Sector Specific Foreign
Direct Investment in India
FDI in India
for Foreign Investors
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 licence 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.
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.
Call Centers in India / Call Centres in
India
FDI up to 100% is allowed subject to certain conditions.
Business Process Outsourcing BPO in India
FDI up to 100% is allowed subject to certain conditions.
Special Facilities and Rules for NRI's and
OCB's
NRI's and OCB's are allowed the following special facilities:
- Direct investment in industry, trade,
infrastructure etc.
- Up to 100% equity with full repatriation facility
for capital and dividends in the following sectors:
- 34 High Priority Industry Groups
- Export Trading Companies
- Hotels and Tourism-related Projects
- Hospitals, Diagnostic Centers
- Shipping
- Deep Sea Fishing
- Oil Exploration
- Power
- Housing and Real Estate Development
- Highways, Bridges and Ports
- Sick Industrial Units
- Industries Requiring Compulsory Licensing
- Industries Reserved for Small Scale Sector
- Up to 40% Equity with full repatriation: New
Issues of Existing Companies raising Capital through Public Issue up
to 40% of the new Capital Issue.
- On non-repatriation basis: Up to 100% Equity in
any Proprietary or Partnership engaged in Industrial, Commercial or
Trading Activity.
- Portfolio Investment on repatriation basis: Up to
1% of the Paid up Value of the equity Capital or Convertible
Debentures of the Company by each NRI. Investment in Government
Securities, Units of UTI, National Plan/Saving Certificates.
- On Non-Repatriation Basis: Acquisition of shares
of an Indian Company, through a General Body Resolution, up to 24%
of the Paid Up Value of the Company.
- Other Facilities: Income Tax is at a Flat Rate of
20% on Income arising from Shares or Debentures of an Indian
Company.
Certain terms and conditions do apply.
See also
Opening Branch
in India
| Formation of
Subsidiary in India | Starting a Business in India |
Opening Branch
in India
|
Incorporating company in India |
Procedure for Formation of Company in India
Joint Ventures in India
| Joint Venture
Agreements |
Outsourcing Agreements |
Outsourcing to India |
Formation of
Subsidiary in India |
Starting a Business in India |
Opening Branch
in India
|
Incorporating company in India |
Procedure for Formation of Company in India
See also
Government Approvals for Investing in India |
Entry Strategies in India
for Foreign Investors
|
Recently, India has allowed Foreign Direct Investment up to 100% in
many manufacturing industries which were designated as Small Scale
Industries.
India further ended in February 2008 the monopoly of small-scale units on 79 items, leaving
just 35 on the reserved list that once had as many as 873 items.
While industrial policy reforms began with the new industrial policy
statement of 1991, India remained wary of intruding on the politically
sensitive issue of reservation for small-scale industry till the end of the 1990s.
Thus, while at the turn of the millennium the number of items
reserved for SSI units had come down from its peak of 873 in 1984,
well over 800 items remained on the list.
Since 2002, the scenario has changed dramatically. In these last
seven years, around 790 items - including things like farm
equipment, toothpaste, ice cream, footwear, detergents and even
garments - have been knocked off the list.
Thus, for the first time in over 40 years, there are today as few as
35 items reserved for SSI units. When the policy of reservation was
first introduced in 1967, there were just 47 items reserved for
small-scale manufacturers.
However, what was till then an administrative decision was given
legal backing by an amendment enacted in 1984 to the Industries
(Development and Regulation) Act, 1951. That year also saw the
number of items reserved reaching a peak of 873.
Reservation means that units producing the reserved items cannot go
beyond a stipulated cap on investment in plant and machinery.
Moreover, FDI was allowed on a limited basis in SSI's.
In the old days, therefore, it was standard practice for mass
consumption items covered by the reserved list to be farmed out by
large marketing companies to dozens of small units, thereby negating
economies of scale.
What it also meant was that some companies resorted to manufacturing
completely new class of products. So, if ice cream was reserved for
small scale units, a large player could always produce, say, 'frozen
desserts'.
Apart from the steady trickle of de-reservation over the last
decade, one of the measures taken to get over this problem without
confronting the political problems involved was to allow foreign
investment even in reserved items with the caveat that such units
would have to fulfill an export obligation.
For players who were already manufacturing items that were suddenly
reserved in 1967, the government came up with what was
carry-on-business license which capped their capacity, and fixed the
location of the plant and the goods produced.
The latest de-reservation means that pastries, hard boiled sugar candy
and tooth powder can be manufactured by large units too. Similarly,
buckets, paper bags, paper cups, envelopes, letter pads, paper
napkins might not be manufactured only in small units but also in
specialized factories.
The same for sesame and rapeseed oil, which are not solvent
extracted, a host of chemicals and dyes paints be it distempers.
Electrical goods, which include geysers, hot air blowers and
toasters, too are out of the reserved list, as are ballpoint and
fountain pens.
The remaining 35 items that would be produced by the
SSI sector are food and allied items, wood, wood products, paper,
paper products, plastic products, organic chemicals, drugs, drug
intermediates, other chemicals, chemical products, glass, ceramics,
mechanical engineering and electrical machines, appliances and
apparatus.
In a nutshell, only 35 items remain reserved for the
small scale industries sector. For foreign investors, it means that in those 35 reserved
sectors foreign investment is allowed on a limited basis, except where
certain conditions are met.
Contact us for
further information
India has liberalized foreign investment regulations in key
sectors, opening up commodity exchanges, credit information services and
aircraft maintenance operations. The foreign investment limit in Public Sector
Units (PSU) refineries has been raised from 26% to 49%. An additional sweetener
is that the mandatory disinvestment clause within five years has been done away
with.
FDI in Civil aviation up to 74% will now be allowed through the
automatic route for non-scheduled and cargo airlines, as also for ground
handling activities.
100% FDI in aircraft maintenance and repair operations has also been
allowed. But the big one, allowing foreign airlines to pick up a stake in
domestic carriers has been given a miss again.
India has decided to allow 26% FDI and 23% FII investments in commodity
exchanges, subject to the proviso that no single entity will hold more than 5%
of the stake.
Sectors like credit information companies, industrial parks and
construction and development projects have also been opened up to more foreign
investment.
Also keeping India's civilian nuclear ambitions in mind, India has also
allowed 100% FDI in mining of titanium, a mineral which is abundant in India.
Sources say the government wants to send out a signal that it is not
done with reforms yet. At the same time, critics say contentious issues like FDI
and multi-brand retail are out of the policy radar because of political
compulsions. (Jan 2008)
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further information
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