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Foreign Direct Investment In India

Investment in Partnership Firm/Proprietary Concern

1. Investment in a firm or a proprietary concern in India by a person resident outside India

A non-resident Indian or a person of Indian origin resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on nonrepatriation basis provided

a) Amount is invested by inward remittance or out of NRE/FCNR/NRO account maintained with AD

b) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income there from) or print media sector.

c) Amount invested shall not be eligible for repatriation outside India

2. Investment in sole proprietorship concern/ partnership firm with repatriation benefits

NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/ partnership firms with repatriation benefits.

3. Investment by non-residents other than NRIs/PIO

A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve bank for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India.

4. Restrictions

In terms of Regulation 4(b) and (e) of RBI Notification No.FEMA 24/2000-RB dated May 3,2000 an NRI or PIO cannot invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or engaged in Print Media.

Annexure A to Schedule I of FEMA Notification No. FEMA 20 /2000-RB dated May 3, 2000
(as amended vide Notification No. FEMA 94/2003-RB dated June 18, 2003)

(A) List of Activities for which Automatic Route of RBI for investment by person resident outside India is not available

1. Petroleum Sector (except for private sector oil refining)/ Natural Gas/LNG Pipelines

2. Investing companies in Infrastructure & Services Sector

3. Defence and Strategic Industries

4. Atomic Minerals

5. Print Media

6. Broadcasting

8. Postal services

9. Courier Services

10. Establishment and Operation of satellite

11. Development of Integrated Township*

12. Tea Sector

* for more details, please refer to Government Manual on Investing in India, Foreign Direct Investment, Policy and Procedures. (

(B) List of activities or items for which FDI is prohibited.

1. Retail Trading

2. Atomic Energy

3. Lottery Business

4. Gambling and Betting

5. Housing and Real Estate business

6. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations)

Annexure B to Schedule I of FEMA Notification No. FEMA 20 /2000-RB dated May 3, 2000
(as amended vide Notification No. FEMA 94/2003-RB dated June 18, 2003)

