Restrictions to Investments in India

There are many opportunities for investments in India , even though it is still developing economy.  Many banks, both public and privately owned, offer aid to investors.  Although India has been loosening the rules and regulations of the government to promote foreign investment, there are still restrictions on what/how much one can invest in as a foreigner.

Restrictions on Investing in India

One section of Indian rule prohibits any investment of foreigners into certain areas of business.  These industries are: retail trades (except single-brand retail), atomic energy, lotteries, gambling and betting, housing and real-estate business, and certain types of agriculture.  No entry of any kind will be permitted to a foreigner in these fields.

Some sectors are allowed investment, but have it capped to some portion (normally 26%, 49% or 74%).  These amounts are chosen to both protect the right of foreigners to invest into the Indian market, while still ensuring that foreigners never fully establish control over these areas of business in India.

  • Industries limited to 26%: defense industries, print media, insurance
  • Projects limited to 49%: broadcasting, domestic airlines, infrastructure/service sectors
  • Products with 74% foreign ownership: establishment and operation of satellites, atomic minerals, exploration and mining of coal

Those that are not in this category can be fully owned by a foreign investor.  However, those that are fully owned by foreign investors will usually need to be given a license by ‘The Ministry of Commerce and Industry’ or approval from the ‘Foreign Investment Promotion Board’.  Also, retaining to the financial sector, one can only invest subject to approval by the Reserve Bank of India.  Both the limits on the ownership and approval are safeguards to protect Indian ownership of their market as a whole.

The government of India, in contrast to its limits on foreign investment in certain areas, strongly desires to have foreign capital put into their markets.  They have a well established financial system similar to our banks, where economic savings are effectively allocated among the ultimate investors.  The money is loaned out by various banks, financial institutions, non-banking financial companies and venture capital companies.

By – Domenic Gabriella for