Foreign direct investment (FDI) involves investment by a company in another country. FDI can take several forms, such as joint ventures, capital market investments, and private placements. There are guidelines on what sectors and entities can participate in FDI in India, as well as restrictions on certain sectors. The document provides details on the forms, participants, approval processes, benefits and disadvantages of FDI in India.

2. Foreign direct investment, or FDI, is a type
of investment that involves the injection of
foreign funds into an enterprise that operates in
a different country of origin from the investor.
In a simple term FDI is “investment by a
company in a country other than that in which
the company is based”.

3. FDI is permitted as under the following forms of
investments:
1. Through financial collaboration.
2. Through joint ventures and technical
collaborations.
3. Through capital markets via Euro issues.
4. Through private placement and preferential
allotments.

4.  Person Resident outside India except of Pakistan.
 Entity incorporated outside except Pakistan &
Bangladesh.
 Person Resident of Bangladesh & entities
incorporated there can make investment in India
in form of shares and conv. Debentures with prior
approval of RBI.
 SEBI registered Foreign Venture Capital Investor
(FVCI).

5.  NRI citizen as well as citizen of Nepal and Bhutan on
repatriation basis.
 Erstwhile OBCs as incorporated non-resident entities.
SEBI registered FIIs or NRIs through a registered broker on
recognised Indian Stock Exchange.
An FII under the Portfolio Investment Scheme.
(An FII may invest under the Portfolio Investment Scheme
which limits the individual holding of an FII to 10% of the
capital of the company and the aggregate limit for FII to 24%
of the capital of the company.)

6. FDI is not permitted under the following sectors:
 Arms & Ammunition.
 Atomic Energy.
 Railway Transport.
 Coal & lignite.
 Mining of
Iron, Manganese, chrome, gypsum, sulphur, gold
, diamonds, copper, zinc.
 Lottery Business.
 Gambling & Betting.
 Chit Fund & Nidhi Company.

7.  Retail Trading (except single brand retailing).
 Trading in Transferable Development Rights.
 Activity /sector not opened for private sector
investment.
 Agriculture except few prescribed
 Plantation except tea plantation
 Real Estate Business except few prescribed
 Manufacture of Cigars, cigarettes etc.

8.  Petroleum Sector
 Investing Companies in Infrastructure and
Service Sector
 Defense & Strategic Industries
 Atomic Minerals
 Print Media
 Broadcasting
 Postal Services
 Courier Services
 Establishment & operation of Satellite
 Development of Integrated Township
 Tea Sector
 Asset Reconstruction Company

9. An Indian Company can arrange fund by issue of following
type of instruments:
 Equity Shares.
 Preference Shares ( Fully, Compulsory & Mandatory
Convertible).
 Debentures ( Fully, Compulsory & Mandatory
Convertible).
 Issue of Foreign Currency Convertible Bonds(FCCBs).
 Depository Receipts (DRs) ( American Depository
Receipts (ADRs) & Global Depository Receipts (GDRs)).
 Foreign Currency Exchangeable Bond (FCEBs).

10. Automatic Route Automatic Route
No Prior Regulatory Approval but only Foreign Investment Promotion Board
Post Facto Filings to RBI, through AD (FIPB)
 Allowed for Most sectors  Only for cases other than Automatic
Route and those mentioned in sectoral
 Limits : Sectoral caps/ stipulated sector policy
specific guidelines
 Inward remittances through proper  Applies to cases with existing venture/ tie
banking channels up in „same filed‟
 Pricing valuations prescribed
 Post facto filing with 30 days of fund  Applies to investment over 24% in SSI
receipt reserved items
 Filings within 30 days of share allotment
 Includes Technical Collaboration/ Brand
Name/ Royalty

11.  Advantages  Disadvantages
 Inflow of equipment and  Crowding of local industry.
technology.
 Conflicts of laws
 Competitive advantage &
innovation.  Loss of control.
 Financial resources for  Effect on natural
expansion. environment.
 Employment generation.
 Effect on local culture.
 Contribution to exports
growth.
 Improved consumer welfare
through reduced cost , wider
choice and improved quality.

12. The Penalty could be up to thrice the sum involved
where amount is quantifiable
If the Amount is not quantifiable , penalty up to Rs 2
lacs can be imposed
If contravention is of continuing nature, further
penalty up to Rs 5000 per day during which the
contravention continues can be imposed.