Foreign investment in India is governed by the FDI policy. The government releases the FDI policy every six months. Before the economic liberalization in India in the 1990s, there were a high number of restrictions for FDI in India . Gradually, the restrictions have been watered down to a great extent and currently the restrictions are in place for only those business activities that are strategic to the interests of the country or are politically sensitive issues such as Retails trade, Defense, Telecom, Real Estate etc.
Thus today, FDI is classified into:
Business sectors where FDI is not allowed at all
Business where prior permission is required from the Foreign Investment Promotion Board (FIPB) (approval route)
Business where no prior permission is required (automatic route).
In all case, once the FDI is received and accepted by the Recipient Company, an intimation is to be sent to the Reserve Bank of India(RBI)
Thus the first place for any foreign national or any Non-Resident to look out for is the FDI policy. He has to first understand if there are any restrictions, prohibitions in the proposed business activity and then move forward to the company formation process.