Foreign Direct Investment – FDI is an important source of funds for an Indian company. Under FDI, money from foreign individuals or companies is invested in Indian startups and existing companies. Overseas investment of more than 10% is considered as an investment. The Foreign Exchange Management Act 2000 regulates the foreign direct investment policy under the Reserve Bank of India.

There are two ways in which foreign investment can be made:
Automatic route: Under the automatic path, the nonresident investor does not need any prior approval from the Indian government or the Reserve Bank of India.

Government Road: Under the government’s path, approval must be obtained from government authorities or ministries through the Foreign Investment Facilitation Portal (FIFB). FIFB is regulated by the Department of Industrial Policy and Promotion (DIPP).

Sectors where foreign direct investment is allowed under the 100% automatic path:
• Agriculture
• Animal Husbandry
• E-commerce activities
• Healthcare
• Manufacturing
• Textiles and garments
• Capital Goods
Sectors where foreign direct investment is permitted at up to 100% under the government’s path
• Banking and public services – 20%
• Basic Investment Company – 100%
• Retail trade of food products – 100%
• Multi-brand retail trade – 15%
Sectors where foreign direct investment is not permitted through both governmental and automated methods:
Lottery business, including private lottery, online lottery, etc.
• Nidi Company
• Shit boxes
• Real estate business
• contracting companies
• Casinos (gambling and betting)
• Atomic Energy
Checklist on Foreign Direct Investment under Automatic route
Below is a checklist that startups and existing companies must guarantee before entering FDI.
Checklist on FDI under the automatic path
1. Verify the eligibility of individuals who invest in foreign direct investment.
2. Checking whether the total of foreign direct investment falls within the sectoral maximum and not within the prohibited sectors
3. Ensure that any issue of rights/remunerations has not resulted in FDI exceeding the sectoral ceiling
4. Checking whether the company has complied with the issue of shares if any in return for pre-operation / pre-establishment expenses
5. Check if the instructions followed with calculating the total foreign investment.
6. Check whether the annual returns on foreign liabilities and assets are deposited every year on or before 15 July. The refund is deposited even if there is no new flow of money or outflow in the given year.
A checklist for foreign direct investment under the path of government approval
1. Checking whether there is any transfer of shares from resident to a non-resident, which requires government approval
2. Verify whether prior approval was obtained from the Foreign Investment Promotion Board of FDI exceeding the sectoral ceiling
Checklist for establishing a branch/liaison office/project in India
1. Check whether the company is carrying out any activity that can be considered to have a place of business in India in accordance with the provisions of the Companies Act of 2013 and whether compliance under both CA, 2013 and FEMA has been undertaken.
For direct investment outside India – automatic route:
1- In cases of investment through a stock swap, approval from the government is guaranteed. It is a prerequisite for investment by swapping shares.
2- Verify-in cases where local venture capital funds / alternative investment funds, registered with SEBI, have invested in equities and equity-linked instruments for off-shore venture capital projects, the investment is in the total of $ 500 million.
3- Checking whether the commitment of the Indian party such as the reporting of financial transfers, the annual performance report, is fulfilled.

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