FDI PROCEDURES

Foreign investment policy in India has been significantly liberalized since comprehensive
macroeconomic reforms began in July 1991.1 As 100 percent foreign equity
is permitted in most sectors via automatic approval, with a handful of sectors subject to
industrial licensing restrictions,2 and only a few industries are entirely closed to foreign
participation due to political or national security sensitivities (appendix A).3 This chapter will
review India’s regulatory environment for FDI, including the approval process for new
investments; regulation related to labor and intellectual property concerns; and legal
alternatives for dispute settlement.
Foreign investment in India is approved through two routes: automatic and case-by-case
government approval. Under the automatic route, foreign investment in an Indian entity does
not require prior government approval. To qualify for the automatic route, companies
investing in approved industries must notify the Reserve Bank of India (RBI) within 30 days
of receipt of funds and issuance of shares to the foreign investor.
In other cases, government approval by the Foreign Investment Promotion Board (FIPB) is required.4 These cases include sectors that require industrial licenses, foreign investments exceeding 24 percent of equity in small-scale industries,5 foreign investments where the foreign interest has an existing venture in the same field in India, and all proposals falling outside the
predetermined sectoral caps or in sectors where FDI is usually not permitted, but authorized
in certain cases at the discretion of the Indian government.6 Foreign investments in existing
companies and foreign technology collaboration agreements are also subject to case-by-caseapproval requirements.7 There appear to be few or no limitations on forms of establishment.