Foreign Direct Investment (FDI) policy is being reviewed by the Government of India from time to time to keep pace with the ongoing reforms process, commitments at the World Trade Organisation and long-term developmental and Foreign exchange needs of the nation. In this Article we shall deal with salient features of major liberalization in the FDI Policy announced by the Government of India vide two Press Notes, namely, Press Note No. 3 (2006) and Press Note No.4 (2006).

1. Approvals under the Automatic Route

1. Foreign Direct Investments in following sectors which hitherto were allowed under the approval route of FIPB has been put under the automatic route:

1. Distillation & brewing of potable alcohol;

2. Manufacture of industrial explosives;

3. Manufacture of hazardous chemicals;

4. Manufacturing activities located within 25 kms of the Standard Urban Area limits which require Industrial licence under the Industries (Development & Regulation) Act, 1951;

5. Setting up greenfield airport projects;

6. Laying of Natural Gas/LNG pipelines, market study & formulation and Investment financing in the Petroleum & Natural Gas sector; and

7. Cash & carry wholesale trading and export trading.

2. Sectoral cap for FDI in following sectors has been increased up to 100 per cent and the same are put under the automatic route:

1. Coal & lignite mining for captive consumption;

2. Setting up infrastructure relating to marketing in Petroleum & Natural Gas sector; and

3. Exploration and mining of diamonds & precious stones.

3. In following new sectors FDI is allowed up to 100% under the automatic route:

1. Power trading subject to compliance with Regulations under the Electricity Act, 2003;

2. Processing and warehousing of coffee and rubber.

4. Transfer of shares from residents to non-residents, including acquisition of shares in an existing company would be on the automatic route subject to sectoral caps prescribed under the FDI regulations and compliance with the guidelines issued by the Reserve Bank

2. Approvals under the Approval Route of FIPB –Retail Trading

Retails trading sector has been opened up for the first time in India. FDI up to 51 per cent is permitted with prior Government approval from the FIPB for retail trade of ‘Single Brand’ products, subject to fulfilment of following conditions:-

1. Products to be sold should be of a "Single Brand" only;

2. Products should be sold under the same brand internationally;

3. ‘Single Brand’ product –retailing would cover only products, which are branded during manufacturing.

3. Hitherto a foreign company which intended to invest in Business to Business (B2B) e-commerce activities required to divest 26 per cent in favour of Indian residents within a period of 5 years. This requirement for mandatory divestment of 26% foreign equity in case of FDI in e-Commerce has been dispensed with.

Government has clarified that FDI/NRI investment under the automatic route shall continue to be governed by the Sectoral regulations/licensing requirements.

A summary of the FDI policy and regulations applicable in various sectors / activities is given in the Annexure.

Policy on Foreign Direct Investment (FDI)

1. Sectors prohibited for FDI

4. Retail trading (except Single Brand Product retailing)

5. Atomic energy

6. Lottery business

7. Gambling and Betting.

2. All Activities/Sectors would require prior Government approval for FDI in the following circumstances:

1. Where provisions of Press Note 1(2005 Series) are attracted;

2. Where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.

3. In Sectors/Activities not listed below, FDI is permitted up to 100% on the automatic route subject to sectoral rules/regulations applicable.

