visit the website of the Department of Industrial
Policy & Promotion at http://dipp.nic.in
by clicking FIIA.
38. Where to take the information?
Guidance to Investors
Consequent on transfer of the Foreign Investment Promotion
Board (FIPB) to the Department of Economic Affairs (DEA),
the arrangements with regard to matters relating to
FDI policy, processing of applications submitted for
NRI/OCB investments,100% EOU and PAB, IL, FDI promotion
and facilitation would be as under:
i) The Department of Industrial Policy & Promotion
(D/o IPP) continues to be responsible for "Direct
Foreign and Non Resident Indian investment in industrial
and service projects". All matters relating to
FDI policy and its promotion and facilitation as also
promotion and facilitation of investment by Non-Resident
Indians (NRIs) and Overseas Corporate Bodies (OCBs)
are handled by the D/o IPP. The Foreign Investment Promotion
Council (FIPC), Investment Promotion Cell and Foreign
Investment Implementation Authority (FIIA), in the D/o
IPP, continues to look after the investment promotion
and facilitation work. Correspondence in this regard
may be addressed to Secretariat for Industrial Assistance
(SIA), D/o IPP.
FDI cases requiring FIPB Approval
ii) FIPB proposals will be considered by the reconstituted
FIPB in Department of Economic Affairs.
iii) The FIPB Secretariat now receives and processes
FIPB applications and places them before FIPB for consideration.
The Secretariat would communicate to applicants decision
of the Government on their proposals and carry out the
activities relating to post-approval amendments. Further,
information on the status of pending applications, cases
listed for the meeting of FIPB, can be obtained at DEA
NRI/OCB Investments & 100% EOU cases
(iv) Applications for NRI / OCB investments and 100%
EOU cases for consideration of FIPB will continue to
be addressed to the EAU in the SIA, D/o IPP, Udyog Bhawan,
New Delhi. SIA would place these cases before the FIPB
Technology Collaboration Cases
(v) Applications for consideration by the Project Approval
Board (PAB) for approval of technology transfer, payment
of royalty, etc. and those for grant of industrial licence
will continue to be received and registered by the EAU
in the SIA, D/o IPP, Udyog Bhawan, New Delhi.
Industrial Entrepreneurial Memorandum (IEM)
(vi) The Industrial Entrepreneurial Memorandum (IEM)
will continue to be filed with the EAU in the SIA, D/o
IPP, Udyog Bhawan, New Delhi.
Status of applications
(vii) Information on the status of applications for
NRI/OCB Investment and 100% EOU cases would be available
at the website of DIPP. The status of posting of letters
relating to NRI / OCB investments and 100% EOU cases
considered in FIPB will be displayed on website of DIPP.
Facilities of interactive session and bulletin board
on the website of D/o IPP: The facilities of interactive
session and bulletin board on the website of D/o IPP
have been provided to respond to the queries relating
to FDI policy, including status of applications submitted
for consideration of FIPB. With effect from 1.6.2003,
these facilities may be utilised by investors for seeking
clarification on FDI policies, promotion and facilitation
as also the status of applications received and registered
with the SIA. Queries on the status of FIPB applications
registered with DEA may be addressed to DEA.