Foreign Investment Approvals

Welcome to our comprehensive guide on foreign investment approvals in India. India is a rapidly growing economy with a vast potential for foreign investors. However, navigating the regulatory landscape can be complex. In this article, we will walk you through the key aspects of foreign investment approvals in India, the relevant policies, and the process involved.


Regulatory Bodies

Several regulatory bodies oversee foreign investments in India. The major ones include:

Reserve Bank of India (RBI)
The RBI is the central banking institution responsible for managing foreign exchange and regulating FDI in certain sectors.
Department for Promotion of Industry and Internal Trade (DPIIT)
The DPIIT formulates and implements policies concerning FDI and industrial growth in India.
Foreign Investment Promotion Board (FIPB)
Although the FIPB has been abolished, its functions have been integrated into the relevant ministries and departments.

Foreign Direct Investment (FDI)

FDI involves the acquisition of a substantial stake in an Indian company by a foreign entity. It typically involves a long-term interest and significant influence on the company’s management.

FDI Policy

Foreign Direct Investment (FDI) policy in India plays a crucial role in attracting international capital and promoting economic growth. The Indian government continually reviews and updates its FDI policy to create a favorable investment climate while safeguarding national interests.

Automatic Route

Under the automatic route, FDI is allowed without prior government approval in most sectors. However, investors must comply with reporting requirements and notify the Reserve Bank of India (RBI) within 30 days after the investment is made.

Government Route

Certain sectors require prior government approval for FDI. These sectors are subject to specific conditions, and investors must obtain approval from the concerned ministry.

Foreign Direct Investment (FDI) regime in India

The following foreign persons can invest in India under the FDI regime:


Foreign individuals, including non-resident Indians (NRIs) and persons of Indian origin (PIOs), are permitted to invest in India under the FDI route. NRIs and PIOs enjoy certain relaxations and benefits when it comes to investing in specific sectors.


Foreign companies can invest in India by setting up wholly-owned subsidiaries, joint ventures, or acquiring stakes in existing Indian companies. These investments are subject to sector-specific caps and regulations.

Entities into which FDI can be made under the FDI regime

Here are the entities into which FDI can be made under the FDI regime:

Wholly-Owned Subsidiaries (WOS)
Foreign investors can establish wholly-owned subsidiaries in India. A wholly-owned subsidiary is a company in which the foreign investor owns 100% of the equity shares, giving them complete control over the business operations.
Joint Ventures (JVs)
Foreign investors can form joint ventures with Indian partners, where both parties hold a share in the equity of the venture. Joint ventures often allow access to local expertise, distribution networks, and market knowledge
Limited Liability Partnerships (LLPs)
FDI is also permitted in Limited Liability Partnerships (LLPs). LLPs combine features of both companies and partnerships, offering limited liability to its partners.
Indian Companies
Foreign investors can acquire equity stakes in existing Indian companies by purchasing shares or through private placement. The extent of foreign equity participation is subject to sectoral caps and guidelines.
The Indian government actively encourages FDI in start-ups to foster innovation and entrepreneurship. Foreign investors can invest in start-ups in sectors eligible for FDI, subject to compliance with regulations. Venture Capital Funds: Foreign investors can invest in Indian venture capital funds and alternative investment funds that support start-ups and early-stage businesses

Key Features of Foreign Direct Investment (FDI) in Limited Liability Partnerships (LLPs)

Foreign Direct Investment (FDI) in Limited Liability Partnerships (LLPs) offers foreign investors an avenue to participate in the Indian market through a hybrid business structure that provides the benefits of both partnerships and companies. LLPs are becoming increasingly popular among foreign investors due to their flexibility and limited liability protection. Here are the key features of FDI in LLPs:

Hybrid Business Structure

LLPs combine features of both partnerships and companies. They provide the flexibility and tax benefits of a partnership while offering limited liability protection similar to that of a company.

Limited Liability Protection

One of the primary advantages of an LLP is that partners’ liability is limited to their capital contribution, protecting their personal assets from business liabilities.

Foreign Investment Eligibility

LLPs are eligible to receive FDI from foreign investors, subject to the FDI policy, sectoral caps, and regulatory guidelines prescribed by the Department for Promotion of Industry and Internal Trade (DPIIT) and the Reserve Bank of India (RBI).

Permitted Sectors

LLPs can attract FDI in sectors where foreign investment is allowed, subject to sector-specific conditions and restrictions.

Ease of Doing Business

LLPs offer a simplified and streamlined process for doing business, making it an attractive choice for foreign investors looking to establish a presence in India.

Minimum Capital Requirement

Unlike companies, LLPs do not have a minimum capital requirement, making it easier for foreign investors to set up operations.

Investment Structure

Foreign investors can participate in LLPs as designated partners, and their share of profits and losses will be as per the agreed-upon partnership deed.

Repatriation of Profits

LLPs allow foreign investors to repatriate their share of profits earned in India, subject to compliance with RBI regulations.

Taxation Benefits

LLPs are eligible to receive FDI from foreign investors, subject to the FDI policy, sectoral caps, and regulatory guidelines prescribed by the Department for Promotion of Industry and Internal Trade (DPIIT) and the Reserve Bank of India (RBI).