S.N	Sector/Activity	FDI Cap/ Equity	Entry Route	Other conditions	Relevant Press Note
1.	Airports-
a.	Greenfield projects	100%	Automatic	Subject to sectoral regulations notified by Ministry of Civil Aviation www.civilaviation.nic. in	PN 4 / 2006
b.	Existing projects	100%	FIPB beyond 74%	Subject to sectoral regulations notified by Ministry of Civil Aviation www.civilaviation.nic. in	PN 4 / 2006
2.	Air Transport Services	49%- FDI; 100%- for NRI investment	Automatic	Subject to no direct or indirect participation by foreign airlines. Government of India Gazette Notification dated 2-11-2004 issued by Ministry of Civil Aviation www.civilaviation.nic. in
3.	Alcohol Distillation & Brewing	100%	Automatic	Subject to license by appropriate authority	PN 4 / 2006
4.	Asset Reconstruction Companies	49%  (only FDI)	FIPB	Where any individual investment exceeds 10% of the equity, provisions of section 3(3)(f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 should be complied with. www.finmin.nic.in
5.	Atomic Minerals	74%	FIPB	Subject to guidelines issued by Department of Atomic Energy vide Resolution No. 8/1(1)/97-PSU/1422 dated 6-10-1998
6.	Banking – Private sector	74% (FDI+FII)	Automatic	Subject to guidelines for setting up branches/ subsidiaries of foreign banks issued by RBI. www.rbi.org.in	PN 2 / 2004
7.	Broadcasting
a.	FM Radio	FDI +FII investment up to 20%	FIPB	Subject to Guidelines notified by Ministry of Information &  Broadcasting www.mib.nic.in	PN 6 / 2005
b.	Cable network	49% (FDI+FII)	FIPB	Subject to Cable Television Network Rules (1994) Notified by Ministry of  Information & Broadcasting  www.mib.nic.in
c.	Direct-to-Home	49% (FDI+FII). Within this limit, FDI component not to exceed 20%	FIPB	Subject to guidelines issued by Ministry of Information & Broadcasting www.mib.nic.in
d.	Setting up hardware facilities such as up-linking, HUB, etc	49% (FDI+FII)	FIPB	Subject to Up-linking Policy notified by Ministry of Information & Broadcasting www.mib.nic.in	PN 1 / 2006
e.	Up-linking a News & Current Affairs TV Channel	26% FDI+FII	FIPB	Subject to guidelines issued by Ministry of Information &  Broadcasting www.mib.nic.in	PN 1/ 2006
f.	Up-linking a Non-news & Current Affairs TV Channel	100%	FIPB	Subject to guidelines issued by Ministry of Information &  Broadcasting www.mib.nic.in	PN 1 / 2006
8.	Cigars & Cigarettes-Manufacture	100%	FIPB	Subject to industrial licence under the Industries (Development & Regulation) Act, 1951	PN 4 / 2006
9.	Coal & Lignite mining for captive consump- tion by power projects, and iron & steel, cement production and other eligible activities permitted under the Coal Mines (Nationalisation) Act, 1973.	100%	Automatic	Subject to provisions of Coal Mines (Nationalization) Act, 1973 www.coal.nic.in	PN 4 / 2006
10	Coffee & Rubber processing & warehousing	100%	Automatic		PN 4 / 2006
11.	Construction Development projects, including housing, commercial premises, resorts, educational  institutions, recrea- tional facilities, city  and regional level infra- structure, townships.	100%	Automatic	Subject to conditions notified vide Press Note 2 (2005 Series) including: a. minimum capitalization of US $ 10 million for wholly owned subsidiaries and US $ 5 million for joint venture. The funds would have to be brought within six months of commencement of business of the Company. b. Minimum area to be developed  under each project – 10 hectares in case of development of serviced housing plots; and built-up area of 50,000 sq. mts.in case of construction develop- ment project; and any of the above in case of a combination project. [Note: For investment by NRIs, the conditions mentioned in Press  Note 2 / 2005 are not applicable.]	PN 2 / 2005 & PN 2 / 2006
12.	Courier services for carrying packages,  parcels and other items which do not come  within the ambit of the Indian Post Office Act, 1898.	100%	FIPB	Subject to existing laws and exclusion of activity relating to distribution of letters, which is exclusively reserved for the State. www.indiapost.gov.in	PN 4 / 2001
13.	Defence production	26%	FIPB	Subject to licensing under Industries (Development & Regulation) Act, 195 and guidelines on FDI in production  of arms & ammunition.	PN 4 / 2001  &  PN 2 / 2002
14.	Floriculture, Horti-culture, Development of Seeds, Animal Husbandry, Pisci-culture, aqua-culture, cultivation of Pisci- culture, aqua-culture, cultivation of vege- tables, mushrooms, under controlled conditions and services related to agro and allied sectors.	100%	Automatic		PN 4 / 2006
15.	Hazardous chemicals,  viz., hydrocyanic acid  and its derivatives; phosgene and its deri-  vatives; and isocyanates  and di-isocyantes of hydrocarbon.	100%	Automatic	Subject to industrial license under the Industries (Development &  Regulation) Act, 1951 and other sectoral regulations.	PN 4 / 2006
16.	Industrial explosives – Manufacture	100%	Automatic	Subject to industrial license under Industries (Development &  Regulation) Act, 1951 and regulations under Explosives Act, 1898	PN 4 / 2006
17.	Insurance	26%	Automatic	Subject to licensing by the Insurance Regulatory & Development Authority www.irda.nic.in .	PN 10 / 2000
18.	Investing companies in infrastructure / services sector (except telecom sector)	49%	FIPB	Foreign investment in an investing company will not be counted towards sectoral cap in infrastructure/services sector provided the investment is up to 49% and the management of the company is in Indian hands.	PN 2 / 2000  & PN 5 / 2005
