FDI Policies in India

Prof. Tarun Das, IILM, New Delhi

Annex-A:
List of Activities for which RBI Automatic Route for FDI is not allowed

1. RBI Automatic route not available

1.1 Domestic airlines

1.2 Petroleum sector (except for private sector oil refining)
1.3 Investing companies in infrastructure and services
1.4 Defense and strategic industries
1.5 Atomic minerals
1.6 Print media
1.7 Broadcasting
1.8 Postal services
1.9 Courier services
1.10 Establishment and operation of satellite
1.11 Development of integrated township
1.12 Tea sector

2. List of activities for which FDI is prohibited

2.1 Chit fund

2.2 Nidhi company
2.3 Agriculture and plantation
2.4 Real estate or construction of farm houses
2.5 Trading in Transferable Development Rights
2.6 Retail trading (except single brand product retailing)
2.7 Atomic energy
2.8 Lottery business
2.9 Gambling and betting
2.10 Housing and real estate
2.11 Agriculture (except floriculture, development of seeds, animal husbandry,
pisiculture and cultivation of vegetables and mushrooms etc.)

3. All activities/ sectors would require prior government approval for FDI in
the following circumstances:
i. Where provisions of Press Note 1 (2005 series) are attracted.
ii. Where more than 24% foreign equity is proposed to be inducted for
manufacture of items reserved for Small Scale Sector.
4. In sectors/ activities listed below, FDI is permitted up to 100% on the
automatic route subject to applicable sectoral rules/ regulations.

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5. Sector-specific policy for FDI : In the sectors/ activities, FDI up to the limit
indicated in Annex-B is allowed subject to other conditions as specified.

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 Annex-B: FDI Regime in India

Sectors Cap on foreign equity Approval

process

1. Agriculture (except Not allowed n.a.

development of seeds,
floriculture, animal husbandry,
pisiculture, cultivation of
vegetables and mushrooms) and
Plantations (except tea
plantations).

2. Mining
2.1 coal/lignite mines for captive 100% Automatic
consumption by power projects,
iron and steel, cement production
and other eligible activities
permitted under the Coal Mines
Nationalization Act 1973
2.2 Coal processing plant 100% Automatic

2.3 Exploration and mining of 100% Automatic

diamond and precious stones, gold,
silver and minerals
3. Petroleum Cap on Foreign Equity Approval by
3.1 Exploration in small fields 100% through competitive FIPB
bidding
3.2 Exploration in medium size 60% for unincorporated JVs , FIPB
fields 51% for incorporated JVs.
3.3 Oil Refining with private sector 100% Automatic
unit
3.4 Oil Refining with public sector 26% FIPB
unit
3.5 Petroleum products and 51% FIPB
pipelines
3.6 Infrastructure related to 74% FIPB
marketing of petroleum products
3.7 Market study and investment/ 100% through wholly owned FIPB
financing subsidiaries

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4. Power Cap on Foreign Equity Approval by
Electricity generation, 100% Automatic
transmission and distribution
5. Atomic Energy
5.1 Mining and mineral Up to 74% and FDI beyond FIPB
separation, value addition and 74% subject to clearance by
integrated projects the Atomic Energy
Commission
5.2 Others Prohibited n.a.
6. Manufacturing
6.1 Small scale industries 24% and beyond 24% is FIPB
subject to a mandatory export
obligation of at least 50% of
annual products.
6.2 Drugs/ pharmaceuticals (except 100% for bulk products, their Automatic.
for activities acquiring compulsory intermediaries and Exceptions
and drugs produced with the use of formulations require
recombinant DNA technology and compulsory
specific cell / tissue targeted licensing.
formulations).
6.3 Telecommunications equipment 100% Automatic
6.4 Pollution control equipment 100% Automatic.

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 Sectors Cap on foreign equity Approval
process

6.5 Distillation and brewing of 100% FIPB

alcoholic drinks
6.6 Cigars and cigarettes of tobacco 100% FIPB
and manufacture of tobacco
substitutes
6.7 Industrial explosives including 100% except for defense FIPB
detonating fuses, safety fuses, gun related and SSI reserved items
powder, nitrocellulose and matches
6.8 Hazardous chemicals 100% FIPB
6.9 Arms, ammunitions, items of 26% subject to the guidelines FIPB
defense equipment, defense aircraft and licensing of the Min. of
and warships Defense
7. Financial Services
7.1 Banking 74% subject to RBI guidelines Automatic
Non-Banking Financial Up to 100% subject to Automatic
Corporations minimum capitalization
(Presently 19 NBFC activities norms as follows:
allowed include merchant US$0.5 million for FDI up to
banking, under writing, portfolio 51%,
management, investment advisory US$5 million for FDI above
services, financial consultancy, 51% and up to 75%, and
stock broking, asset management, US$50 million for FDI above
venture capital, custodial services, 75% and up to 100% to be
factoring, credit reference brought upfront.
agencies, credit rating, leasing and
finance, housing finance, forex
broking, credit card business,
money changing business, micro
credit and rural credit)
7.3 Insurance 26% subject to licensing Automatic
issued by the IRDA
7.4 Venture Capital Fund and Caps subject to SEBI Automatic
Venture Capital company regulations and sector specific
FDI caps
8. Telecommunications services
8.1 Basic, cellular, value added 49% subject to licensing by Automatic
service and global mobile personal the DOT and security
communications by satellite requirements
8.2 ISPs with gateways, radio- 74% Automatic up to
paging and end-to-end bandwidth 49% otherwise
FIPB
8.3 ISPs not providing gateways 100% subject to divestment of Automatic up to

