Corporate Solutions 
Resources
Read our latest Insights
India Entry Services
FDI Automatic Route vs Government Approval
Most foreign investment into India needs no approval at all. A minority needs it before a single rupee moves. Getting that determination wrong is not a filing error, it is an unlawful investment.
- Sector-by-sector caps and routes
- What the approval process actually involves
- India, UAE and Singapore under one practice
Route DeterminedAutomatic or government route
- 45+years of cross-border advisory
- 700+inbound investments structured
- 3jurisdictions: India, UAE, Singapore
- 50+countries of investor origin served
Quick Answer
What is the difference between the automatic route and the government approval route?
Under the automatic route a foreign investor needs no prior approval and the Indian company reports the investment to the Reserve Bank afterwards. Under the government approval route the investor must obtain clearance from the administrative ministry before the investment is made. Most sectors are automatic. The route is set by sector, cap and beneficial ownership.
The four things that decide the route
- The sector the Indian company actually operates in, which the object clause can widen unintentionally.
- The percentage the foreign investor will hold after the investment, since several sectors are automatic up to a threshold and government above it.
- Whether any beneficial owner sits in a country sharing a land border with India, which overrides the sectoral position entirely.
- Whether the activity is on the prohibited list, in which case no route is available at all.
This page covers route determination. For the reporting that follows an automatic route investment, see FDI compliance and FEMA advisory in India. For the land border rules in detail, see Press Note 3 and FDI from land border countries.
Two Routes Compared
The two routes compared
| Automatic route | Government approval route | |
|---|---|---|
| Prior approval | None required from any authority. | Required from the administrative ministry or department before the investment is made. |
| When the money can move | Immediately. The investment is made, then reported. | Only after the approval letter is issued. Money received before approval is a contravention. |
| Where the application goes | Not applicable. | The Foreign Investment Facilitation Portal, routed to the administrative ministry, with security clearance from the Ministry of Home Affairs where required. |
| Indicative timeline | Nil. The constraint is banking and documentation, not approval. | Commonly eight to twelve weeks, longer where security clearance or inter-ministerial consultation is involved. |
| Reporting afterwards | Form FC-GPR within 30 days of allotment, and the annual FLA return. | The same reporting applies, in addition to the approval. |
| Conditions | Sectoral conditions in the FDI policy apply, but nothing is imposed case by case. | The approval may carry conditions specific to the applicant, which then bind the company. |
| Who bears the risk of getting it wrong | The Indian investee company, which carries the reporting obligation and the exposure under Section 13 of FEMA. | |
The routes are not a spectrum
An investment is either permitted without approval or it is not. There is no partially approved position and no ability to proceed while an application is pending. Where the government route applies, the commercial timetable has to accommodate the approval, and a subscription agreement with a fixed completion date signed before the route was established is a problem waiting to surface.
Route Determination
How to determine which route applies
Four checks in order. Stop at the first one that produces an answer, because the later checks cannot rescue an earlier failure.
Is the activity prohibited
If the Indian company carries on a prohibited activity, no route is available and no structuring changes that. See the list below.
Does any beneficial owner sit in a land border country
Where the answer is yes and the holding exceeds the current threshold, government approval is required whatever the sector says. This check overrides the sectoral position and it is done on beneficial ownership, not on where the immediate investor is incorporated.
What sector does the company actually operate in
Determined by the activity carried on, not by the name of the company. A widely drafted object clause can place a company in a regulated sector it never intended to enter, and the question gets asked at the point of filing rather than at incorporation.
What stake results, and does it cross a threshold
Several sectors are automatic up to a percentage and government above it. Defence at 74 percent, private banking at 49 percent, and brownfield pharmaceuticals at 74 percent all work this way. The test is the post-investment holding, calculated on a fully diluted basis.
The check that gets skipped
Check three is done from the memorandum, which is the wrong document. The object clause records what the company may do. The FDI position turns on what it does. A software company whose objects mention trading, or a services company whose objects mention broadcasting, will be asked to explain the gap, and the explanation is easier to give before the money arrives.