19.	Mining covering exploration and mining  of diamonds & precious stones; gold, silver and minerals.	100%	Automatic	Subject to Mines & Minerals  (Development & Regulation) Act, 1957 www.mines.nic.in  Press Note 18 (1998) and Press Note 1 (2005) are not 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.	PN 2 / 2000, PN 3 / 2005 &  PN 4 / 2006
20.	Non Banking Finance Companies –approved activities
i)	Merchant banking ii) Underwriting iii) Portfolio Management iv) Services Investment Advisory Services v) Financial Consultancy vi) Stock Broking vii) Asset Management viii) Venture Capital ix) Custodial Services x) Factoring xi) Credit Reference Agencies xii) Credit Rating Agencies xiii) Leasing & Finance xiv) Housing Finance xv) Forex Broking xvi) Credit card business xvii) Money changing business xviii) Micro credit xix) Rural credit.	100%	Automatic	Subject to: a. minimum capitalization norms  for fund based NBFCs - US $ 0.5 million to be brought upfront for FDI up to 51%; US $ 5 million to be brought upfront for FDI above 51% and up to 75%; and US $ 50 million out of which US $ 7.5 million to be brought upfront and the balance in 24 months for FDI beyond 75% and up to 100%. b. minimum capitalization norms for non-fund based NBFC activities – US $ 0.5 million. c. 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 Under Secretary 50 million without any restriction on number of subsidiaries without bringing additional capital. d. joint venture operating NBFC’s 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 subsidia- ries also complying with the applicable minimum capital  inflow. e. compliance with the guidelines of the RBI. perating	PN 2 / 2000 PN 6 / 2000,  &  PN 2 / 2001
21.	Petroleum & Natural Gas sector
a.	Other than Refining  and including market  study and formulation;  investment/financing; setting up infrastructure  for marketing in Petroleum & Natural Gas sector.	100%	Automatic	Subject to sectoral regulations issued by Ministry of Petroleum & Natural Gas; and in the case of actual trading  and marketing of petroleum products,  divestment of 26% equity in favour of Indian partner/public within 5 years. www.petroleum.nic.in	PN 1 / 2004  & PN 4 / 2006
b.	Refining	26% in case of PSUs  100% in case  of Private  companies	FIPB (in case of PSUs) Automatic  (in case of private companies)	Subject to Sectoral policy www.petroleum.nic.in	PN 2 / 2000
22.	Print Media
a.	Publishing of news- paper and periodicals  dealing with news and current affairs	26%	FIPB	Subject to Guidelines notified by Ministry of Information &  Broadcasting. www.mib.nic.in
b.	Publishing of  scientific magazines/  specialty journals/ periodicals	100%	FIPB	Subject to guidelines issued by Ministry of Information &  Broadcasting.  www.mib.nic.in	PN 1 / 2004
23	Power including gene- ration (except Atomic energy); transmission, distribution and Power Trading.	100%	Automatic	Subject provisions of the Electricity Act, 2003  www.powermin.nic.in	PN 2 / 1998, PN / 7 2000, & PN 4 / 2006
24.	Tea Sector, including  tea plantation	100%	FIPB	Subject to divestment of 26% equity  in favour of Indian partner/Indian  public within 5 years and prior approval of State Government for change in land use.	PN 6 / 2002
25.	Telecommunication
a.	Basic and cellular,  Unified Access Services, National/Internationa Long Distance, V-Sat, Public Mobile Radio  Trunked Services (PMRTS), Global  Mobile Personal  Communications  Services (GMPCS) and other value added  telecom services	74% (Including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible  preference shares, and proportionate foreign equity in Indian promoters/ Investing Company)	Automatic up to 49% FIPB  beyond 49%	Subject to guidelines notified in the PN 5 / 2005 Series	PN 5 / 2005
b.	ISP with gateways, radio-paging, end-to- end bandwidth.	74%	Automatic up to 49% FIPB  beyond 49%	Subject to licensing and security  requirements notified by the Department of Telecommunications www.dotindia.com	PN 4 / 2001
c.	ISP without gateway, infrastructure provider  providing dark fibre,  electronic mail and voice mail	100%	Automatic  up to 49% FIPB  beyond 49%	Subject to the condition that such companies shall divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Also  subject to licensing and security requirements, where required. www.dotindia.com	PN 9 / 2000
d.	Manufacture of telecom equipments	100%	Automatic	Subject to sectoral requirements. www.dotindia.com	PN 2 / 2000
26.	Trading
a.	Wholesale / cash & carry trading	100%	Automatic	Subject to guidelines for FDI in trading issued by Department of  Industrial Policy & Promotion vide Press Note 3 (2006 Series).	PN 4 / 2006
b.	Trading for exports	100%	Automatic
c.	Trading of items sourced from small  scale sector	100%	FIPB
d.	Test marketing of such items for which a  company has approval  for manufacture	100%	FIPB
e.	Single Brand product  retailing	51%	FIPB
27.	Satellites – Establish- ment and operation	74%	FIPB	Subject to Sectoral guidelines issued  by Department of Space / ISRO www.isro.org
28.	Special Economic Zones and Free Trade Ware- housing Zones covering  setting up of these Zones and setting up units in the Zones	100%	Automatic	Subject to Special Economic Zones Act, 2005 and the Foreign Trade Policy.  www.sezindia.nic.in	PN 9 / 2000; PN 2 /2006; & PN 4 / 2006