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(both for satellite and submarine 26% equity to Indian firms 49% otherwise
cables), infra-structure providers within five years, and FIPB on case by
providing dark fibre (IP category I), licensing by the DOT and case basis
electronic mail and voice mail security requirements
8.4 Postal and courier services 100% in courier services FIPB
excluding distribution of
letters
8.5 Broadcasting Up to 49% in uplinking hub FIPB
or teleport facilities for
leasing or hiring out facilities.
Up to 20% in DTH
broadcasting service.
8.6 Information technology 100% Automatic
9. Transport
9.1 Airlines Up to 40% with no direct/ FIPB
indirect equity participation
by foreign airlines, 100%
investment allowed for NRIs
and OCBs
9.2 Airports 100% Automatic up to
74% otherwise
FIPB
Sectors Cap on foreign equity Approval
process

9.3 Shipping 100% Automatic

9.4 Railways
9.5 Construction and maintenance
of ports and harbours, roads, toll
roads, vehicular bridges and
highways
9.6 Mass rapid transit system
10. Other services
10.1 Trading
10.2 Housing and real estate
Reserved for public sector n.a.
100% Automatic
100% Automatic
Prohibited in retail trading. Automatic up to
51% FDI is allowed in the 51% for export
case of export-oriented activities, FIPB
activities. for other cases.
FDI is not allowed except for FIPB
development of integrated
townships and settlements
where 100% FDI is allowed.
NRIs/OCBs are allowed to
invest up to 100% in other
housing and real estate
activities (including
residential and commercial

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 premises).
10.3 Townships and resorts 100% Automatic
10.4 Print media 100% for some activities FIPB

10.5 Hotels, tourism and restaurants 100% Automatic

10.6 Consultancy for pollution 100% Automatic
control and management
10.7 Advertising 100% Automatic
10.8 Films 100% Automatic
10.9 Professional services 51% except for legal service, Automatic
where FDI is not permitted.
10.10 Education (University/ 100% Automatic
College)
10.11 E-commerce Except for retail e-commerce FIPB
where FDI is not permitted
subject to divestment of 26%
equity to Indian firms within
five years.
10.12 Investing companies in Up to 49% subject to the FIPB
infrastructure and services condition that the
management is with the
Indian nationals
10.13 Health and medical 100% Automatic
10.14 Special Economic Zones 100% Automatic
11. Trading
11.1 Primary export activities and 51% Automatic
the undertaking of an export house,
trading house, super trading house
or star trading house
11.2 Trading houses for the 100% FIPB
activities such as exports, bulk
imports, cash and carry wholesale
trading
11.3 E-commerce 100% FIPB

Selected References

Das, Tarun (1993) Macro-economic Framework, Export Promotion Zones and Foreign
Investment in India, Ad-Hoc Working Group on Investment and Financial Flows, pp.1-
75, TD/B/WG.1/Misc.3/ Add.3, UNCTAD, Geneva.

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Das, Tarun (1996) Policies and Strategies for Promoting Private Sector’s Role in
Industrial and Technological Development Including Privatisation in the Asian
Economies, pp.1-171, ST/ESCAP/1696, United Nations, New York.

Das, Tarun (1997) Foreign Investment- Technology Transfer- and Growth Nexus
Towards Greater Regionalisation And Complementation of Manufacturing Production
and Technology Upgrading, pp.1-158, ESCAP, United Nations, Bangkok.

Das, Tarun (1998) Private Sector Development Programmes in Selected Countries in

Asia and Lessons for Africa, pp.1-165, Economic Commission for Africa, United
Nations, Addis Ababa, November 1998.

Das, Tarun (2002) Implications of Globalisation on Industrial Diversification Process

and Improved Competitiveness of Manufacturing in ESCAP Countries, ST/ESCAP/2197,
United Nations, Bangkok: ESCAP.

Das, Tarun (2003a) Economic Reforms in India- Rationale, Scope, Progress and
Unfinished Agenda, Pune, India: Bank of Maharashtra.

Das, Tarun (2003b) An Assessment of Trade in Services- A Case Study for India, Indian
Council for Research on International Economic Relations (ICRIER), New Delhi.

Das, Tarun (2004) Financing International Co-operation- A Case Study for India,
UNDP, New York.

Das, Tarun, Rajaram Dasgupta, Rohit Parmer and Ashis Saha, (2003) Preparation of
An Index of Services Production, National Institute for Bank Management, Pune.

Dunning, J. H. (2002) Determinants of Foreign Direct investment: Globalisation

Induced Changes and the Role of FDI Policies, in Editors, Reforms, Globalisation and
Knowledge Based Economy, ed. Oxford University Press.

Kumar, Nagesh (2001) Globalisation and Quality of Foreign Direct Investment, London
and New York: Routledge.

Rashmi Banga (2004) Impact of government policies and investment agreements on FDI
inflows, ICRIER, Delhi.

World Bank (2004) World Development Report- Making Services Work for Poor
People, Oxford University Press.