Most manufacturing is open to 100% foreign ownership without prior approval
Caps follow the Consolidated FDI Policy 2020 and later Press Notes. Most manufacturing needs no Government approval for foreign investment. Defence, and investors with ownership from a country sharing a land border with India, are the main exceptions.
| Activity | Cap and route | Key conditions |
|---|---|---|
| Manufacturing, including electronics, semiconductors, capital goods and textiles | 100%, automatic route | Covers self-manufacturing and contract manufacturing in India under a legally tenable contract. Products made in India may be sold through wholesale and retail, including e-commerce, without Government approval. |
| Contract manufacturing for a foreign brand owner | 100%, automatic route | Principal-to-principal and principal-to-agent contracts both qualify (para 5.2.5.1, Consolidated FDI Policy). |
| Chemicals | 100%, automatic route | Except certain hazardous chemicals. Manufacture of most chemical products, including organic and inorganic chemicals, dyestuffs and pesticides, is de-licensed. |
| Defence items under industrial licence (IDR Act 1951) and small arms and ammunition (Arms Act 1959) | Automatic up to 74%; Government route above 74% | Above 74% where likely to give access to modern technology or for other recorded reasons; Saab was the first company approved at 100%. In a company not seeking a new licence, or already approved for defence FDI, new foreign investment up to 49% needs a declaration to the Ministry of Defence within 30 days; above 49% needs approval. |
| An entity or citizen of a land-border country, or an investor beneficially owned from one (Press Note 3 of 2020, as amended by Press Note 2 of 2026) | Government route; automatic up to 10% non-controlling | Beneficial ownership follows the anti-money-laundering (PMLA) definition. Up to 10% non-controlling land-border ownership is automatic, with prior reporting on the FIF/NSWS portal. Land-border stakes of up to 49% in Indian-controlled companies in priority sectors such as electronic components, capital goods and polysilicon have a 60-day decision target. |
| Cigars, cigarettes and tobacco substitutes | Prohibited | Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes, is on the FDI prohibited list. |
Sources: DPIIT Consolidated FDI Policy 2020, paras 5.2.5–5.2.6 (via Invest India); PIB, 27 May 2025; Invest India Chemicals and Defence pages; Vistra; Saraf and Partners; Legal500, Jun 2026.
The land-border rule after Press Note 2 (2026)
Press Note 3 of 2020 placed any investment from an entity or citizen of a country sharing a land border with India, or beneficially owned from one, on the Government route. Press Note 2 of 2026 amended it in three ways relevant to manufacturers:
- Up to 10% non-controlling ownership is automatic. The investment still needs prior reporting on the FIF/NSWS portal.
- Priority supply-chain sectors have a 60-day decision target. Land-border stakes of up to 49% in Indian-controlled companies in priority sectors such as electronic components, capital goods and polysilicon are to be decided within 60 days. Resident Indians must keep majority ownership and control.
- The beneficial-ownership test is the PMLA definition. More than 10%, or any control, from a land-border country needs approval even when the investing entity sits elsewhere.
Press Note 2 (2026) took legal effect through the amendment to the FEMA (Non-debt Instruments) Rules published in May 2026; the brochure gives 2 May 2026 as the effective date. The general rule is explained under land-border investors.
Defence: two separate tests
Defence sits apart from the rest of manufacturing because it combines an FDI cap with an industrial licence:
- FDI cap. Automatic up to 74%. Above 74% is on the Government route and is granted where the investment is likely to give access to modern technology or for other recorded reasons. Saab was the first company approved at 100%.
- Equity changes in existing licensees. In a company not seeking a new licence, or already approved for defence FDI, new foreign investment up to 49% needs a declaration to the Ministry of Defence within 30 days; above 49% needs approval.
- Licence. Defence items under the IDR Act 1951 and small arms and ammunition under the Arms Act 1959 need an industrial licence from the Central Government before manufacturing: see regulators and registrations.
Selling what you make
Products made in India by a 100% foreign-owned manufacturer may be sold through wholesale and retail, including e-commerce, without Government approval. This matters for brand owners who would otherwise face the separate caps and conditions on retail trading; the manufacturing route carries its own permission to sell.
Contract manufacturing for a foreign brand owner qualifies on the same terms whether the contract is principal-to-principal or principal-to-agent, provided it is a legally tenable contract.
Chemicals
Chemicals take 100% FDI on the automatic route, except certain hazardous chemicals. Manufacture of most chemical products, including organic and inorganic chemicals, dyestuffs and pesticides, is de-licensed, so no industrial licence is needed; state pollution consents still apply.
Check: The hazardous-chemicals exception and the defence licence list are defined by the Consolidated FDI Policy and the IDR Act schedules. Confirm with DPIIT (via NSWS) whether your product falls within either before choosing the route.
What to check next
- Trace beneficial ownership through every layer of the investing group against the PMLA definition; a land-border owner anywhere in the chain changes the route.
- If a land-border investor will hold between 10% and 49%, confirm that the Indian company is Indian-controlled and that the product is in a priority sector before relying on the 60-day target.
- For defence, settle the equity level against the 74% automatic cap and plan the 30-day Ministry of Defence declaration for any change in an existing licensee.
- Confirm whether your chemical product is on the hazardous list or your defence item needs an industrial licence.
- File the prior reporting on the FIF/NSWS portal before the investment where the 10% automatic allowance is used.