Sectoral Caps
Sectoral caps and routes
The position on any single sector should be confirmed against the current consolidated FDI policy and any Press Note issued since, because caps move. The table records the position as at the last review of this page.
| Sector | Cap | Route | Condition |
|---|---|---|---|
| Most manufacturing and services | 100% | Automatic | No sector-specific condition. |
| Insurance | 100% | Automatic (up to 74%); Govt (above 74%) | 100% permitted only if entire premium is invested in india |
| Defence manufacturing | 100% | Automatic to 74%, government above | Above 74% where it gives access to modern technology. |
| Private sector banking | 74% | Automatic to 49%, government 49 to 74% | Resident holding of at least 26 percent required. |
| Public sector banking | 20% | Government | Subject to Banking Companies Act. |
| Single-brand retail | 100% | Automatic | Local sourcing of 30% above 51% foreign holding. |
| Multi-brand retail | 51% | Government | Minimum USD 100 million investment; 30% from SMEs; State Government consent |
| E-commerce, marketplace model | 100% | Automatic | Inventory-based business to consumer e-commerce is not open to FDI. |
| Print media, news and current affairs | 26% | Government | Editorial control conditions apply. |
| Digital media, news | 26% | Government | Same conditions as print news. |
| Broadcasting, news | 49% | Government | Applies to news and current affairs channels. |
| Broadcasting, non-news | 100% | Automatic | Entertainment and non-news content. |
| Pharmaceuticals, greenfield | 100% | Automatic | New manufacturing facilities. |
| Pharmaceuticals, brownfield | 100% | Automatic to 74%, government above | Non-compete and production-level conditions apply. |
| Scheduled air transport, airlines | 100% | Automatic | Foreign airlines limited to 49%. Substantial ownership and effective control conditions apply. |
| Satellites, establishment and operation | Capped | Government above the automatic threshold | Subject to Department of Space guidelines. Confirm the current split across satellites, launch vehicles and components. |
| Telecommunications | 100% | Automatic, subject to licensing conditions | Security conditions under the licence apply regardless of the FDI route. |
Caps move, and they move by Press Note
The consolidated FDI policy is republished periodically, but it is amended between consolidations by Press Notes that take effect once the corresponding amendment to the Non-Debt Instruments Rules is notified. A cap checked against a consolidated policy document alone can be out of date. Check the policy and every Press Note issued since it.
Closed Sectors
Sectors closed to foreign investment
No route is available for these. Structuring around them, for example through a minority stake with control rights or a management contract, is treated as an attempt to do indirectly what cannot be done directly.
- Lottery business, government or private, including online lotteries.
- Gambling and betting, including casinos.
- Chit funds and nidhi companies.
- Real estate business, other than development of townships, construction of residential and commercial premises, roads or bridges. Earning rent from an owned asset is permitted; trading in land is not.
- Trading in transferable development rights.
- Manufacture of cigars, cheroots, cigarillos and cigarettes, and tobacco substitutes.
- Activities not open to private investment, including atomic energy and railway operations other than the permitted categories.
Real estate business is narrower than it sounds
The prohibition catches dealing in land and buildings for profit. It does not catch a company that owns premises and leases them, nor construction and development projects, which have their own conditions. The line is regularly misread in both directions, and it matters because getting it wrong means the investment was never permitted rather than merely unreported.
Approval Process
The government approval process
Applications are made online and routed to the ministry that administers the sector. There is no single approving authority, which is why timelines vary so widely between sectors.
File the application on the portal
Submitted through the Foreign Investment Facilitation Portal with the investor's and investee's details, the proposed shareholding, the sector, the source of funds and the beneficial ownership chain.
Routing to the administrative ministry
The portal forwards the application to the department that administers the sector. That department, not DPIIT, decides it.
Security clearance where required
Referred to the Ministry of Home Affairs in defence, telecom, private security, broadcasting, and any case involving an investor from a land border country. This is the step that drives the timeline.
Queries and consultation
Queries are raised through the portal and the clock effectively restarts on each one. Applications are also referred to other ministries where the sector touches their remit.
Approval, with or without conditions
The approval letter may impose conditions on the applicant, on the shareholding, or on the activity. Those conditions bind the company afterwards and are examined in any later diligence.
Invest, then report
The money moves only after approval. Form FC-GPR and the rest of the reporting cycle then apply in the ordinary way.
Plan for queries, not for the headline timeline
Eight to twelve weeks describes an application that is complete, in a sector without security sensitivity, and that attracts no queries. An application with an opaque ownership chain, an unusual funding source or a sector under Home Affairs review can run considerably longer. The most effective thing an applicant can do is answer the beneficial ownership question fully in the original filing rather than in response to a query three weeks later.
Getting It Wrong
What happens if the wrong route is taken
An investment made under the automatic route that required approval is not a late filing. It is an investment that was not permitted when it was made, and the remedy is different.
