India permits up to 100% foreign direct investment in many business activities. That does not mean every foreign investor can automatically own an Indian company without restrictions.
The permitted ownership percentage, approval route and investment conditions depend on the company’s actual business activity. Banking, defence, media, retail, insurance and space businesses, for example, follow different foreign investment rules.
For businesses considering Foreign Subsidiary Incorporation, checking the applicable sectoral cap should be one of the first steps. It should happen before the shareholding structure is finalised, incorporation documents are filed or foreign funds are transferred.
This guide explains the major FDI sectoral caps in India for 2026, the difference between automatic and government routes, and the activities where foreign investment remains prohibited.
What Is An FDI Sectoral Cap?
An FDI sectoral cap is the maximum foreign investment permitted in an Indian company operating in a particular sector.
The cap generally considers aggregate foreign investment, including direct and indirect foreign ownership, on a composite basis. This means a company cannot avoid the cap by splitting investments across different foreign investors or investment categories.
A sectoral cap may permit:
- 100% FDI under the automatic route
- FDI up to a certain percentage under the automatic route
- Additional investment beyond that percentage with government approval
- Investment only through the government route
- No foreign investment
The cap is only one part of the rule. A sector may permit 100% foreign ownership but still impose licensing, minimum capital, local sourcing, security clearance, management or operational conditions.
What Are The Automatic And Government Routes?
Foreign investment in India generally enters through one of two routes.
Automatic Route
Under the automatic route, the foreign investor and Indian company do not need prior approval from the Central Government for the investment.
The investment must still comply with:
- The applicable sectoral cap
- Sector-specific conditions
- FEMA pricing requirements
- Permitted payment methods
- RBI reporting requirements
- Companies Act provisions
“Automatic” means prior government approval is not required. It does not mean the investment is free from regulation.
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Government Route
Under the government route, prior approval must be obtained from the relevant ministry or department before the foreign investment is made.
Approval may be required because of the business sector, proposed ownership percentage, investor’s country, beneficial ownership or national security considerations.
The current policy framework is maintained by the Department for Promotion of Industry and Internal Trade. Press notes and FEMA amendments should also be reviewed because they may modify the consolidated policy.
FDI Sectoral Caps In India For 2026
The following table summarises major sector-wise FDI limits. Each investment remains subject to the detailed conditions prescribed for that sector.
| Sector Or Activity | FDI Cap | Entry Route |
| Manufacturing | 100% | Automatic |
| Agriculture and animal husbandry in permitted activities | 100% | Automatic |
| Plantation activities permitted under the policy | 100% | Automatic |
| Mining and exploration of permitted minerals | 100% | Automatic |
| Airports, greenfield and existing projects | 100% | Automatic |
| Construction development | 100% | Automatic |
| Industrial parks | 100% | Automatic |
| Railway infrastructure in permitted activities | 100% | Automatic |
| Telecom services | 100% | Automatic |
| Pharmaceuticals, greenfield | 100% | Automatic |
| Pharmaceuticals, brownfield | 100% | Up to 74% automatic; beyond 74% government route |
| Medical devices | 100% | Automatic |
| Defence industry | 100% | Up to 74% automatic; beyond 74% government route |
| Private sector banking | 74% | Up to 49% automatic; beyond 49% government route |
| Public sector banking | 20% | Government route |
| Insurance companies | 100% | Automatic, subject to prescribed conditions |
| Insurance intermediaries | 100% | Automatic, subject to regulatory conditions |
| Pension sector | 74% | Automatic, subject to applicable law |
| Asset reconstruction companies | 100% | Automatic |
| Credit information companies | 100% | Automatic |
| Private security agencies | 74% | Up to 49% automatic; beyond 49% government route |
| Single-brand product retail trading | 100% | Automatic, subject to conditions |
| Multi-brand retail trading | 51% | Government route |
| Wholesale or cash-and-carry trading | 100% | Automatic |
| E-commerce marketplace model | 100% | Automatic |
| Food products manufactured or produced in India, including retail | 100% | Government route |
| FM radio | 49% | Government route |
| Print media involving news and current affairs | 26% | Government route |
| Digital media uploading or streaming news and current affairs | 26% | Government route |
| Non-news television channels and specified broadcasting carriage services | 100% | Automatic, subject to conditions |
The insurance limit was increased from 74% to 100% through the insurance law changes notified in December 2025. The Government’s Economic Survey 2025–26 confirms the increased limit. Foreign investment remains subject to insurance law, IRDAI requirements and prescribed conditions.
Important Sector-Specific FDI Rules
A table gives the headline number, but it does not show every condition. Some sectors need closer examination before incorporation.
Defence
FDI in the defence industry is permitted up to 100%. Investment up to 74% is available under the automatic route for companies seeking a new industrial licence.
Foreign investment beyond 74% requires government approval and is generally considered where it may provide access to modern technology or for other recorded reasons. Industrial licensing and security-clearance requirements also apply.
A company involved in dual-use products should confirm whether its proposed products fall under defence licensing before assuming that ordinary manufacturing rules apply.
Pharmaceuticals
Greenfield pharmaceutical projects permit up to 100% FDI under the automatic route.
For brownfield pharmaceutical companies, up to 74% is permitted automatically. Investment beyond 74% and up to 100% requires government approval.
Brownfield investments may also be subject to conditions concerning production levels, research and development expenditure, and the transfer of technology.
Banking And Financial Services
Private sector banks permit foreign investment up to 74%. Investment up to 49% is allowed under the automatic route, while investment beyond 49% and up to 74% requires government approval.
