Foreign Direct Investment (FDI) in India: Sector wise Guide

Outsourcing, Call Centers, Real Estate, Hotels, Development, Business Process Outsourcing BPO, KPO, Technical & Software Development & Support, Banking, Insurance, Telecommunications, Trading, Special Economic Zones, Export Oriented Units, Power, Highways, Road, Infrastructure, Tourism, Pharmaceuticals, and Manufacturing Sectors

Doing Business with India Conference in
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Exporting Importing Procedures, Documentation & Laws, National Conference in Chicago on
March 28, 2007

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Legal Outsourcing to India - Legal Support, Legal Research, Legal Drafting

Sector Specific Foreign Direct Investment in India: FDI in India

Hotel & Tourism: FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route.

The term hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if

up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc.
up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and up to 10% of gross operating profit is payable for management fee, including incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from RBI from time to time.

FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as per levels indicated below:

Merchant banking
Underwriting
Portfolio Management Services
Investment Advisory Services
Financial Consultancy
Stock Broking
Asset Management
Venture Capital
Custodial Services
Factoring
Credit Reference Agencies
Credit rating Agencies
Leasing & Finance
Housing Finance
Foreign Exchange Brokering
Credit card business
Money changing Business
Micro Credit
Rural Credit

Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million to be brought upfront and the balance in 24 months

Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted non-fund based NBFCs with foreign investment.

d. Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50 million as at b) (iii) above (without any restriction on number of operating subsidiaries without bringing in additional capital)

e. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii) above.

f. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining license from Insurance Regulatory & Development Authority (IRDA)

Telecommunication: FDI in Telecommunication sector

In basic, cellular, value added services and global mobile personal communications by satellite, FDI is limited to 49% subject to licensing and security requirements and adherence by the companies (who are investing and the companies in which investment is being made) to the license conditions for foreign equity cap and lock- in period for transfer and addition of equity and other license provisions.
ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74% with FDI, beyond 49% requiring Government approval. These services would be subject to licensing and security requirements.
No equity cap is applicable to manufacturing activities.
FDI up to 100% is allowed for the following activities in the telecom sector :

ISPs not providing gateways (both for satellite and submarine cables);
Infrastructure Providers providing dark fiber (IP Category 1);
Electronic Mail; and
Voice Mail

The above would be subject to the following conditions:

FDI up to 100% is allowed subject to the condition that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies are listed in other parts of the world.
The above services would be subject to licensing and security requirements, wherever required.

Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis.

Trading: FDI in Trading Companies in India

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:-

100% FDI is permitted in case of trading companies for the following activities:

exports;
bulk imports with ex-port/ex-bonded warehouse sales;
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:

Companies for providing after sales services (that is not trading per se)
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 in India.
Trading of hi-tech items/items requiring specialized after sales service
Trading of items for social sector
Trading of hi-tech, medical and diagnostic items.
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.
Domestic sourcing of products for exports.
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.

FDI up to 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in five 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.

Outsourcing Agreements

Outsourcing to India

Legal Outsourcing

Global Outsourcing

International Joint Ventures

Doing Business with India

Incorporating company in India

Procedure for Formation of Company in India

Patents in India

Trademarks in India

Tax Rates in India

Joint Ventures in India

FDI in India Sector wise Guide

India Business

Arbitration in India

Process Serving in India

Cyber Laws of India

Corporate Compliance in India

Corporate Affirmative Action Program in India

Investing in Real Estate in India

NRI & PIO

Serving Summons in India

Incorporating in USA

Doing Business in USA

Arbitration in India

Arbitration in USA

International Commercial Arbitration

UNCITRAL Model Law on International Arbitration

Drafting International Arbitration Agreements?

Model Arbitration Agreement

Please Read Disclaimer

Power: FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical, provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology, and specific cell / tissue targeted formulations will require prior Government approval.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route.