-
The consequence
It is a contravention of FEMA. It cannot be cured by a Late Submission Fee, because the failure is substantive rather than one of timing. The route is a compounding application to the Reserve Bank, and in some cases post-facto approval has to be sought from the administrative ministry as well.
Exposure under Section 13 is calculated on the amount involved, which is why a modest investment made through the wrong route can carry a number out of proportion to the transaction.
-
Where it surfaces
Almost always in diligence, when a buyer or a new investor asks for the approval that was never obtained. At that point the transaction stops, because no acquirer will close on an entity holding an unlawful investment, and the compounding timeline of up to 180 days sits directly across the deal timetable.
The cost of establishing the route properly at the outset is a few hours. The cost of establishing it during a transaction is the transaction.
Four ways route determination goes wrong
The sector was read from the object clause. What the company may do, rather than what it does.
The threshold was tested on the current holding. The test is the post-investment holding on a fully diluted basis, which includes convertible instruments and outstanding options.
Beneficial ownership was not traced. The immediate investor was European, so the land border question was not asked further up the chain.
The policy was checked, the Press Notes were not. Caps and conditions change between consolidations.
Why IMC
How IMC handles route determination
What the engagement covers
A written route determination covering the sector as actually carried on, the applicable cap and conditions, the post-investment shareholding on a fully diluted basis, and the beneficial ownership position including any land border exposure. Where the government route applies, preparation and filing of the application, management of queries through to the approval letter, and a review of the conditions imposed.
Where an investment has already been made through the wrong route, a compounding application and, where needed, a post-facto approval.
Meet The Team
Experts behind this service
The people who will actually run your branch or liaison office approval, end to end.
-
Shriya Mandal
Director - Compliance
-
Deepakshi Sukhwani
Senior Associate - Corporate Services
-
Mudita Gehlot
Senior Associate - Corporate Services
-
Poornima J
Director - Strategic Partnerships & Business Development
-
Ninad Parkar
Director
-
Aishwarya Shiva
Director - Strategic Partnerships & Business Development
FAQs
A route under which a foreign investor needs no prior approval from the government or the Reserve Bank. The investment is made first and reported afterwards, principally through Form FC-GPR within 30 days of allotment. Most sectors of the Indian economy are open to 100 percent foreign investment on this basis.
Where the sector carries a government route condition, where the proposed holding crosses a threshold above which approval is required, or where a beneficial owner sits in a country sharing a land border with India. The land border test overrides the sectoral position, so an otherwise automatic sector still requires approval.
Commonly eight to twelve weeks for a complete application in a sector without security sensitivity. Longer where security clearance from the Ministry of Home Affairs is required, where the ownership chain is opaque, or where queries are raised. Each query effectively restarts the clock.
The ministry or department that administers the sector, not DPIIT. Applications are filed on the Foreign Investment Facilitation Portal and routed from there. Cases involving defence, telecom, private security, broadcasting or a land border investor are also referred to the Ministry of Home Affairs.
No. Money received before the approval letter is issued is a contravention of FEMA. There is no partially approved position and no ability to complete conditionally, so a subscription agreement with a fixed completion date should not be signed before the route has been established.
By the activity the Indian company actually carries on, not by its name and not by the breadth of its object clause. A widely drafted memorandum can place a company in a regulated sector it never intended to enter, and the question is asked at the point of filing rather than at incorporation.
It is a substantive contravention rather than a late filing, so the Late Submission Fee route is not available. It is regularised by compounding with the Reserve Bank, and post-facto approval may also be needed from the administrative ministry. Exposure is calculated on the amount involved.
Lottery, gambling and betting including casinos, chit funds and nidhi companies, real estate business other than construction and development, trading in transferable development rights, manufacture of tobacco products, and activities not open to private investment such as atomic energy. No route is available for these.
The post-investment holding, calculated on a fully diluted basis. That includes convertible instruments and outstanding employee options, which is why a transaction that appears to sit below a cap on the current cap table can cross it once dilution is taken into account.
Often enough that a cap should never be taken from a consolidated policy document alone. The policy is amended between consolidations by DPIIT Press Notes, which take effect once the corresponding amendment to the Non-Debt Instruments Rules is notified. Check the policy and every Press Note issued since.
Get Started
Establish the route before the term sheet
Send the sector, the activity as actually carried on, the shareholding before and after on a fully diluted basis, and the ownership chain above the immediate investor. We will confirm the route, the cap and any condition, in writing.
Response within one working day. Initial view at no cost.
IMC