India has a comprehensive and dynamic FDI Policy that outlines the sectors where foreign investment is allowed, the percentage of foreign equity allowed, and the specific conditions that need to be met for FDI to be permitted in different sectors. The policy is designed to encourage foreign investment in sectors that have high growth potential, while also regulating investment in sectors deemed sensitive for national security, cultural preservation, or public interest.

Below is an overview of the FDI Policy for various sectors in India:

1. Agriculture and Allied Sectors

• FDI Policy:
  • 100% FDI is allowed under the automatic route in agriculture and allied sectors subject to specific conditions.
• Conditions:
  • FDI is allowed in processing of agricultural products, but there are certain restrictions on the purchase of agricultural land and the production of crops and plantation activities.
  • Foreign investors are allowed in food processing, agriculture infrastructure (warehousing, cold storage), and related sectors like horticulture, dairy farming, and animal husbandry.
• Restrictions:
  • Investment in multi-brand retail (except food) requires government approval.
  • FDI is not permitted in plantation activities except in tea, coffee, rubber, cardamom, and spices.

2. Construction Development

• FDI Policy:
  • 100% FDI is allowed under the automatic route in the construction development sector.
• Conditions:
  • The investment is allowed in construction of townships, built-up infrastructure, and construction of residential and commercial properties.
  • Minimum capital requirement: USD 5 million for development of townships and USD 10 million for development of built-up infrastructure.
• Restrictions:
  • Investment is not allowed in real estate trading, and land banking is prohibited.
  • FDI is restricted in residential properties where the investment does not meet the minimum floor area of 50,000 square meters.

3. Defense

• FDI Policy:
  • 49% FDI is allowed under the automatic route in defense.
  • Beyond 49%, FDI is allowed under the government approval route.
• Conditions:
  • Investment is allowed in the defense manufacturing sector and in defense-related technologies, subject to government and national security considerations.
• Restrictions:
  • FDI in defense is subject to conditions of industrial license, and foreign investors must ensure that FDI does not exceed 49% unless the government is satisfied with the defense technology transfer.
  • Investments above 49% require a security clearance and approval from the Ministry of Defense.

4. Financial Services

• FDI Policy:
  • 100% FDI is allowed in banking under the automatic route.
  • Investment in insurance and pension sectors is subject to certain limits.
• Conditions:
  • Insurance: Foreign investment is allowed up to 49%, with approval route for foreign investors holding more than 49%.
  • Pension Funds: Foreign investors can hold 49% in pension companies with government approval.
  • In the asset management sector, FDI is allowed up to 74% under the automatic route.
• Restrictions:
  • FDI in banking requires compliance with capitalization norms.
  • Investment in stock exchanges and clearing corporations is subject to restrictions.

5. Media and Broadcasting

• FDI Policy:
  • 100% FDI is allowed in broadcasting (cable and DTH) under the automatic route.
  • FDI in print media is allowed up to 26% under the automatic route.
  • Up to 49% FDI is allowed in news and current affairs broadcasting under the approval route.
• Conditions:
  • FDI in news media and current affairs requires compliance with guidelines set by the Ministry of Information and Broadcasting.
  • Print media: FDI is subject to the requirement that no foreigner can hold more than 26% of the equity in newspapers or magazines in India.

6. E-Commerce

• FDI Policy:
  • 100% FDI is allowed in e-commerce under the automatic route.
  • However, there are specific restrictions on the business models that foreign investors can follow.
• Conditions:
  • FDI is allowed in business-to-business (B2B) e-commerce and marketplace models. However, FDI is not allowed in inventory-based e-commerce (where the company owns the goods being sold on the platform).
  • FDI is also restricted to ensure that the e-commerce platform does not engage in activities that could result in price manipulation or unfair trade practices.
• Restrictions:
  • The foreign investor in e-commerce cannot have control over the inventory or supply chain.
  • In marketplace models, foreign investors cannot control or influence the prices or operations of individual vendors on the platform.

7. Healthcare

• FDI Policy:
  • 100% FDI is allowed in healthcare and medical services under the automatic route.
• Conditions:
  • Hospitals, diagnostic centers, medical devices, and pharmaceuticals are open for FDI.
  • Investment in healthcare sectors like health insurance and pharmaceutical distribution is also permissible.
• Restrictions:
  • Foreign investment in the manufacturing of pharmaceuticals and medical devices is subject to drug and patent laws and may require government approval.

8. Retail

• FDI Policy:
  • 100% FDI is allowed in single-brand retail under the automatic route.
  • FDI in multi-brand retail is permitted up to 51% under the approval route.
• Conditions:
  • Single-brand retail: FDI is allowed up to 100%, but at least 30% of the total procurement must be sourced from India.
  • For multi-brand retail, FDI is permitted under specific conditions:
    • Minimum investment of USD 100 million.
    • At least 50% of the total investment must be in back-end infrastructure like warehouses, distribution, and logistics.
    • The retail stores should be set up in states that permit FDI.

9. Information Technology (IT) and Software

• FDI Policy:
  • 100% FDI is allowed under the automatic route in the IT and software sectors.
• Conditions:
  • Investment is allowed in software development, technology infrastructure, and IT-enabled services.
  • Foreign investors can set up BPOs, call centers, and data processing units.

10. Pharmaceuticals

• FDI Policy:
  • 100% FDI is allowed in the pharmaceuticals sector under the automatic route.
• Conditions:
  • For greenfield projects (new investment), 100% FDI is allowed without restrictions.
  • For brownfield projects (existing companies), FDI is capped at 74%.
• Restrictions:
  • In the pharmaceuticals sector, FDI is subject to government approval for investments that involve the manufacturing of specific drugs and medicines.

11. Automobile Sector

• FDI Policy:
  • 100% FDI is allowed in the automobile sector under the automatic route.
• Conditions:
  • Foreign investment is allowed in the manufacturing of automobiles, automobile parts, and components.

12. Aviation

• FDI Policy:
  • 100% FDI is allowed in the air transport sector under the automatic route for cargo airlines.
  • In passenger air transport services, FDI is allowed up to 49% under the automatic route, with foreign airline participation restricted to 49%.
• Conditions:
  • Foreign investment is allowed in the aircraft leasing and ground services sectors.

13. Banking

• FDI Policy:
  • 100% FDI is allowed in private sector banks under the automatic route.
• Conditions:
  • For public sector banks, FDI is allowed subject to sectoral caps.
  • Foreign investments in private sector banks are subject to capitalization norms.

Conclusion

The FDI policy of India has been designed to open up multiple sectors for foreign investment while ensuring the country’s security, economic interest, and sovereignty are protected. While the policy allows substantial FDI in many sectors under the automatic route, some sectors require government approval due to national security concerns or sensitive areas like defense, telecommunications, and media. It is important for investors to check sector-specific guidelines and limits before proceeding with investments in India.