India's Foreign Direct Investment regime sits at the intersection of the FEMA 1999, the Consolidated FDI Policy (issued by DPIIT), the Foreign Exchange Management (Non-Debt Instruments) Rules 2019, sector-specific regulators (RBI, IRDAI, SEBI, MeitY, MoIB) and bilateral investment treaties. Novation Legal advises European, US, Asian and Middle-Eastern inbound investors on FDI structuring, sectoral compliance, RBI filings, downstream investment, repatriation and exit — partner-led from term-sheet through closing.
Most sectors permit FDI under the automatic route up to specified caps without prior government approval — IT, manufacturing, e-commerce marketplace, pharmaceuticals (greenfield), construction (residential/commercial), single-brand retail, and many others. The government approval route applies to sectors including defence (above 74%), broadcasting content services, print media, satellites, telecom (above 49%), private security agencies, multi-brand retail and certain financial services. Approval applications are filed through the Foreign Investment Facilitation Portal (FIFP).
FDI sectoral caps and entry conditions are highly granular. Most sectors permit 100% FDI under automatic route. Defence permits 74% under automatic route (above 74% via approval); insurance permits 74% under automatic route; multi-brand retail permits 51% under approval route with state-level concurrence; e-commerce marketplace permits 100% under automatic route but inventory model is prohibited for foreign-funded entities. Lottery, gambling, chit funds, nidhi companies, real estate business (other than construction-development) and tobacco manufacturing are prohibited sectors.
The Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT) is the primary policy document, updated periodically. The Policy must be read alongside the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 (legal force) and sectoral regulations. We map every inbound investment against the Policy, sectoral caps, entry conditions and pricing requirements before structuring or closing.
FEMA compliance for FDI is structural — pricing under the Non-Debt Instruments Rules 2019 (DCF or NAV-based valuation), FC-GPR filing within 30 days of allotment, FIRMS portal compliance, Form FC-TRS for any secondary transfers, annual returns under FLA, and ongoing tax-treaty positioning. We advise on the structural choice between FDI (long-term, sectoral cap), FPI (portfolio, listed equity, SEBI registered) and FVCI (venture capital, sector-specific) — each carries distinct compliance and exit profiles.
RBI filings for FDI follow a calendar — FC-GPR within 30 days of share allotment via FIRMS portal, Form FC-TRS within 60 days of secondary transfer, ODI returns for outbound investments under LRS, and the Annual Foreign Liabilities and Assets (FLA) Return filed by July 15 each year. Non-compliance attracts compounding under FEMA Section 13 — typically 0.05% per day of the contravened amount, capped at three times the amount.
Where a foreign-owned Indian entity (FOCC) invests in another Indian entity, the investment is "downstream" — and the sectoral conditions of the FDI policy apply on a trickle-down basis to the downstream investee. The FOCC trigger is 50%+ foreign ownership or operational control by foreign investors. Downstream compliance includes Form DI filing, sectoral compliance verification at the downstream level, and pricing under FEMA NDI Rules. We structure multi-tier inbound investment to optimise sectoral and tax outcomes.
FDI is prohibited in lottery, gambling and betting (including casinos), chit funds, nidhi companies, trading in transferable development rights, real estate business or construction of farm houses, manufacturing of tobacco products, and activities not open to private sector investment (atomic energy, railway operations). PCI Note 3 (April 2020) introduced the Press Note 3 approval requirement for FDI from countries sharing land borders with India — China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan — requiring government approval for all such FDI regardless of sector or quantum.
FDI repatriation on exit is permitted under FEMA — share buy-back (subject to Section 68 Companies Act and FEMA pricing), share transfer to resident or non-resident (Form FC-TRS for secondary), capital reduction (Section 66 Companies Act with NCLT approval), liquidation distribution (FC-GPR-on-Reduction filings), and secondary sale or strategic exit. Pricing on exit must comply with FEMA Non-Debt Instruments Rules — minimum DCF or NAV-based valuation for transfer to non-residents, maximum the same for transfer to residents.
The most common FDI structuring mistakes we untangle — failure to identify FOCC and trigger downstream compliance, share pricing below FEMA-prescribed valuation, FC-GPR filing past 30-day window (compounding under FEMA Section 13), Press Note 3 approval missed for land-bordering country investors, sectoral cap inadvertently breached through indirect ownership, and round-tripping inadvertently triggered through complex multi-layer structures. Compounding penalties typically range from 0.05% per day to three times the contravened amount.
European inbound investment into India presents distinct considerations — the Bilateral Investment Treaty status (most BITs terminated post-2015 model), DTAA optimisation (India has DTAAs with all major EU economies), GDPR-DPDP overlay for data-intensive sectors, EU export control compliance for technology transfers, and the structural choice between wholly-owned subsidiary, joint venture and branch office. Our Europe Desk provides single-point accountability with European-style responsiveness throughout the investment lifecycle.
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