Imp Points

FDI is allowed in Equity financing only (but FDI allowed in fully convertible debentures/bonds) while FII is allowed in both equity and debt financing
In India, CCEA clears FDI investments of more than 5000 crores
No foreign individual investment is allowed in India
FDI - Mergers & acquisitions (M&A) - favourite mechanism of FDI in India in 2016.
Green field FDI - starting new ventures
FIIs/FPIs allowed to invest in Power Exchanges through primary market

Defence

100% FDI allowed. 49% FDI automatic route

Railways

100% FDI is allowed under automatic route in most of areas of railway like high speed trains, railway electrification, passenger terminal, mass rapid transport systems, railway infrastructure etc

Train Operations: FDI not allowed

Banking

49% automatic route , 74% approval route (provided no change in management)

Small Finance Banks

Payment Banks

49% automatic route , 74% approval route

Asset Reconstruction Companies

100 percent

NBFC

100 percent

Insurance

74% allowed [For Insura intermediaries -100 percent automatic allowed]

eCommerce

100 percent under automatic route in market model of e-commerce

No FDI allowed in inventory based model of e-commerce.

Agriculture and Animal Husbandry

Plantation

100%

Food Processing

100% automatic route

Manufacturing

100% automatic route

Automobile

100% automatic route

Petroleum

100% automatic route

PSUs refineries

49% automatic route without any divestment

Leather

100% automatic route

Gems & Jewellery (Manufacturing)

100% automatic route

Construction development

100% automatic route

Pharmaceutical

Brown field projects - existing - 74% automatic and beyond Govt route

Green field projects -new projects -FDI 100% allowed

ESDM/Electronic

100% automatic

Power Exchanges

49 percent automatic route (FDI/FII in Primary market allowed)

Mining

100 percent automatic route

For titanium bearing minerals 100 percent govt route

Renewable energy

100% automatic route

Solar manufacturing

100% automatic route

Coal

100% automatic route

Ports

100% automatic route

Railway infrastructure

100% automatic route

Roads and Highways

100% automatic route

Air lines

Domestic - 100% allowed (49% automatic route) (In case of Air India, 49% FDI allowed and 100% for NRIs)

FDI is subject to the condition that Substantial Ownership & Effective Control (SOEC) shall be vested in Indian Nationals

Airports

100% automatic route

Aviation Sector

Brown field - 100% automatic route

Green field - Beyond 74%, government route

Drones

100% automatic route

Telecom

100% FDI allowed. 49% FDI automatic route Ex: Airtel recently got approval from Govt to allow FDI in the company to 100%

Single brand retail

100% under automatic route and no requirement of domestic sourcing

Multi brand retail

51% government route

100 percent not allowed in Banking, Insurance, PSU refineries, Power Exchanges, Multi brand retail, E-commerce (inventory model)

Consolidated FDI Policy 2017

Aug 2017
Startups

for the first time there is a separate chapter for start-ups in the FDI policy
Start-ups can raise up to 100 per cent of funds from Foreign Venture Capital Investor (FVCI). They can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance
A start-up company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government

Restriction of 25 per cent on sales of one vendor through an e-commerce marketplace will be computed on a financial year basis
Venture capital fund is now defined as a fund registered under the SEBI (Venture Capital Funds) Regulations, 1996
Administrative changes

Because of abolition of FIPB, proposals relating to banking, mining, defence, broadcasting, civil aviation, telecoms, pharmaceuticals etc. will have to be approved by respective administrative ministries
To clear proposals relating to areas including retail (single and multi-brand, and food), DIPP is the authority
Proposals relating to financial services activities that are partly regulated or not regulated by any financial sector regulator, the Department of Economic Affairs will clear the proposals

http://dipp.nic.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf

FDI Policy amendment 2020

Because of COVID-19 induced distress and consequential opportunistic takeovers/acquisitions of Indian companies, part (3.1.1) of

Consolidated FDI Policy 2017 was amended

Existing policy 3.1.1

Non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment

Amended policy 3.1.1

3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval

It implies that entities or investors of country that shares land border with India can invest only under the Govt route
Govt approval required for transfer of ownership of entity in India benefitting entities or investors of country that shares land border with India

Why

Because of economic slowdown due to COVID-19, domestic companies needs to be protected from aggressive targeted investments from specific countries like China

