RBI Circular on Foreign Investment Policy
Foreign Investment in IndiaForeign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA) 1999. Reserve Bank has issued Notification No. FEMA 20/2000-RB dated May 3, 2001 which contains the regulations in this regard. This notification has been amended from time to time.
Entry routes for investments in India
- Foreign investment is freely permitted in almost all sectors. Under Foreign Direct Investments (FDI) Scheme, investments can be made by non-residents in the shares / convertible debentures of an Indian Company, under two routes; Automatic Route and Government Route. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. Under the Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required. Entry route for non-resident investors in India as well as sector specific investment limits in India are given in Annex-1.
- FDI Policy is formulated by the Government of India. The policy and procedures in respect of FDI in India is available in "the Manual on Investing in India- Foreign Direct Investment, Policy & Procedures". This document is available in public domain and can be downloaded from the website of Ministry of Commerce and Industry, Department of Industrial Policy and Promotion - http://www.dipp.nic.in/manual/fdi_text_manual_nov_2006.pdf. FEMA regulations prescribe the mode of investments i.e. manner of receipt of funds, issue of shares/ convertible debentures and preference shares and reporting of the investments to RBI.
Prohibition on Investment in India
- Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as Trusts) which is engaged or proposes to incorporated or not (such as Trusts) which is engaged or proposes to engage in the following activities.
- Business of chit fund, or
- Nidhi Company, or
- Agricultural or plantation activities, or
- Real estate business, or construction of farm houses.
- Trading in Transferable Development Rights (TDRs).
- It is clarified that Real Estate Business does not include development of townships, construction of residential/commercial premises, roads or bridges. It is further clarified that partnership firms/proprietorship concerns having investments as per FEMA regulations are not allowed to engage in Print Media sector.
- In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as (Annex-2).
- Retail Trading (except single brand product retailing).
- Atomic Energy.
- Lottery Business.
- Gambling and Betting.
- Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations).