FDI in Indian Manufacturing: Full Guide for Global Investors

India’s manufacturing sector has emerged as a major hub for foreign investors, thanks to its growing economy, skilled workforce, and a liberalized FDI policy. If you’re a foreign business looking to invest in India’s manufacturing industry, this guide explains everything you need to know — in simple terms.

What Is FDI and Why It Matters in Manufacturing?

FDI (Foreign Direct Investment) refers to investments made by a foreign company or individual in the business interests of another country. In India, manufacturing is one of the most attractive sectors for FDI due to:

• A large consumer base

• Lower production costs

• Government support through policies like “Make in India”

• Streamlined FDI procedures

FDI Limit in Manufacturing: 100% Allowed

India allows 100% FDI in the manufacturing sector through the automatic route. This means:

• No prior approval from the Government of India or RBI is needed.

• You can invest directly and start operations quickly.

This policy is designed to attract more foreign companies and simplify the process of doing business in India.

Ways to Set Up Manufacturing Operations in India

You can start manufacturing in India in two primary ways:

1. Self-Owned Manufacturing

Set up your own manufacturing facility from scratch. This gives full control over production, quality, and business operations.

2. Contract Manufacturing

You can also hire an Indian company to manufacture your products under contract. There are two models here:

• Principal-to-Principal (P2P): You buy the product from an Indian manufacturer at agreed terms.

• Principal-to-Agent (P2A): The Indian company works as your agent.

???? Important: Contract manufacturing must be done within India to qualify under the automatic route.

Sales & Distribution: No Extra Approvals Needed

Once your products are manufactured in India, you can sell them easily through:

• Wholesale

• Retail

• E-commerce platforms

You don’t need separate approvals to retail products that you’ve manufactured in India. This creates a seamless flow from manufacturing to consumer sales.

FDI Restrictions: Know the Exceptions

While FDI in manufacturing is widely allowed, a few sectors are restricted. Foreign investment is prohibited in:

• Manufacturing of cigars

• Cheroots

• Cigarillos

• Cigarettes

• Any tobacco or tobacco-based products

Always check whether your product category falls under restricted items.

Key Compliance Steps for Foreign Investors

Even though FDI through the automatic route is simplified, a few compliance requirements still apply:

Sectoral Caps:

Some industries still have FDI caps. Although manufacturing allows 100%, make sure your specific sub-sector doesn’t have additional limits.

Security & Regulatory Checks:

All foreign investments must meet India’s security and regulatory guidelines, especially if the investor is from specific countries (e.g., bordering nations).

RBI Filing – Form FC-GPR:

After issuing shares or equity instruments, the Indian company must report the transaction to the RBI by filing Form FC-GPR within the prescribed timeline.

Additional Benefits for Foreign Manufacturers

The Government of India offers various incentives for investors:

• PLI (Production Linked Incentive) Schemes

• Tax benefits and subsidies from state governments

• Ease of Doing Business reforms

• Digital approval processes through the single-window clearance system

FAQs on FDI in Manufacturing

Q1. Can foreign companies fully own Indian manufacturing units?
Yes, 100% ownership is permitted under the automatic route.

Q2. Is approval needed to sell products manufactured in India?
No, retail and e-commerce sales do not need extra approval.

Q3. Can FDI be used for contract manufacturing?
Yes, as long as the contract manufacturing happens within India.

Q4. What documents are needed to report FDI to the RBI?
Form FC-GPR must be filed along with shareholding details and KYC.

Q5. Are there special incentives for foreign manufacturers?
Yes, PLI schemes, subsidies, and fast-track approvals are available.

Conclusion: Why India Should Be on Your FDI Radar

India offers one of the most open, growth-ready markets for foreign manufacturing investment. With 100% FDI allowed, no prior approval needed, and strong government support, the environment is perfect for foreign businesses to thrive.

Whether you want to set up your own plant or partner with an Indian manufacturer, now is the best time to invest in India’s manufacturing success story.