US assessment finds lingering hurdles for foreign investors in India despite reforms
A US State Department report says India has eased some investment rules but foreign investors still confront sector limits, regulatory uncertainty and corruption risks.
According to the US Department of State’s 2026 India Investment Climate Statement, India has taken steps to liberalise its investment regime, including allowing 100% FDI through the automatic route in most industries and streamlining tax and labour regulations. Nevertheless, foreign investors must obtain government clearance for sectors like multi-brand retail, private banking, pharmaceuticals, defence, print and digital media, and satellite services, a requirement not imposed on domestic firms.
The report criticises the Foreign Exchange Management Act’s rule that blocks additional foreign portfolio investment after a pre-IPO FDI, describing it as redundant and burdensome, especially for large investment groups. Import Management System hurdles affect the import of specialised used equipment, while foreign banks face an effective tax rate 4.63 percentage points higher than domestic banks. Persistent corruption risks, inconsistent regulatory application and delays in rule implementation further undermine the investment climate, despite measures such as the National Single Window System and a faster FDI screening timeline.
Why it matters
The findings signal that unresolved barriers could limit foreign capital inflows crucial for India's economic growth.
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