India’s foreign direct investment (FDI) policy determines how, where, and at what caps foreign capital can enter the Indian economy. In 2025, India maintains one of the more open FDI regimes among major emerging markets, with the majority of sectors permitting foreign investment up to 100% under the Automatic Route-meaning no prior approval from the Government or the Reserve Bank of India is required. Understanding which sectors fall under the Automatic Route, which require government approval, which are prohibited, and what RBI reporting obligations attach to every investment is essential for any foreign investor or Indian company receiving foreign capital.
Under the Automatic Route, a foreign investor may invest up to the prescribed percentage cap without applying to any government authority. The DPIIT (Department for Promotion of Industry and Internal Trade) Consolidated FDI Policy and FEMA 20(R) set out the current position.
As of the DPIIT FDI Policy (July 2025 update), the following key sectors permit 100% FDI under the Automatic Route:
- Manufacturing: All manufacturing activities, including defence manufacturing (up to 74% under Automatic Route; above 74% requires government approval)
- IT and Software Services, ITES, and Technology Companies
- Infrastructure and Construction Development: Construction of townships, housing, built-up infrastructure, and construction development (subject to conditions on minimum area, lock-in on exit, and completion timelines)
- Food Processing and Food Retail (single brand)
- Agriculture and Allied Activities (including floriculture, horticulture, animal husbandry, pisciculture)
- Mining and Exploration (non-coal): 100% Automatic Route; Coal and Lignite: 100% Automatic Route
- Petroleum and Natural Gas Exploration: 100% Automatic Route
- Telecom Services: 100% (up to 49% under Automatic Route; above 49% under Government Route, note: the Telecom Act, 2023 and subsequent policy updates have restructured some aspects of this)
- E-commerce (marketplace model): 100% Automatic Route; inventory-based e-commerce by foreign-owned entities is not permitted
- Wholesale and Cash & Carry Trading: 100% Automatic Route
- Single Brand Retail Trading (SBRT): 100% Automatic Route (subject to conditions including mandatory local sourcing)
- Multi-Brand Retail Trading (MBRT): 51% under Government Route (not Automatic)
- White Label ATM Operations: 100% Automatic Route
- Construction Development: 100% Automatic Route (subject to conditions)
Government Approval Route: Sectors Requiring Prior Approval
The following sectors and activities require prior approval from the relevant government ministry (or FIPB, now replaced by the Department for Promotion of Industry and Internal Trade / Ministry of Finance):
- Defence (above 74%): FDI above 74% in defence industries requires Cabinet Committee on Security (CCS) approval. FDI up to 74% is permitted under the Automatic Route.
- Banking, Private Sector: FDI up to 49% is permitted under the Automatic Route; above 49% up to 74% requires government approval.
- Banking, Public Sector: FDI up to 20% is permitted; above 20% requires government approval.
- Broadcasting Content Services (Uploading / Streaming): 49% under Government Route for news channels; non-news/current affairs content: 100% Automatic Route.
- Print Media: FDI in Indian editions of foreign newspapers and news publications is capped at 26% under the Government Route; non-news/current affairs publications: 100% Automatic Route.
- Satellites (Establishment and Operations): 100% under Government Route.
- Insurance (Private Sector): FDI up to 74% is permitted under the Automatic Route (increased from 49% in Budget 2021). However, the management and control of the insurance company must remain with resident Indians.
- Pension Sector: Up to 49%, subject to conditions and prior government approval in some cases.
- Civil Aviation, Air Transport Services (Scheduled): FDI by foreign airlines: up to 49% under Government Route.
- Multi-Brand Retail Trading: 51% under Government Route.
Prohibited Sectors: FDI Is Not Permitted
The following sectors are closed to foreign direct investment:
- Lottery businesses, gambling, and betting (including casinos)
- Chit funds
- Nidhi companies
- Trading in Transferable Development Rights (TDRs)
- Real estate business (buying and selling of land), note: real estate development projects are permitted under construction development sector with conditions
- Manufacturing of cigars, cheroots, cigarillos, and cigarettes (tobacco products)
- Activities or sectors not open to private sector investment (e.g., atomic energy, railway operations excluding permitted segments)
Press Note 3 of 2020: Investment from Bordering Countries
An important restriction introduced in April 2020 (Press Note 3/2020) requires government approval for all FDI by entities from countries sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan). This applies regardless of the sector and regardless of the percentage of investment. The requirement was introduced to prevent opportunistic acquisitions during periods of economic distress. It remains in force as of 2025.
RBI Reporting Obligations
Every foreign investment transaction triggers mandatory reporting obligations:
FC-GPR (Foreign Currency-General Permission Route): When an Indian company issues shares or convertible instruments to a non-resident, the company must file Form FC-GPR with the Reserve Bank of India through its Authorised Dealer (AD) bank within 30 days of the issue of shares. The filing must be accompanied by a Company Secretary certificate, a Chartered Accountant certificate on fair value, and the board resolution authorising the issuance.
FC-TRS (Foreign Currency-Transfer of Shares): When shares of an Indian company are transferred between a resident and a non-resident (or between two non-residents), Form FC-TRS must be filed before the share transfer is completed. The filing must include pricing documentation establishing that the transfer price complies with the applicable valuation method.
FLA Return (Foreign Liabilities and Assets): Indian companies with outstanding FDI or ODI must file the FLA Return with the RBI by July 15 each year (for data as of March 31 of the preceding financial year).
Pricing Guidelines for FDI
Primary Issuance (new shares to foreign investor): The issue price for shares issued to non-residents under FDI must be at or above the fair market value determined by:
- For unlisted companies: DCF (Discounted Cash Flow) method as per Rule 11UA of the Income Tax Rules, 1962, determined by a SEBI-registered Category I Merchant Banker.
- For listed companies: SEBI-prescribed market price formula.
A foreign investor cannot receive shares at a price below fair market value. This prevents under-pricing of Indian companies for FDI purposes.
Transfer of Existing Shares: When existing shares are transferred from a resident to a non-resident, the price must be at or above fair market value (same methods). Transfer from a non-resident to a resident must be at or below fair market value. This asymmetric pricing rule prevents capital from leaving India below fair value.
Key Takeaways
- The Automatic Route permits 100% FDI in most manufacturing, IT, construction development, and services sectors; government approval is required only for specified sensitive sectors.
- Press Note 3/2020 requires government approval for all FDI from countries sharing a land border with India, regardless of sector or percentage.
- FC-GPR must be filed within 30 days of share issuance; failure to file is a FEMA violation subject to compounding by the RBI.
This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.
META TITLE: FDI India 2025: Automatic Route Sectors and Restrictions