FDI Policy, Routes and Approval Mechanisms in India

India follows a dual-route Foreign Direct Investment (FDI) system to balance ease of doing business with sector-specific safeguards. Depending on the sector, investor profile, and national security sensitivity, foreign investment may go through the Automatic Route or the Government Route. This framework is supported by filing requirements, sectoral caps, and special rules for sensitive categories such as land-bordering countries, insurance, e-commerce exports, and strategic industries like space.

Dual-Route FDI Framework

• Automatic Route: Foreign investors do not need prior approval from the Government of India or the Reserve Bank of India (RBI), subject to sectoral caps and applicable conditions.
• Government Route: Investment requires prior administrative approval through the Foreign Investment Facilitation Portal (FIFP), administered by the Department for Promotion of Industry and Internal Trade (DPIIT).
• Sectoral limits: The applicable route depends on the sector, the amount of foreign investment, and whether the proposal involves control, ownership, or strategic sensitivity.
• Compliance: Foreign direct investors must file the Foreign Liabilities and Assets (FLA) annual return with the RBI by 15 July every year.
• Form FC-GPR: This form must be filed within 30 days of share allotment for reporting foreign investment in Indian entities.

FDI in the Space Sector

• Satellites: FDI up to 74% is permitted.
• Launch vehicles: FDI up to 49% is permitted.
• Component and system manufacturing: FDI up to 100% is permitted under the automatic route.
• Policy significance: The space sector framework reflects India’s effort to attract capital while retaining control over sensitive activities.

Insurance Sector FDI Reforms

• 100% FDI: Private insurance companies and insurance intermediaries may receive 100% FDI under the automatic route.
• Legal basis: The change was introduced through Press Note No. 1 (2026 Series) and later codified through the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026.
• Insurance law linkage: The reform followed implementation of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025.
• Resident Indian requirement: At least one resident Indian citizen must hold the position of Chairperson, Managing Director, or Chief Executive Officer in private insurance companies receiving foreign investment.
• LIC cap: The foreign investment limit for the Life Insurance Corporation of India (LIC) remains 20% under the automatic route.

Exam point: 100% FDI is permitted under the automatic route in private insurance, but LIC remains capped at 20%.

Investments from Land-Bordering Countries

• Policy shift: The earlier blanket approval requirement for investments from land-bordering countries (LBCs) was relaxed through Press Note No. 2 (2026 Series).
• Passive investment under 10%: Non-controlling investments from LBCs with beneficial ownership up to 10% are allowed under the automatic route.
• Reporting: Such investments require standalone reporting to the DPIIT.
• Above 10% or control: Any direct or indirect LBC investment above 10%, or involving control, requires prior government approval.
• China and Hong Kong: Investments controlled by China or Hong Kong continue to require government clearance regardless of size.
• Beneficial owner: The term is defined using the criteria in Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002.
• Fast-track review: Government decisions on LBC investments in electronic components, capital goods, and solar cells are to be taken within 60 days.
• Operational SOP: DPIIT issued an updated Standard Operating Procedure to implement reporting for non-controlling LBC investments below the 10% threshold.

E-Commerce Exports and Trusted Investor Framework

• Export-only inventory model: 100% FDI under the automatic route is allowed in the inventory-based model of e-commerce, but only for goods manufactured or produced in India for export.
• Domestic B2C retail: The FDI ban on domestic inventory-based Business-to-Consumer retail continues.
• Regulatory basis: The framework was codified through the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2026.
• DGFT operationalisation: Under the Foreign Trade Policy 2023, foreign-funded entities may run export-only inventory operations through a registered Exporter-on-Record (EOR).
• SWAGAT-FI: The Single Window Automatic and Generalised Access for Trusted Foreign Investors framework was introduced by SEBI for portfolio investment access.
• Eligible entities: Low-risk foreign entities such as sovereign wealth funds, pension funds, and central banks can register as both Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs) through a single window.
• Validity: SWAGAT-FI registration has a 10-year validity.

Key Prelims Takeaways

• Automatic vs Government Route: Automatic route needs no prior approval; Government Route requires clearance through FIFP.
• FLA return: Must be filed with the RBI by 15 July every year.
• FC-GPR: Must be submitted within 30 days of share allotment.
• Space sector: 74% FDI in satellites, 49% in launch vehicles, and 100% in component and system manufacturing.
• Insurance: 100% FDI allowed in private insurance under the automatic route; LIC remains capped at 20%.
• LBC rule: Passive investments up to 10% beneficial ownership may go through the automatic route, subject to reporting.
• E-commerce exports: 100% FDI allowed only for export-oriented inventory-based operations using Indian-made goods.