Foreign Institutional Investor - FII

FII means an institution established or incorporated outside India which proposes to make investment in securities in India.
They are registered as FIIs in accordance with SEBI (FII) Regulations 1995.
FIIs are allowed to subscribe to new securities (IPO) or trade in already issued securities. (both primary and secondary market)

Allowed to invest in equity and debt (both Govt bonds such as T bills and G-securities and Corporate bonds)
FIIs are allowed to invest only in listed or to-be listed entities and only through stock exchanges [NO over the counter investments]

However, FII as a category does not exist now. It was decided to create a new investor class called "Foreign Portfolio Investor" (FPI) by merging the existing three investor classes viz. FIIs, Sub Accounts and Qualified Foreign Investors

Qualified Foreign Investor - QFI

QFI is sub-category of Foreign Portfolio Investor FPI
Refers to any foreign individuals, groups or associations, or resident, however, restricted to those from a country that is a member of Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF and a country that is a signatory to International Organization of Securities Commission’s (IOSCO) Multilateral Memor ndum of Understanding (MMOU).
QFI scheme was introduced by GOI in consultation with RBI and SEBI in the year 2011, through a Union Budget announcement
Objective of enabling QFIs is to deepen and infuse more foreign funds in the Indian capital market and to reduce market volatility as individuals are considered to be long term investors, as compared to institutional investors.
QFIs are allowed to make investments in any of the SEBI approved Qualified Depository Participant (QDP)

Qualified Depository Participant QDP

Equity shares listed on recognized stock exchanges
Equity shares offered through public offers
Equity and Debt schemes of Indian mutual funds,
Corporate bonds listed/to be listed on recognized stock exchanges
G-Securities, T-Bills and Commercial Papers

QFIs do not include FIIs/Sub-accounts/ Foreign Venture Capital Investor (FVCI)

Foreign Portfolio Investor - FPI

A new investor class called "Foreign Portfolio Investor" (FPI) by merging the existing three investor classes viz. FIIs, Sub Accounts and Qualified Foreign Investors
Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an Indian company, beyond which it will now be treated as FDI
Non-Resident Indians (NRIs) and Foreign Venture Capital Investors (FVCI) are excluded from the purview of this definition.
May 1, 2018 FPIs are permitted to invest in Government Securities including T Bills

Maximum cap of 30 percent of total investment in that category

Maximum cap of 30% was applicable on investments in corporate bonds.

Voluntary Retention Route (VRR)

FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period of their choice.

Minimum retention period shall be three years, or as decided by RBI.

This concept is to encourage FPIs to invest in India in long term debts which result in stable FPI investments
Separate limits for Govt securities and corporate bonds

Foreign Venture Capital Investors FVCI

For FII/FPI, as per SEBI(FII) Regulations 1995, upto 10 percent can be invested as FII and beyond 10 percent investment is considered as FDI subjected to the sectoral caps fixed by GOI
But Start-ups can raise up to 100 per cent of funds from Foreign Venture Capital Investor (FVCI). They can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance.
However, if a start-up company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government
Foreign Venture Capital Investors (FVCI) are excluded from the purview of definition of FPI

Participatory Notes (P-Notes)

P-Notes or Participatory Notes are Overseas Derivative Instruments that have Indian stocks as their underlying assets
They allow foreign investors to buy stocks listed on Indian exchanges without being registered.
P-Notes gained popularity becoz FIIs, to avoid the formalities of registering and to remain anonymous, started through this route.
P-Note investor can invest anonymously. This makes it a 'legal' way to route unaccounted wealth in Indian equities, thus feeding the black money monster
Offshore Derivatives Instruments (ODIs)

FIPB Foreign Investment Promotion Board

Non statutory,
Housed under Department of Economic Affairs, Ministry of Finance
The Board would be able to co-opt other Secretaries to the Central Government and top officials of financial institutions, banks and professional experts of Industry and Commerce, as and when necessary
Recommends FDI proposal to FM that requires Govt permission and which are less than 3000 crores. Above 3000 crores, dealt by CCEA Cabinet Committee on Economic Affairs
May 2017, FIPB is abolished
Work relating to it shall be handled by concerned Ministries/Departments in consultation with DIPP, Ministry of Commerce

FDI FPI QFI FVCI