Foreign Direct Investment | Economics Optional Notes for UPSC PDF Download

FDI Entry Routes

• FDI under sectors is permitted either through the Automatic route or Government route.
• Under the Automatic Route, the non-resident or Indian company does not require any approval from the Government of India.
• Whereas, under the Government route, approval from the Government of India is required prior to investment. Proposals for foreign investment under the Government route are considered by the respective Administrative Ministry/Department.

FDI Permitted Under Sectors as per FDI Policy 2020

100% Automatic route

• Agriculture & Animal Husbandry, Air-Transport Services (Non Scheduled Air Transport Service / Helicopters services/ seaplane services requiring DGCA approval), Airports (Greenfield + Brownfield), Asset Reconstruction Companies, Auto-components, Automobiles, Biotechnology (Greenfield), Broadcast Content Services (Up-linking & down-linking of TV channels, Broadcasting Carriage Services, Capital Goods, Cash & Carry Wholesale Trading (including sourcing from MSEs), Chemicals, Coal & Lignite, Construction Development, Construction of Hospitals, Credit Information Companies, Duty Free Shops, E-commerce Activities, Electronic Systems, Food Processing, Gems & Jewellery, Healthcare(Greenfield), Industrial Parks, IT & BPM, Leather, Manufacturing, Mining & Exploration of metals & non-metal ores, Other Financial Services, Services under Civil Aviation Services such as Maintenance & Repair Organizations, Petroleum & Natural gas, Pharmaceuticals (Greenfield), Plantation sector, Ports & Shipping, Railway Infrastructure, Renewable Energy, Roads & Highways, Single Brand Retail Trading, Textiles & Garments, Thermal Power, Tourism & Hospitality, White Label ATM Operations and Insurance & Insurance Intermediaries.

Upto 100% Automatic route

• Infrastructure Company in the Securities Market - 49%
• Insurance - upto 49%
• Medical Devices - upto 100%
• Pension - 49%
• Petroleum Refining (By PSUs) – 49%
• Power Exchanges – 49%

Upto 100% FDI permitted under Government route

• Banking (Public sector) – 20%
• Broadcasting Content Services (FM Radio, uplinking of news and current affairs TV Channels)– 49%
• Uploading/Streaming of ‘News & Current affairs’ through digital media – 26%
• Investment by Foreign airlines – 49%
• Core Investment Company – 100%
• Food Products Retail Trading – 100%
• Mining & Minerals separations of titanium bearing minerals and ores, Its value addition and integrated activities – 100%
• Multi-Brand Retail Trading – 51%
• Print Media (publications/ printing of scientific and technical magazines/speciality journals/ periodicals and facsimile edition of foreign newspapers) – 100%
• Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs) – 26%
• Satellite (Establishment and operations) – 100%

 Upto 100% FDI permitted under Automatic & Government

• Air transport services (Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline; Regional Air Transport Service) – upto 49% (auto) (Upto 100% under automatic route for NRIs) + above 49% and up to 74% (Govt.)
• Banking (Private sector) – upto 49% (auto) + above 49% and up to 74% (Govt)
• Biotechnology (brownfield) – upto 74% (auto) + above 74% (Govt)
• Defence – upto 74% (auto) + above 74% (Govt)
• Healthcare (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Pharmaceuticals (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Private Security Agencies – upto 79% (auto) + above 49% and up to 74% (Govt)
• Telecom Services – upto 49% (auto) + above 49% (Govt)

Notes:

• All the information pertaining to the sectors as stated above is in line with the extant Consolidated FDI Policy issued by DPIIT as amended from time to time.
• In sectors/ activities not listed above, FDI is permitted up to 100% on the automatic route, subject to applicable laws/regulations; security and other conditionalities.
• A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment. Please refer to press note 3.

List of Prohibited Sectors

• Lottery Business including Government/ Private lottery, online lotteries etc.
• Chit Funds
• Trading in Transferable Development Rights (TDR)
• Manufacturing of Cigars, cheroots, cigarillos, and cigarettes (tobacco or tobacco substitutes)
• Gambling and betting including casinos
• Nidhi Company
• Real Estate Business or Construction of Farm Houses
• Sectors not open to private sector investments – atomic energy, railway operations (other than permitted activities mentioned under the consolidated FDI Policy)
  • Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities
  • Real estate business shall not include the development of town shops, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014

Repatriation

• Repatriation of dividend: Dividends are freely repatriable without any restrictions.
• Repatriation of Interest: Interest on fully, mandatorily & compulsorily convertible debenture is freely repatriable without any restrictions
• Repatriation of capital: Remittance of the asset (i.e. sale proceeds of share and securities and their remittance) is governed by the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 under FEMA.
  • Reporting of transfer of capital instruments between residents and non-residents and vice versa is to be done in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category-I bank, within 60 days from the transfer of capital instrument or date of receipt of the amount of consideration, whichever is earlier.
  • AD Category-I bank can allow remittance of sale proceeds (net of applicable taxes) of a security to the seller of shares resident outside India provided security has been held on repatriation basis, Sale of security has been made in accordance with the prescribed guidelines and NOC/ tax clearance certificate from the Income Tax department.
  • AD Category-I banks are allowed to remit winding up proceeds of the companies which are under liquidation subject to payment of taxes.