1 What are the foreign direct investment (FDI) limits across each sector?
Manufacturing – 100% under the automatic route;
Electronics engineering – 100% under the automatic route;
Trading – 100% under the automatic route for B2B and single-brand retail trading (SBRT); 51% under the government route for multi-brand retail;
Information technology (IT) – 100% under the automatic route;
Construction – 100% under the automatic route; and
Business consulting – 100% under the automatic route.
2 What are the key approval and compliance requirements for each sector?
In addition to the common pre- and post-incorporation compliance obligations, each sector has certain approval and ongoing compliance requirements, such as, but not limited to, the following.
Manufacturing:
Industry-specific licensing;
Environmental clearance;
Consent to establish and operate; and
Bureau of Indian Standards (BIS) certification.
Electronics engineering:
The BIS Compulsory Registration Scheme;
E-Waste (Management) Rules, 2022 registration; and
Legal Metrology (Packaged Commodities) Rules, 2011 registration.
Trading:
The Importer Exporter Code; and
Mandatory 30% local sourcing from year five for SBRT.
IT:
Compliance with data protection and cybersecurity regulations – including the Digital Personal Data Protection Act, 2023; the Information Technology Act, 2000; and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 – and incident reporting requirements.
Construction:
Real Estate (Regulation and Development) Act, 2016 registration; and
Exit permitted upon project completion or trunk infrastructure development; early exit allowed after a three-year lock-in per investment tranche.
Business consulting:
Business-specific licensing;
Transfer pricing documentation for intra-group services; and
Foreign Exchange Management Act, 1999 reporting for service exports (Form 15CA for remittance).
3 What key incentives are available for businesses in these sectors?
Manufacturing:
The Production Linked Incentive Scheme – 4–6% incentives on incremental sales;
The National Industrial Corridor Development Programme (NICDP) – plug-and-play infrastructure and integrated logistics support; and
A tax concession – a 15% rate under the Income Tax Act, 1961 (ITA).
Electronics engineering:
The Electronics Components Manufacturing Scheme – financial incentives for electronic components and sub-assemblies;
The India Semiconductor Mission – financial, infrastructure, and policy support; and
A tax exemption – a five-year exemption for supplying capital goods to toll manufacturers in bonded zones.
Trading:
The Advance Authorisation Scheme and the Export Promotion Capital Goods Scheme – duty relief on inputs and capital goods;
The Scheme for Remission of Duties and Taxes on Exported Products and the Duty Drawback Scheme – refund duties embedded in exports; and
The Manufacture and Other Operations in Warehouse Scheme – deferral of duty until domestic sale.
IT:
Safe harbour – a safe harbour margin of 15.5% for IT services; and
A tax holiday – foreign cloud providers using notified Indian data centres are tax-exempt until 2047.
Construction:
Tax benefits – 100% profit deduction on affordable housing projects under the ITA; and
Concessional goods and services tax – a 1% rate on affordable housing.
Business consulting:
Non-resident expert exemption – a tax exemption on foreign income for five years.
Investors also benefit from common incentives such as special economic zones and customs duty exemptions or reliefs available under export and investment promotion schemes.
4 What are the key sectoral risks and how can they be mitigated?
Manufacturing – land acquisition delays and permitting complexities may be mitigated by locating operations in established industrial parks or NICDP corridors;
Electronics engineering – dependence on imported components and certification delays may be mitigated through diversified supply chains and early certification planning;
Trading – regulatory uncertainty in e-commerce and multi-brand retail restrictions may be mitigated by structuring operations through wholesale or SBRT models;
IT – data protection and cybersecurity obligations may be mitigated through strong data governance and incident reporting frameworks;
Construction – land title risks and FDI lock-in periods may be mitigated through detailed title due diligence and structured exit planning; and
Business consulting – transfer pricing scrutiny on cross-border services may be mitigated through clear intercompany agreements and robust documentation.
Apart from sector-specific risks, the key risk is misclassification. Investors must lock the operating model first, then align the FDI route and screen all investors for Press Note 3 exposure.
