Automatic route vs. government approval
Most sectors sit on the automatic route: the investment doesn't need prior government approval, only a post-facto report to the RBI through an authorised dealer bank. A smaller set of sectors — and some specific situations regardless of sector, such as investment from an entity based in a country sharing a land border with India — require government approval before the investment is made. Getting this wrong isn't a paperwork inconvenience; an investment made without required approval is a FEMA contravention from the outset.
Sectoral caps
Even on the automatic route, most sectors carry a cap on how much foreign ownership is permitted — some at 100%, others lower, a few requiring approval beyond a certain percentage. These caps sit in the Consolidated FDI Policy and the FEMA (Non-Debt Instruments) Rules, 2019, and are revised periodically enough that relying on a cap checked even a year earlier is genuinely risky.
Pricing guidelines
Shares issued or transferred to a foreign investor generally need to be priced at fair value, determined under an internationally accepted valuation method and certified by a chartered accountant, merchant banker, or registered valuer. This exists to stop investment structures being used to move value in or out of India at an artificial price — and it applies whether the round is a large institutional raise or a smaller strategic investment.
The filing that actually closes the loop: FC-GPR
Once shares (or other eligible instruments) are allotted to a foreign investor, the Indian company has 30 days to file Form FC-GPR with the RBI, reporting the allotment. This is the step that's easiest to lose track of — the round closes, the cap table updates, and everyone moves on to the next priority, while the 30-day clock keeps running regardless.
What happens if it's missed
A late or missing FC-GPR filing is treated as a contravention of FEMA's reporting requirements. It's fixable — through a compounding application to the RBI, which involves disclosing the delay and paying a compounding amount — but it's a materially worse position than filing on time, and it's exactly the kind of gap that surfaces during due diligence on a future funding round or acquisition.
Beyond the first round: downstream and ongoing obligations
A company with foreign investment doesn't just file once. Downstream investment by that company into other Indian entities carries its own reporting requirements, and every company with foreign direct investment or overseas assets has to file an annual FLA return directly with the RBI — a separate obligation from the company's tax filings, with its own deadline and its own consequences for missing it.
Frequently asked
How do I know if my sector allows 100% FDI under the automatic route?
Sectoral caps and routes are set out in India's Consolidated FDI Policy and the FEMA (Non-Debt Instruments) Rules, 2019, and they're revised periodically — some sectors allow 100% FDI automatically, others cap it lower or require government approval, and a few are closed to foreign investment entirely. There's no substitute for checking the current position for the specific sector before structuring the deal.
What is the pricing guideline requirement for FDI?
Shares issued to, or transferred by, a foreign investor generally have to be priced at or above a fair value determined under an internationally accepted pricing methodology (for unlisted companies, typically the discounted cash flow method), certified by a chartered accountant, merchant banker, or registered valuer — a safeguard against under- or over-valuation designed to route capital gains or investment improperly.
Is government approval required for investment from a neighbouring country?
Yes — a specific rule under the FEMA framework requires prior government approval for investment from an entity based in, or beneficially owned by a person from, a country sharing a land border with India, regardless of the sector or amount involved. This is a distinct, additional filter on top of the ordinary sectoral route.
What happens if FC-GPR is filed late?
It's treated as a contravention of FEMA reporting requirements. It doesn't automatically unwind the investment, but it does need to be regularised — typically through a compounding application to the RBI, which involves disclosing the delay and paying a compounding amount calculated based on the nature and duration of the default.