Sector Wise FDI Limit in India - Permitted Sectors of FDI

Foreign Direct Investment (FDI) plays a crucial role in the growth of the Indian economy. Keeping this in mind, most sectors in India are open for foreign direct investment (FDI). However, a few sectors are completely prohibited from receiving FDI. In the list of sectors where FDI is allowed, some sectors still have restrictions or limits on the percentage of foreign investment allowed. It is essential for investors and businesses seeking opportunities in foreign markets to understand these limitations.

To better understand the FDI Policy in India and how it may impact your proposed FDI in the India Subsidiary or Joint Venture Company. In order to regulate foreign direct investment (FDI) effectively, it is essential to classify industrial sectors into three categories. The first category is Prohibited Sectors, followed by two types of permitted sectors. The first type allows 100% FDI, while the second type has a limited FDI cap.

Prohibited Sectors

These are sectors where Foreign Direct Investment (FDI) is not allowed at all. The prohibition could be due to various reasons, such as national security, cultural preservation, or public health. Here is the complete list of Prohibited Sectors in India.

Permitted Sectors with 100% FDI

In specific sectors, foreign investors can incorporate a company in India with 100% equity without obtaining any prior government approval, however, an intimation upon receipt of the FDI Remittance is filed with the RBI in form FC-GPR. This policy is in place to encourage foreign investment in areas essential for economic growth, such as information technology, manufacturing, and certain service sector areas. The aim is to attract foreign capital, technology, and expertise to enhance the capabilities of the domestic industry. As mentioned, all sectors not prohibited or falling within the “Permitted Sectors with FDI Limit” are included in the Permitted Sector with 100% FDI.

Permitted Sectors with FDI Limit

Foreign Direct Investment (FDI) is permitted in certain sectors, but only up to a certain percentage and often with specific conditions. These limits are in place to protect domestic industries, maintain competitive balance, or due to strategic considerations. For example, in sectors such as broadcasting, banking, or defence, there may be a cap on FDI (such as 49%, 74%, etc.) to ensure that control and decision-making remain predominantly in domestic hands or to safeguard national interests. These limits are often accompanied by other regulatory requirements such as local partnerships, specific approval processes, or operational guidelines. The table below displays the FDI limit for various sectors in India, along with the FDI routes.

Note on Press Note 3 (PN-3) :

It is important to note that according to Press Note 3 of 2020, foreign direct investment (FDI) from countries that share a land border with India, such as China, Pakistan, Bangladesh, Afghanistan, etc., is restricted. This means that investments from these countries require government approval, regardless of the FDI cap in the sector concerned. The main objective of this directive is to prevent opportunistic takeovers or acquisitions of Indian companies during times of economic vulnerability. Therefore, it is crucial for investors from these neighbouring countries to understand the implications of Press Note 3 (PN-3) in order to navigate the FDI process in India.

Automatic Vs Government Route of FDI

It’s important to understand that there are two methods for processing FDI in the permitted sector. Applications that fall within the allowed limit of FDI and are not affected by Press Note 3 are processed automatically without prior permission. However, all other cases for FDI in permitted sectors, such as those that exceed the allowed FDI percentage or are affected by PN-3, are processed through the Government Route, which is also known as the approval route. In such cases, prior permission from the central government is required. You can also read the comparison between automotive and government routes of FDI.