Public sector banking has a lower cap of 20% under the government route.
Other financial services may permit up to 100% foreign investment under the automatic route where the activity is regulated by the RBI, SEBI, IRDAI, PFRDA or another recognised financial-sector regulator.
An unregulated financial activity may require prior government approval. Foreign promoters should therefore confirm the regulatory classification before starting the incorporation process.
Insurance
Indian insurance companies can now receive up to 100% foreign investment under the automatic route, subject to the conditions in the applicable insurance and foreign investment framework.
The cap should not be confused with unrestricted operation. The company still requires IRDAI registration and must comply with governance, solvency, investment and operational requirements.
Retail Trading
Single-brand product retail trading permits up to 100% FDI under the automatic route, subject to conditions that may include local sourcing requirements.
Multi-brand retail trading permits up to 51% foreign investment under the government route. Its implementation may also depend on the policy adopted by the relevant state or union territory.
Retail trading of food products manufactured or produced in India permits up to 100% FDI under the government route, including sales through e-commerce, subject to policy conditions.
E-Commerce
India permits 100% FDI under the automatic route in the marketplace model of e-commerce.
FDI is not permitted in the inventory-based e-commerce model. A marketplace entity cannot own the inventory it sells or exercise prohibited control over the inventory of sellers.
This distinction matters during Foreign Subsidiary Incorporation. An online platform described as a marketplace in its documents may still be treated as inventory-led if its actual commercial arrangements show ownership or control of goods.
Media And Broadcasting
Media has some of India’s more restrictive foreign investment limits.
Print media dealing with news and current affairs generally permits up to 26% FDI under the government route. Digital media entities that upload or stream news and current affairs also have a 26% cap under the government route.
FM radio permits up to 49% under the government route. Several non-news broadcasting and carriage services permit higher foreign ownership, subject to licensing and security conditions.
Space Sector
India liberalised foreign investment in the space sector in 2024. The permitted automatic-route threshold depends on the activity:
- Up to 74% for satellite manufacturing and operation, satellite data products, and ground or user segment activities
- Up to 49% for launch vehicles, associated systems, creation of spaceports and launching or receiving spacecraft
- Up to 100% for manufacturing components and systems or subsystems for satellites, ground segments and user segments
Investment beyond the relevant automatic-route threshold and up to 100% requires government approval. The activity must also comply with space-sector guidelines and authorisations.
Which Sectors Prohibit FDI In India?
Foreign direct investment remains prohibited in the following activities:
- Lottery businesses, including government and private lotteries
- Gambling and betting, including casinos
- Chit funds
- Nidhi companies
- Trading in transferable development rights
- Real estate business or construction of farmhouses
- Manufacturing of cigars, cheroots, cigarillos and cigarettes of tobacco or tobacco substitutes
- Activities not open to private-sector investment, including atomic energy and specified railway operations
The prohibition on “real estate business” does not cover every property-related activity. Construction development, townships, residential or commercial premises, roads, bridges, REITs and certain property-leasing activities may be treated differently under the policy.
Foreign technology collaboration, including licensing, trademarks, brand names or management contracts, is also prohibited for lottery, gambling and betting activities.
Special Rules For Investors From Land-Border Countries
An investor’s country and beneficial ownership can change the applicable entry route.
India’s policy places specified restrictions on investments involving entities, citizens or beneficial owners from countries sharing a land border with India. Such investments may require government approval even when the business sector would normally qualify for the automatic route.
The rules were revised in 2026, so the investor’s complete ownership chain should be checked against the latest DPIIT notification. Looking only at the country where the immediate investing company is incorporated may not be sufficient.
Why Sectoral Caps Matter During Foreign Subsidiary Incorporation
The proposed business activities determine whether the Indian subsidiary can be wholly foreign-owned and whether approval is required.
Before filing incorporation documents, foreign promoters should confirm:
- The exact business activity of the Indian company
- The applicable sectoral cap
- Whether the automatic or government route applies
- The identity and beneficial ownership of the investor
- Whether an industry licence is required
- FEMA pricing, remittance and reporting requirements
The Memorandum of Association should describe the proposed activities accurately. Using a vague or unrelated object clause does not remove an FDI restriction and may create questions during bank or regulatory review.
Common Mistakes Foreign Investors Should Avoid
Frequent errors include assuming that all service businesses permit 100% FDI, checking only the ownership cap and ignoring sectoral conditions, receiving funds before obtaining approval, and treating an e-commerce inventory model as a marketplace.
Businesses also overlook indirect foreign investment. If a foreign-owned or foreign-controlled Indian company invests in another Indian entity, downstream investment rules may apply.
The safest approach is to map the investment structure before incorporation rather than correcting it after funds have arrived.
FAQs
Yes. India permits 100% FDI under the automatic route in many sectors, including manufacturing, telecom, construction development and greenfield pharmaceuticals. Some sectors require government approval or impose lower caps.
The automatic route allows foreign investment without prior Central Government approval. The investor and Indian company must still comply with sectoral conditions, FEMA rules and RBI reporting requirements.
Prohibited activities include lottery businesses, gambling and betting, chit funds, Nidhi companies, trading in transferable development rights and specified tobacco manufacturing.
Yes, if 100% foreign ownership is permitted for the subsidiary’s business activity and all applicable conditions are met.
Not always. Incorporation and foreign investment are related but separate processes. Government approval should be obtained before receiving the investment where the investor or business activity falls under the government route.
