‘Foreign Direct Investment’ (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
An Indian company receive foreign investment in following two ways:
Automatic Route:Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India
Government Route:Foreign investment in activities not covered under the automatic route requires prior approval of the GovernmentProhibited sectors/ persons
Investment by a person resident outside India is prohibited in the following sectors:
(1) Lottery Business including Government/ private lottery, online lotteries.
(2) Gambling and betting including casinos.
(3) Chit funds (except for investment made by NRIs and OCIs on a non – repatriation basis).
(4) Nidhi Company.
(5) Trading in Transferable Development Rights (TDRs).
(6) Real Estate Business*or Construction of Farm Houses.
(7) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or oftobacco substitutes. The prohibition is on manufacturing of the productsmentioned and foreign investment in other activities relating to these productsincluding wholesale cash and carry, retail trading etc. will be governed by thesectoral restrictions laid down in Regulation 16 of FEMA 20(R).
(8) Activities/ sectors not open to private sector investment viz., (i) Atomic energyand (ii) Railway operations
(9) Foreign technology collaboration in any form including licensing for franchise,trademark, brand name, management contract is also prohibited for LotteryBusiness and Gambling and Betting activities.
*Here ‘Real estate business’ is dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.Earning of rent income on lease of the property, not amounting to transfer, will notamount to real estate business. Real estate broking services is excluded from thedefinition of “real estate business” and 100% foreign investment is allowed in realestate broking services under automatic route.
Therefore, Person resident outside India can do FDI in development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships subject to the terms and Conditions as applicable.
Major sectors where FDI is permitted but caps are put on these sectors:
| S. No | Sector | Sectoral Cap/ Route |
| 1. | Defence Industry | 49% automatic route |
| 2. | Civil Aviation | 49% FDI (100 percent for NRIs) Automatic |
| 3. | Asset Reconstruction Companies (ARCs) | 100 % (FDI + FII) – by FIPB if beyond 49% |
| 4. | Banking: Private Sector Banking: Public Sector | 74% (FDI + FII) by FIPB if beyond 49% 20% (FDI + FII) FIPB |
| 5. | Broadcasting (i) FM Radio (ii) Cable Network (iii) DTH | 26% (FDI + FII) FIPB 49% (FDI + FII) Automatic 74% (FDI + FII) FIPB beyond 49% , 26% (FDI + FII) FIPB |
| 6. | Commodity Exchanges | 49% (26% FDI + 23% FII) Automatic |
| 7. | Credit Information Companies (CICs) | 74% Automatic (FII only 24 %) |
| 8. | Insurance | 49%; up to 26% automatic and beyond it FIPB |
| 9. | Stock Exchanges, Depositories, Clearing Corp | 49% (26% FDI + 23% FII) Automatic |
| 10. | Petroleum and Natural Gas Refining | 49% FDI in case of PSUs Automatic |
| 11. | Publishing of Newspapers and Current Affairs News | 26%(FDI+FII) FIPB |
| 12. | Security Agencies in the Private Sector | 49 % FIPB |
| 13. | Satellite and Establishment and Operation | 74 % FIPB |
| 14. | Single Brand Product Retailing | 100% subject to sourcing conditions, FIPB beyond 49% |
| 15. | Multi Brand Product Retailing | 51% FIPB-subject to various conditions |
| 16. | Telecom Services | 100% FDI – FIPB beyond 49% |
| 17. | Pharma Sector (Brownfield) | 100 % FIPB except for medical devices |
| 18. | Power Exchanges | 29% (26 % FDI+23% FII) automatic |
| 19. | Railway Infrastructure | 100% percent automatic, FDI beyond 49% percent in sensitive areas from a security point of view |
| 20. | Construction Development Projects | 100% automatic- subject to various conditions. |
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