FDI Restrictions: Where Investment is Prohibited
The current policy strictly prohibits Foreign Direct Investment (FDI) in the following sectors:
- Gambling and Betting: No investments are allowed in gambling and betting activities.
- Lottery Business: This includes all types of lotteries, whether government or private, and online lotteries.
- Restricted Activities: Sectors not open to private sector investment, such as atomic energy and railways.
- Retail Trading: Except for single-brand product retailing, FDI is not permitted in retail trading.
- Chit Fund Business: Investments in chit fund businesses are prohibited.
- Nidhi Companies: These companies, which deal with borrowing and lending money among members, do not allow FDI.
- Real Estate Business: This includes the construction of farmhouses.
- Trading in Transferable Development Rights (TDRs): No FDI is allowed in TDR trading.
- Tobacco Manufacturing: This includes the production of tobacco, cigars, cheroots, cigarillos, cigarettes, and other tobacco substitutes.
- Agriculture: General agricultural activities are restricted, except for specific areas such as floriculture, horticulture, apiculture, and the cultivation of vegetables and mushrooms under controlled conditions. Other exceptions include seed and planting material development, animal husbandry (including dog breeding), viniculture, aquaculture under controlled conditions, and services related to the agro and allied sectors.
Sectors Where FDI is Allowed with Conditions
FDI is allowed in certain sectors but with caps on the maximum permissible foreign holding. Detailed information on sectoral caps can be found in the FDI Circular 2014.
Below are some sectors where FDI is permitted under the Automatic Route or Approval Route, subject to certain conditions or restrictions.
1. Foreign Investment in Single-Brand Retail Trading:
The Indian government has opened up opportunities for Foreign Direct Investment (FDI) in single-brand retail trading, allowing up to 100% foreign ownership. However, there are specific conditions that investors must meet:
- Single Brand Requirement: The products sold must be from a single brand and must be sold under that same brand in every country, including India.
- Brand Ownership: The foreign investor must either own the brand or have a legal agreement with the brand owner to retail the products.
- Sourcing Requirements: If FDI exceeds 51% of the total capital, at least 30% of the products sold must be sourced from Indian small industries, village and cottage industries, or artisans.
- E-Commerce Restrictions: Retail trading through e-commerce platforms is not allowed.
- Application Process: Investors need to submit an application to the SIA, specifying the product categories under the single brand. Any changes in these categories require new approval from the government.
2. Investment in Multi-Brand Retail Trading:
Foreign investment in multi-brand retail trading is permitted up to 51%, but only under specific conditions and with state approval. Key conditions include:
- Minimum Investment: A minimum of $100 million must be brought in as FDI.
- Back-End Investment: At least 50% of the initial $100 million must be invested in back-end infrastructure.
- Sourcing Requirements: At least 30% of the value of procurement must come from Indian micro, small, and medium enterprises.
- Retail Locations: Retail outlets can only be set up in cities with a population of over 1 million (as per the 2011 census).
- E-Commerce Restrictions: Multi-brand retail trading through e-commerce platforms is not permitted.
3. FDI in Township, Housing, and Construction Development Projects
FDI in township, housing, and construction development projects is allowed up to 100% under the automatic route, with the following conditions:
- Minimum Area Requirements:
10 hectares for serviced housing plots.
50,000 sq. mt. for construction development projects. - Capitalization Requirements: Wholly owned subsidiaries must have a minimum capitalization of $10 million, while joint ventures with Indian partners should have at least $5 million.
- Lock-In Period: Initial FDI cannot be repatriated for three years from achieving the minimum capitalization. Early exit is possible with government approval.
- Development Timeline: At least 50% of the project must be developed within five years from obtaining all statutory clearances.
- Exceptions: The restrictions do not apply to hotels, tourism, hospitals, special economic zones, education, old age homes, and investments by NRIs.
4. FDI in the Telecom Sector:
FDI in the telecom sector can go up to 49% automatically and up to 100% with prior approval from the FIPB. This includes various telecom services such as cellular, long-distance, and value-added services.
- Investment Limits: The total foreign holding includes investments by FIIs, NRIs, and other foreign instruments.
- Approval Considerations: FIPB reviews proposals to ensure investments do not come from countries of concern and complies with regulations on data transfer and network information.
5. Investment in Asset Reconstruction Companies (ARCs)
Foreign investment in ARCs, registered with the RBI, is allowed but must be strictly FDI. FIIs can invest in security receipts (SRs) issued by ARCs, with a cap of 74% per tranche and no single FII holding more than 10%.
6. FDI in Infrastructure Companies in the Stock Markets
Foreign investment in infrastructure companies, such as stock exchanges and clearing corporations, is allowed up to 49%, with specific limits for FIIs and FDI components. FDI requires government approval, and FII investment is only permitted through secondary market purchases.
7. Investment in Credit Information Companies (CICs)
Foreign investment in CICs is capped at 49% of the paid-up capital. SEBI-registered FIIs can invest up to 24% (within the 49% limit) in listed CICs, but no FII can hold more than 10% of the equity.
8. Investment in Commodity Exchanges
Foreign investment in commodity exchanges is limited to 49%, requiring government approval. FII investments are restricted to secondary market purchases, and no single non-resident entity can hold more than 5% of the total equity.
9. Investment in Public Sector Banks
FDI and FII investment in nationalized banks and the State Bank of India are capped at 20% overall. This limit also applies to state banks and is governed by banking regulations
10. Investment in Print Media and News Publications
FDI up to 100% is allowed for publishing facsimile editions of foreign newspapers by their original owners, provided they comply with guidelines from the Ministry of Information and Broadcasting. FDI in India editions of foreign magazines or newspapers dealing with news and current affairs is allowed up to 26%, with similar guidelines and approvals required.
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