Business: Investment

Investing in India

With all cylinders firing, India’s economy is growing at around 8 per cent annually, throwing up huge opportunities for foreign companies. Since investing in India can be a procedural nightmare, this India Empire primer takes you through the ABC of the investment game

The policy of reforms followed by the Government of India in the post-1991 period recognises the important role of foreign capital in the industrial and economic development of the country. Foreign capital inflow is encouraged not only as a source of financial capital but also as a tool of knowledge and technology transfer.

The Central Government took several initiatives and measures during this period to encourage foreign investment inflows, particularly the flow of Foreign Direct Investment (FDI). Major thrust areas include infrastructure development, particularly energy, power, telecom and township development. FDI in most of the sectors including manufacturing sectors are under the automatic route and require only notifying the Reserve Bank of India. Initiatives have also been taken to make procedures related to transfer of shares and repatriation more simple. The policy and procedures for induction of foreign technology have also been progressively simplified. To create a more conducive investment climate, the procedures governing approvals and clearances are continuously reviewed.

Since the beginning of economic reforms in 1991, major reform initiatives have been taken in the fields of investment, trade, financial sector, exchange control simplification of procedures, enactment of competition and amendments in the intellectual property rights laws. India provides a liberal, attractive, and investor friendly investment climate. Main features of policy on FDI are dealt with here.

According to a study by Goldman Sachs, the Indian economy is expected to continue growing at the rate of 5% or more till 2050

FDI in sectors to the extent permitted under automatic route does not require any prior approval. Investors are only required to notify the RBI within 30 days of receipt of inward remittances and file documents

A number of studies in the recent past have highlighted the growing attractiveness of India as an investment destination. According to the study by Goldman Sachs, Indian economy is expected to continue growing at the rate of 5% or more till 2050. Indian economy is slated to become the fourth largest economy by 2050. Some of these conclusions are listed below :

  • 3rd most attractive destination-At Kearney Business Confidence Index, 2004
  • Best off-shoring destination--At Kearney Offshoring Index, 2004
  • Among the top three investment hotspots- UNCTAD and Corporate Location Survey April 2004.

India has among the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100% is allowed under the automatic route in most sectors. 

FDI to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment and foreign technical collaboration is also granted on the recommendations of the FIPB.

Application for all FDI cases, except NRI investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion. Applications can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for further processing.

Application can be made in Form FC-IL, which can be downloaded from Plain paper applications carrying all relevant details are also accepted. No fees are levied.

Proposals for FDI/NRI investment in STP Units are eligible for approval under automatic route subject to parameters listed. For proposals not covered under automatic route, the applicant should seek separate approval of the Government through the FIPB, as per the procedure outlined.

Industrial Licence is granted by the Secretariat for Industrial Assistance (SIA) on the recommendation of the Licensing Committee.Application for industrial licence is required to be submitted in the prescribed form. (Form FC-IL). This form is available in the Public Relation and Complaint Section (PR&C) of the SIA, all outlets dealing in Government Publications, Indian Embassies, and can be downloaded from the web site or by post. The IEM should be submitted along with a crossed demand draft of Rs 1000/- (appr. US$ 22) for up to 10 items proposed to be manufactured. For more than 10 items, an additional fee of Rs 250 (US$ 6) for up to 10 additional items needs to be paid. 

For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies. For details please visit the website of Ministry of Company Affairs at

A person resident outside India, who has been permitted by Reserve Bank of India to establish a branch, or office, or place of business in India (excluding a Liaison Office), has general permission of Reserve Bank of India to acquire immovable property in India, which is necessary for, or incidental to, the activity. However, in such cases a declaration, in prescribed form (IPI), is required to be filed with the Reserve Bank, within 90 days of the acquisition of immovable property.
Foreign nationals of non-Indian origin who have acquired immovable property in India with the specific approval of the RBI can not transfer such property without prior permission from the Reserve Bank of India. 

An Indian citizen resident outside India (NRI) can acquire by way of purchase any immovable property in India other than properties in agricultures, plantations, farm house land. He may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a PIO resident outside India or a person resident in India.

With a view to avoid dispute in respect of assessment of income-tax liability in the case of a non-resident (and also specified categories of residents) a Scheme of Advance Ruling was incorporated in the Income Tax Act. The Authority for Advance ruling pronounces rulings on the applications of the nonresident and residents submitted and such rulings are binding both on the applicant and the Income-Tax Department. Thus, the applicant can avoid expensive and time consuming litigation which would have arisen from normal income tax assessment proceedings. The application in such cases should be addressed to 
The Commissioner of Income-Tax Authority of Advance Rulings, 5th Floor, N.D.M.C. Building, Yashwant Place, Satya Marg, Chanakyapuri, New Delhi -110021. 

—For the complete text of this report please contact India Empire

January 2006

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