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Downstream Investment / Indirect Foreign Investment

Investment in Indian companies by a non-resident is called as ‘foreign investment’. 

This foreign investment can be :
  1. Direct Foreign Investment; 
  2. Indirect Foreign Investment.

Downstream Investment

Investment by non-resident entity/person resident outside India in the capital of an Indian company is generally called as FDI i.e.  Foreign Direct Investment.

Whereas in case an Indian company who has FDI, further invest in any other Indian company, it would be called as “Indirect Foreign Investment”.

Non-resident entities
       ↓
Investment into
       ↓
Indian companies
       ↓
Investment into
       ↓
Indian companies

The indirect investment can also be a cascading investment i.e. through multi-layered structure.

The Indirect Foreign Investment is otherwise also known as “Downstream Investment”.


Definition of “Downstream Investment” is given under the clause 3.8.2 of the consolidated FDI policy 2016, which is as follows.

‘Downstream investment’ means indirect foreign investment, by an eligible Indian entity, into another Indian company/LLP, by way of subscription or acquisition.

Annexure-5 provides the guidelines for calculation of indirect foreign investment, with conditions specified in paragraph 1.2 (v).
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