100% FDI in India: What the Automatic Route Means for Your GCC

The automatic route under India's FDI policy (consolidated in the DPIIT Consolidated FDI Policy and operationalized through FEMA) means that a non-resident entity can invest in an Indian company without applying to the government or the RBI before making the investment. The investor makes the investment, the Indian company issues shares, and both then report the transaction to RBI post-facto.

The automatic route is not a blanket permission. It applies to specific sectors and up to specific percentage limits. IT/ITES is on the 100% automatic route - meaning a foreign company can hold 100% of an Indian IT company's shares without any prior approval. If the GCC entity also engages in activities that are on the government approval route (e.g., publishing, certain financial services), those activities trigger approval requirements even if IT is the primary activity.

FDI cannot be made at a price lower than the fair value of the Indian company's shares. RBI's pricing guidelines (under FEMA Non-Debt Instrument Rules 2019) require that for unlisted companies, the price must not be less than the fair value as determined by a SEBI-registered merchant banker or a CA using internationally accepted pricing methodology (DCF or net asset value).

For a new company (day-one incorporation), the fair value is typically equal to the face value (INR 10 per share for most incorporations) since there is no track record. The parent can invest at INR 10 per share and the valuation certificate confirms this. As the company grows, subsequent FDI tranches must use a fresh valuation that reflects the company's current financials.

Under-pricing FDI (i.e., transferring shares to a non-resident at below fair value) is treated as a capital account transaction in violation of FEMA and attracts compounding penalties. Over-pricing FDI (paying more than fair value) is not restricted by FEMA but may trigger Indian income tax consequences.

GCCs that provide shared services including certain financial services (credit information, insurance intermediaries, stock broking support) may trigger the approval route for the financial services component. If your India GCC processes customer financial data, cross-check whether the specific activity is classified as 'financial services' under the FDI policy.

Defense manufacturing, broadcasting, print media, and satellite communication are on the government approval route even for small percentages. A GCC that develops software for a defense contractor does not automatically become a defense entity, but legal advice should confirm the boundary.