Restrictions, Regulations and Incentives of Investing in India
Foreign Investment Restrictions (eg The Committee on Foreign Investment in the United States or similar)
Q1) What are the restrictions on foreign direct investment?
Foreign Direct Investment (FDI) in India is permitted up to 100% in most sectors under automatic route without requiring prior approval of the government. However, in some sectors prior approval of the government is required for making investment up to a certain limit or beyond a prescribed threshold. For example, in Defense Sector and Telecom Sector –FDI up to 100% is allowed, however, FDI beyond 49% requires prior approval of the Government of India. In Private Security Agencies, Healthcare (Brownfield), Pharmaceuticals (Brownfield) and Biotechnology (brownfield), FDI up to 100% is allowed, however, FDI above 74% requires prior approval of the Government of India. Besides, there are nine (9) sectors wherein FDI is prohibited. Such sectors inter-alia include Lottery Business, Gambling and betting, Chit funds, and Nidhi Company, Real Estate Business, and Atomic energy/Railway operations.
Exchange Control or Currency Regulations
Q2) What are the legislations which govern foreign direct investment?
Foreign exchange in India is regulated by Foreign Exchange Management Act, 1999 and the regulations made there under and also the guidelines issued by the Reserve Bank of India from time to time. Besides, India also has money laundering laws.
Grants or Incentives
Q3) What benefits or incentives are available to a foreign investor?
Wide range of incentive schemes are made available to investors (both domestic and foreign) to provide fiscal and non-fiscal benefits. However, no grants or incentives have been introduced specifically for foreign investors. Generally, these incentives are provided for locating units in certain designated areas or establishing units in certain sectors, e.g., power, infrastructure. Benefits are available, both from Federal and State Governments, in the form of concessional taxes, both direct and indirect taxes, reduced cost of setting up of units in specified areas, etc.