Restrictions and Sectoral Caps

FDI in LLPs is subject to sector-specific restrictions and caps on foreign equity participation as per the FDI policy.

Compliance Requirements

Foreign investors must comply with all applicable laws, regulations, and reporting requirements related to FDI in LLPs.

Exit Options

LLPs offer flexibility in exit options for foreign investors, allowing them to transfer their partnership interests or wind up the LLP if needed.

FDI in LLPs is an attractive option for foreign investors looking to participate in India’s growth story while availing the benefits of limited liability and a flexible business structure. However, it is essential for foreign investors to understand the specific FDI guidelines and seek professional advice to ensure compliance with the regulations and to make informed investment decisions in LLPs.

Types of instruments available for making FDI

Various types of instruments are available for making Foreign Direct Investment (FDI) in a country. These instruments enable foreign investors to participate in the economy and contribute to the growth and development of the host country. In the context of FDI in India, the following are the types of instruments available for foreign investors:

Equity Shares

Equity shares represent ownership in a company and entitle the shareholder to a portion of the company’s profits and assets. Foreign investors can acquire equity shares in Indian companies to make FDI.

Compulsorily Convertible Preference Shares (CCPS)

CCPS are preference shares that automatically convert into equity shares after a predetermined period or event. Foreign investors can invest in CCPS, which will convert into equity shares at a future date.

Partnership Interest in LLPs

Foreign investors can invest in Limited Liability Partnerships (LLPs) and become designated partners, holding a partnership interest in the LLP.

Debentures and Bonds

Foreign investors can invest in debentures and bonds issued by Indian companies. These debt instruments provide a fixed return and typically have a specific maturity period.

Convertible Notes

Convertible notes are debt instruments that can be converted into equity shares at a later stage, usually upon the occurrence of certain events or milestones.

Foreign Currency Convertible Bonds (FCCBs)

FCCBs are bonds issued in foreign currency, which can be converted into equity shares of the issuing company at a pre-determined exchange rate.

Non-Convertible Debentures (NCDs)

Non-Convertible Debentures are debt instruments that do not convert into equity shares and provide a fixed interest rate.

Preference Shares

Preference shares confer certain preferential rights to the shareholders, such as a fixed dividend payment, but do not typically carry voting rights.

Compulsory Convertible Debentures (CCDs)

CCDs are debentures that convert into equity shares either at a predetermined time or upon the occurrence of specific events.

Venture Capital Funds (VCFs)

Foreign investors can participate in Venture Capital Funds that invest in start-ups and early-stage businesses.
Each type of instrument has its own set of characteristics, risks, and benefits. Foreign investors should carefully consider their investment objectives and risk appetite before choosing the appropriate instrument for making FDI. Additionally, compliance with the Foreign Exchange Management Act (FEMA) and other relevant regulations is essential when investing in India through these instruments.

Prior Approval of Foreign Investment Promotion Board (FIPB)

Foreign investment in India is subject to the regulatory oversight of the Foreign Investment Promotion Board (FIPB), which evaluates investment proposals falling under the non-automatic route. While most sectors in India allow foreign investments under the automatic route, certain cases require prior approval from the FIPB. Let’s explore the scenarios where prior approval is necessary

Foreign Investment exceeding 24 percent in Non-Micro or Small Scale Enterprise (MSE)


If a foreign investor intends to invest more than 24 percent of the equity capital in an industry undertaking that is not an MSE but manufactures items exclusively reserved for MSE sectors, prior approval from the FIPB is required.

Investment Company Exclusively Engaged in Capital Investment

Foreign investment in an Indian company solely engaged in investing in the capital of other Indian companies, irrespective of the investment amount, necessitates prior approval from the FIPB.

Infusion of Foreign Investment in a Company with No Operations or Downstream Investments

Even if the infusion of foreign investment is in an Indian company without any operations or downstream investments, prior approval from the FIPB is mandatory.

Application Process and Approval

For investments requiring prior approval, an application must be made to the FIPB or the Ministry of Finance. The application can be submitted either on plain paper or through an online platform, providing comprehensive details of the investment proposal to the FIPB.

High-Value Proposals

In cases where the proposal falls under the non-automatic route and involves an investment of Rs 12,000 million or more, the FIPB submits its recommendation to the Cabinet Committee on Economic Affairs for further approval.

Alternate Application Submission

Apart from the FIPB, applications for FDI proposals can also be submitted to the Department of Economic Affairs (DEA) and the Ministry of Finance. However, specific categories, such as NRI investments, Export Oriented Units (EOUs), and retail trading of single branded products, must be submitted to the SIA of DIPP. Indian missions abroad can also receive applications and forward them to the DEA for processing.

Individual Basis Approval

The FIPB grants approval on an individual basis, scrutinizing each investment proposal before making a decision. Subsequently, prescribed filings are required under the prior approval route.

At ASKCA, we assist foreign investors in navigating the FDI approval process, ensuring compliance with regulations, and providing expert guidance at every stage of the investment journey. Let us be your trusted partner in making successful foreign investments in India. Contact us today to get started!