Sectoral cap on Investments by persons resident outside India

Sector Investment Cap Description of Activity / Items /Conditions
1. Private Sector Banking * 49% Subject to guidelines issued by RBI from time to time
2. Non-Banking Financial Companies 100% FDI/NRI investments allowed in the following 19 NBFC activities shall be as per the levels indicated below: a) Activities covered: 1. Merchant Banking2. Under writing3. Portfolio Management Services4. Investment Advisory Services5. Financial Consultancy 6. Stock-broking7. Asset Management8. Venture Capital9. Custodial Services10. Factoring11. Credit Reference Agencies12. Credit Rating Agencies13. Leasing & Finance14. Housing Finance15. Forex-broking16. Credit Card Business17. Money-changing Business18. Micro-credit19. Rural credit b) Minimum Capitalization norms for fund based NBFCsi) for FDI upto 51%, US $ 0.5 million to be brought in upfrontii) If the FDI is above 51 % and upto 75 %, US $ 5 million to be brought upfrontiii) If the FDI is above75 % and upto 100 %, US $ 50 million out of which $ 7.5 million to be brought in upfront and the balance in 24 monthsc) Minimum Capitalization norms for non-fund based activities. Minimum Capitalization norm of US$0.5 million is applicable in respect of non-fund based NBFCs with foreign investment.d) Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US $ 50 million as at b) (iii) above (without any restriction on number of operating subsidiaries without bringing in additional capital)e) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities , subject to the subsidiaries also complying with the applicable minimum capital inflow i.e., (b)(i) and (b)(ii) above.f) FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard
3. Insurance 26% FDI upto 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA)
4. Telecommunications 49 % i) In basic, Cellular, Value Added Services, and Global Mobile Personal Communications by Satellite, FDI is limited to 49% subject to licencing and security requirements and adherence by the companies (who are investing and the companies in which the investment is being made) to the license conditions for foreign equity cap and lock-in period for transfer and addition of equity and other license provisions.ii) ISPs with gateways, radio paging and end-to-end bandwidth, FDI is permitted upto74% with FDI, beyond 49% requiring Government approval. These services would be subject to licensing and security requirementsiii) No equity cap is applicable to manufacturing activities.iv) FDI upto 100% is allowed for the following activities in the telecom sector:a) ISPs not providing gateways (both for satellite and submarine cables)b) Infrastructure Providers providing dark fibre (IP Category 1)c) Electronic Mail, and d) Voice MailThe above would be subject to the following conditions;FDI upto 100% is allowed subject to the condition that such companies would divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world.The above services would be subject to licencing and security requirements, wherever required.Proposal for FDI beyond 49% shall be considered by FIPB on case-to-case basis.
5.(i) Petroleum Refining (Private Sector)(ii) Petroleum Product Marketing(iii) Oil Exploration in both Medium sized fields(iii) Petroleum product pipelines 100% 100%100 % 100% FDI permitted upto 100 % in case of private Indian companies.Subject to the existing sectoral policy and regulatory framework in the oil marketing sectorSubject to and under the policy of Government on private participation in -(a) exploration of oil; and(b) the discovered fields of national oil companies.Subject to and under the Government policy and regulations thereof.
6. Housing and Real Estate 100 % Only NRIs are allowed to invest upto 100 % in the areas listed below :a) Development of serviced plots and construction of built-up residential premisesb) Investment in real estate covering construction of residential and commercial premises including business centers and officesc) Development of townships d) City and regional level urban infrastructure facilities, including both roads and bridges e) Investment in manufacture of building materials f) Investment in participatory ventures in (a) to (e) above g) Investment in Housing finance institutions which is also opened to FDI as an NBFC
7. Coal & Lignite i) Private Indian companies setting up or operating power projects as well as coal and lignite mines for captive consumption are allowed FDI upto 100%.ii) 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.iii) FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption.iv) In all the above cases, FDI is allowed upto 50% under the automatic route subject to the condition that such investment shall not exceed 49%of the equity of a PSU.
8. Venture Capital Fund (VCF) and Venture Capital Company(VCC) Offshore Venture Capital Funds/companies are allowed to invest in domestic venture capital undertaking as well as other companies through the automatic route, subject only to SEBI regulations and sector specific caps on FDI.
9. Trading Trading is permitted under automatic route with FDI upto 51% provided it is primarily export activities, and the undertaking is an export house/ trading house / super trading house/ star trading house. However, under the FIPB route:(i) 100% FDI is permitted in case of trading companies for the following activities:a) exports;b) bulk imports with export/ exbonded warehouse sales;c) cash and carry wholesale trading;d) other import of goods or services provided at least 75% is for procurement and sale of the same group and not for third party use or onward transfer/ distribution/sales. ii) The following kinds of trading are also permitted, subject to provisions of Exim Policy.a) Companies for providing after sales services (that is not trading per se)b) Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their Joint ventures in which they have equity participation in India c) Trading of hi-tech items/ items requiring specialised after sales serviced) Trading of items for social sectore) Trading of hi-tech, medical and diagnostic items.f) Trading of items sourced from the small scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name g) Domestic sourcing of products for exportsh) Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing. i) FDI upto 100% permitted for ecommerce activities subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading.
10. Power 100% FDI allowed upto 100 % in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.
11. Drugs & Pharmaceuticals 100 % FDI permitted upto 100 % for manufacture of drugs and pharmaceuticals provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology and specific cell/tissue targeted formulations.FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology and specific cell/tissue targeted formulations will require prior Govt. approval.
12. Road and highways, Ports and harbors 100% In projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.
13. Hotel & Tourism 100 % The term hotels include restaurants, beach resorts and other tourist complexes providing accommodation and/ or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports and health units for tourists and Convention/Seminar units and organisation.For foreign technology agreements, automatic approval is granted if(i) Upto 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc.(ii) Upto 3% of the net turnover is payable for franchising and marketing/publicity support fee, and Upto 10% of gross operating profit is payable for management fee, including incentive fee.
14.Mining 74 %100 % (i) For exploration and mining of diamonds and precious stones FDI is allowed upto 74 % under automatic route(ii) For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing FDI is allowed upto 100 % under automatic route(iii) Press Note 18 (1998 series) dated 14/12/98 would not be applicable for setting up 100 % owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and/or the particular mineral.
15. Advertising 100 % Advertising Sector FDI upto 100 % allowed on the automatic route
16. Films 100 % Film Sector (Film production, exhibition and distribution including related services/products) FDI upto 100 % allowed on the automatic route with no entry-level condition
17. Airports 74 % Govt approval required beyond 74 %
18. Mass Rapid Transport Systems 100 % FDI upto 100% is permitted on the automatic route in mass rapid transport system in all metros including associated real estate development
19. Pollution Control & Management 100 % In both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route
20. Special Economic Zones 100 % All manufacturing activities except:(i) Arms and ammunition, Explosives and allied items Of defence equipments, Defence aircrafts and warships,(ii) Atomic substances, Narcotics and Psychotropic Substances and hazardous Chemicals,(iii) Distillation and brewing of Alcoholic drinks and(iv) Cigarette/cigars and manufactured tobacco substitutes.
21.Any other Sector/Activity (if not included in Annexure A) 100 %
22. Air Transport Services 100% for NRIs 49% for others No direct or indirect equity participation by foreign airlines is allowed.

* Govt of India vide Press Note No.2 (2004 Series) has raised the FDI limit in Private Sector banks from 49% to 74%. RBI is yet to issue Notification.


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