Why India for FDI?
India is one of the top FDI destinations globally, receiving over USD 70 billion annually. A large consumer market, competitive labour costs, a young demographic, and progressive liberalisation of FDI policy make India attractive for foreign investors across sectors.
The Two Routes of FDI
Automatic Route
No prior approval from the Government or RBI is required. The investor simply makes the investment and files the required reports. Sectors like manufacturing, IT, e-commerce, food processing, and most services fall under this route.
Government Route (Approval Route)
Certain sensitive sectors require prior approval from the Ministry of Finance or the relevant administrative ministry. Examples include defence (beyond 74%), broadcasting, print media, satellites, and multi-brand retail.
Key Sectors and FDI Caps
| Sector | Cap | Route |
|---|---|---|
| Manufacturing | 100% | Automatic |
| IT & Software | 100% | Automatic |
| Pharmaceuticals (Brownfield) | 74% (up to 100% with approval) | Auto/Govt |
| Insurance | 74% | Automatic |
| Telecom | 100% | Automatic |
| Defence | 74% (100% with approval) | Auto/Govt |
| Banking – Private | 74% | Auto/Govt |
| Multi-brand Retail | 51% | Government |
| Print Media | 26% | Government |
Eligible Capital Instruments
FDI can be received through:
- Equity Shares
- Compulsorily Convertible Preference Shares (CCPS)
- Compulsorily Convertible Debentures (CCD)
- Share Warrants: (subject to conditions)
Step-by-Step FDI Process
Step 1: Structure the Investment
Decide on the entry vehicle — subsidiary (Pvt Ltd), LLP, or branch office. For most foreign companies, a wholly owned subsidiary (WOS) as a Pvt Ltd company is preferred.
Step 2: Incorporate the Company
Register a Private Limited Company in India through the MCA portal. Minimum two shareholders and two directors (at least one must be an Indian resident). Typical timeline: 10–15 working days.
Step 3: Open a Bank Account
The company opens an NRE/ESCROW bank account in India to receive the FDI proceeds.
Step 4: Receive Funds
Foreign investor remits the investment amount to the Indian company's account via international wire transfer.
Step 5: Issue Shares — FC-GPR Filing
Within 30 days of receiving funds, the Indian company issues shares and files the FC-GPR form on the RBI's FIRMS portal. Documents required include:
- CS Certificate (KYC of foreign investor)
- Valuation Certificate from Chartered Accountant/SEBI-registered Merchant Banker
- Board resolution for allotment
- MOA/AOA of the company
Step 6: Annual Compliance
- FLA Return: by 15 July each year
- Annual Return (MGT-7): and **Financial Statements (AOC-4)** with MCA
- Regular RBI reporting on any subsequent transactions
Pricing Guidelines
FDI investments must be made at a price that is not less than the fair market value (for unlisted companies, this is determined by a SEBI-registered Merchant Banker or a CA using DCF or NAV method). For listed companies, SEBI takeover regulations apply.
Common Issues Foreign Investors Face
- 1Downstream investment: If the Indian subsidiary invests further into another Indian entity, additional compliance is triggered
- 2Repatriation of dividends: Allowed freely but requires proper documentation
- 3Transfer of shares: FC-TRS filing required within 60 days of any share transfer between resident and non-resident
Our Advisory Role
Ladhawala & Associates advises foreign investors on entry structure, handles all RBI filings (FC-GPR, FC-TRS, FLA), manages downstream investment compliance, and ensures your India operations remain fully compliant with FEMA and company law year-on-year.
