1 What qualifies as foreign direct investment (FDI) in India?
FDI refers to investment through equity instruments by a non-resident in:
An unlisted Indian company; or
10% or more of the post-issue paid-up equity capital on a fully diluted basis of a listed Indian company.
2 What are the common business entry strategies for FDI?
M&A;
Joint ventures;
Wholly owned subsidiaries; and
Limited liability partnerships.
3 How is FDI governed?
FDI is governed through a combination of statute, policy, and institutional oversight through:
Consolidated FDI policy;
The Department for Promotion of Industry and Internal Trade (DPIIT);
The Reserve Bank of India (RBI); and
The Ministry of Home Affairs.
4 What are the FDI routes and prohibited sectors?
Automatic route: investments permitted without prior government approval. Examples include:
Manufacturing (100%);
Private sector banking (49%); and
Civil aviation-greenfield projects (100%).
Government route: investments requiring prior approval from the competent government authority. Examples include:
Private sector banking (49%–74%);
Airport transport services (beyond 49%); and
Multi-brand retail trading (51%).
Prohibited sectors:
Lottery;
Gambling and betting;
Chit funds;
Nidhi companies;
Real estate (farmhouses);
Trading in transferable development rights;
Tobacco manufacturing;
Railway operations; and
Restricted agriculture.
5 Does India offer incentives for foreign investors?
Yes, sector-specific incentives are available, including:
Manufacturing benefits from 100% automatic FDI and production-linked incentive schemes; and
Special economic zones and software technology parks offer tax and compliance benefits.
6 What are the recent updates to the FDI regime?
Some recent updates include the following:
Press Note 3 (PN3) – PN3 mandates government approval for investments from land-bordering countries, or where beneficial ownership traces to such jurisdictions.
Sectoral cap enhancements:
Insurance and telecoms – the FDI cap is increased to 100% under the automatic route;
Defence – up to 74% FDI is permitted under the automatic route;
Space – FDI caps are relaxed across satellites, launch vehicles, and space manufacturing; and
Nuclear sector – the SHANTI Act, 2025 (see the government’s background information) opens civil nuclear projects to private participation and permits up to 49% FDI, replacing restrictive legacy frameworks.
Ease of doing business – the Jan Vishwas (Amendment of Provisions) Act, 2023 decriminalises minor offences, rationalises penalties, and simplifies approvals, reducing the burden under DPIIT and RBI oversight.
7 What are the PN3 approval risks and mitigation options?
Risk – PN3 approvals remain unpredictable, with extended timelines and inter-ministerial scrutiny;
Impact – delays increase costs, uncertainty, and deal-execution risk; and
Mitigation – early structuring, clear classification, sector sensitivity checks, security safeguards, and timeline buffers.
8 What compliance and reporting obligations apply to FDI?
Inbound reporting (the RBI’s Foreign Investment Reporting and Management System (FIRMS)/single master form):
Foreign currency-gross provisional return – for the fresh issuance of shares or convertible instruments to non-residents; within 30 days of allotment;
Foreign currency-transfer of shares – for transfers of shares between a resident and a non-resident; within 60 days; and
Limited liability partnership forms, convertible notes, downstream investment, investment vehicles – relevant foreign investment transactions; within 30 days.
Entity master form – mandatory registration on FIRMS.
Foreign liabilities and assets return – filed by July 15 on the Foreign Liabilities and Assets Information Reporting system.
Other compliance – a Foreign Inward Remittance Certificate, know-your-customer documents, and a valuation report are mandatory.
9 How can foreign investors repatriate profits from India?
Foreign investors may freely repatriate profits such as dividends, sale proceeds, capital gains, and branch profits through an authorised dealer bank under FEMA and RBI rules, provided the investment was made on a repatriation basis and all applicable Indian taxes have been paid.
10 What are the practical challenges to monitor while investing in India?
Central versus state policy gap – while central rules are eased, local state-level compliance is crucial for actual on-ground operations.
Transitioning to new labour codes and data privacy laws – it is advisable to stay updated with the recent changes in the laws.
Land acquisition – land acquisition remains time-consuming and varies by state. It is advisable to conduct proper due diligence.
Delayed approvals – it is advisable to keep documentation complete to avoid reporting delays.
