Downstream investment: meaning, rules and Form DI
Downstream investment is investment by a foreign-owned or controlled Indian company into another Indian entity. It counts as indirect foreign investment.
Short answer
Downstream investment is an investment made by an Indian entity that has foreign investment and is owned or controlled by non-residents, into the capital of another Indian entity. Under the FEMA (Non-debt Instruments) Rules, 2019 it is treated as indirect foreign investment, so the investee must comply with the entry route, sectoral caps and pricing rules that apply to FDI.
- Rules
- FEMA (Non-debt Instruments) Rules, 2019
- Treated as
- Indirect foreign investment
- Reporting
- Form DI within 30 days of allotment
- Funding
- Foreign funds or internal accruals, not domestic borrowings
How downstream investment works
Suppose a foreign company owns 70% of an Indian company, which then invests in a second Indian company. Because the first company is foreign owned or controlled, its investment in the second is downstream investment, and the second company is treated as having indirect foreign investment. If the sector of the second company has a cap or requires government approval, those conditions apply. Investment by an Indian company that is owned and controlled by resident Indian citizens is not downstream investment, even if it has some foreign shareholders.
Conditions and reporting
The downstream investment must be approved by the board of the investing company and, where there is a shareholders' agreement, as required by it. It cannot be funded from borrowings raised in the domestic market, and pricing must follow the FEMA guidelines. The investing company reports the investment to the RBI in Form DI within 30 days of allotment of the shares, through the FIRMS portal.
Why it matters for startups
Startups with majority foreign ownership become foreign owned or controlled companies, so every investment they make in Indian subsidiaries, joint ventures or other startups is downstream investment. This affects acquisitions and group restructuring. Track your ownership and control status after each round, and plan Form DI filings with your FEMA calendar.
Related services
Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
When is an Indian company foreign owned or controlled?
When more than 50% of its capital is beneficially owned by non-residents, or non-residents have the right to appoint a majority of directors or control management or policy decisions.
Can downstream investment be funded by a bank loan in India?
No. Downstream investment cannot use borrowings from the domestic market. It must use funds from abroad or internal accruals.
What is Form DI?
It is the RBI form for reporting downstream investment, filed within 30 days of allotment.