Foreign Investment Policies in India

Foreign Investment Policies are for investing directly into production or business in a country by a company or an individual of another country. Investing may be buying a company in another country or expanding operations of the existing business in that country.

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Foreign Investment in India is governed by the FDI (Foreign Direct Investment) of the GOI (Government of India) and the Foreign Exchange Management Act 1999.

The two main concerns of the FDI policy framework are:

To sustain India's impressive economic growth, foreign investments are necessary
Protection of sectors that are of strategic interest such as defense and telecommunications

What Is Foreign Direct Investment?

When a company or investor takes ownership of another company in a land other than their own (foreign land), it is known as Foreign Direct Investment.

In layman’s terms, Foreign Direct Investment is the decision of a company or an investor to acquire a certain amount of shares of another company in some other country to expand their existence in a foreign land.

How Does It work?

The government has now allowed Foreign Institutional Investors (FII) and Non-Resident Indians (NRIs) to invest in the Insurance sector through an automatic route within the 26% cap on FDI (Foreign Direct Investment). A senior official at DIPP (Department of Industrial Policy and Promotion) said that foreign investment was already allowed in third-party administrators, insurance, insurance brokers as per the Insurance Act but now it has been defined in FDI policy. This shall attract more investors to the market.

Previous Policy	Revised Policy
26% (FDI)	26% (FDI+FII)

The foreign investors would have to obtain the necessary license from IRDA (Insurance Regulatory and Development Authority) for undertaking the activities of Insurance. Private sector banking FDI norms would be applicable for bank-promoted insurance companies. 74% FDI including investments by FIIs in private sector banks has been allowed by Banking sector FDI norms. In this sector, the government route is followed from 49% to 74%, and the automatic route is followed up to 49%.

Most of the Insurance companies in the country are joint ventures between foreign and Indian companies. Due to political opposition, the government is unable to raise the FDI limit in the sector to 49%. The limit in the case of the Insurance sector is mentioned in the law so it would need to be raised through the parliamentary process, unlike most sectors where limits are mentioned in the policy of FDI.

It is a long-term commitment to invest in India as these changes have raised certain issues which need to be resolved further like a broader FDI policy and the narrow definition of ownership. The stability in government for the next five years signified by the near majority win by the ruling UPA government is a piece of good news on the Indian front. To further liberalize the FDI policy over the next five years, the current government will continue its economic reform agenda.

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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

Past 10 Years' annualised returns as on 01-04-2026

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).