Industrial Machinery and Capital Goods in India
Entering India in industrial machinery or capital goods. FDI is automatic - BIS/QCO certification, customs duty and Press Note 3 origin decide it. ATB advises.
How a foreign machinery maker enters India: the import, certification, duty and origin gates behind a 100% automatic FDI route.
For a maker of industrial machinery or capital goods, the foreign-direct-investment question is the one part of an India entry that is already settled. Manufacturing of industrial machinery and capital goods sits on the 100% automatic route: a foreign company can own its Indian manufacturing subsidiary outright, with no prior government approval for the investment itself. The decisions that actually shape - and can stall - a capital-goods entry sit elsewhere. First, whether the machine can lawfully be imported and sold at all, which turns on whether the specific product falls under a Bureau of Indian Standards (BIS) Quality Control Order (QCO) - a product-by-product certification gate, not a blanket machinery regime. Second, how the machine is taxed on the way in: the customs duty on the equipment, and the concessional-assessment routes that can compress it, including Project Imports for a whole plant. Third, origin - where a Chinese machinery supplier, joint-venture partner or beneficial owner sits anywhere in the ownership chain, Press Note 3 makes the investment a prior-approval matter regardless of the otherwise automatic route. Treating those three as the real gates, and the FDI route as the easy part, is the difference between a clean entry and a consignment held at the port.
Which of these bites first depends on the kind of entrant you are: a first-look exporter shipping equipment against an order; a manufacturer setting up a sales, installation and after-sales subsidiary as a first footprint; an original-equipment maker committing to local assembly or manufacture; a foreign supplier entering through a joint venture with an Indian capital-goods business; or an investor acquiring an existing Indian machinery company.
At a glance
- FDI is automatic, but it is not the gate. Manufacturing of industrial machinery and capital goods is 100% automatic; the binding questions are import-certification, customs duty and origin.
- BIS / QCO certification decides saleability - product by product. A product under an in-force Quality Control Order cannot be made, imported or sold without BIS certification; the certification lead time is a go-to-market gate.
- There is no machinery-wide certification order. The 2024 Machinery and Electrical Equipment Safety (Omnibus Technical Regulation) Order was rescinded with effect from 14 January 2026 (gazetted 16 January 2026), so QCO coverage is assessed per product line and HS code, against the orders actually in force - not a broad machinery regime.
- Customs duty can be compressed at entry. Project Imports allows the machinery for a whole project to be assessed together at a single concessional customs rate rather than item by item; it requires registration with Customs before import.
- Origin is a government-approval question. Where a Chinese supplier, JV partner or beneficial owner is in the chain, Press Note 3 requires prior approval on beneficial ownership; a UAE or other intermediate holding company does not cure it. Press Note 2 of 2026 eases this only for a non-controlling stake of up to 10%.
- Most entrants land a service entity first. A sales, installation and after-sales/spares subsidiary (100% automatic) is the common first footprint; local manufacture follows once volumes, tariffs and demand justify it.
- An exporting manufacturer has a duty-remission option. Equipment imported duty-free against an export obligation under EPCG is a DGFT export-remission scheme - see the India trade and customs page.
Why industrial machinery and capital goods in India
India is consistently among the largest destinations for new (greenfield) foreign investment. In 2024 it recorded roughly 1,080 greenfield project announcements - fourth globally - with greenfield capital expenditure up around 28% to about US$110 billion, close to a third of Asia's total (UNCTAD World Investment Report 2025, 19 June 2025). Within that flow, industrial equipment has been a top-tier greenfield category over a long run: across 2014-2022 the leading greenfield sectors by activity included software and IT, business services, industrial equipment, communications and financial services (USITC, August 2024). On the equity side, total FDI into India was US$81.04 billion in FY2024-25, up 14%, of which manufacturing drew roughly US$19.04 billion, up about 18% (DPIIT, via India-Briefing, August 2025). These are two different lenses - project count and capital value - and should not be read as the same number.
The pull is structural rather than promotional. India is a large, import-dependent buyer of capital goods - it still imports a majority of its high-precision machine-tool components - that is steadily shifting toward making more of them onshore, supported by public procurement that rewards local content, by a capital-goods competitiveness scheme funding shared technology, testing and skilling infrastructure, and by an industrial policy aimed at turning the sector into a net exporter over time (National Capital Goods Policy 2016 - an aspiration, not a current status). For a foreign machinery maker the consequence is concrete: a deep equipment demand that you can serve by export, and a policy and procurement environment that progressively favours those who localise.
Which route are you taking?
The first question is not "automatic or approval" - it almost always is automatic - but how deep into the market you commit, and when. Most entrants move through stages rather than starting with a factory.
The pattern across these rows: the FDI route is rarely the obstacle. The legal work concentrates in the third column - certification, duty, origin and, on a brownfield deal, inherited obligations.
| Route | Typical investor | Key legal issue |
|---|---|---|
| Direct export into India (no entity) | First-look exporter; one-off project supply | Customs duty + HS classification; whether the product is under an in-force BIS/QCO before it is saleable; CEPA tariff and rules of origin (trade & customs page); no local after-sales |
| Importer + after-sales / spares / service subsidiary | Machinery OEM with orders needing local invoicing, installation, warranty and spares | 100% automatic (trading + services); GST; installation/service-PE and warranty model; spares duty and inventory; service-income transfer pricing with parent |
| Wholly-owned manufacturing (greenfield) | OEM committing to local assembly or manufacture | 100% automatic; land/site and FEMA; customs duty on imported plant (Project Imports / EPCG); environmental and factory approvals |
| Joint venture with an Indian capital-goods maker | Foreign supplier wanting channel, licences and local content quickly | JV control aligned to FDI; tech-transfer/royalty and withholding tax; Class-I/II local content for tenders; IP |
| Acquisition of an Indian machinery business (brownfield) | Investor buying capacity, order book or service network | FDI eligibility + Press Note 3 beneficial-ownership check; FEMA pricing; unfulfilled duty-concession export obligations transfer with the asset; legacy/environmental |
| Export-oriented / SEZ unit | Supplier using India as an export base | SEZ vs domestic-tariff-area economics; net-foreign-exchange obligation; customs/GST on domestic clearance |
| UAE holding company over the Indian entity | UAE/GCC group or promoter routing through a UAE holdco | India-UAE tax treaty (substance / beneficial ownership); place-of-effective-management risk; coordinated transfer pricing both sides |
BIS and Quality Control Orders: a product-specific gate, not a wall
The most underestimated gate for a capital-goods entry is product certification - but it is a product-specific gate, not a blanket machinery regime. India runs a growing lattice of Quality Control Orders (QCOs), each bringing specified products under compulsory BIS certification: once a product falls under a QCO, it cannot lawfully be manufactured, imported, stocked or sold without the relevant BIS licence, and non-compliant goods are liable to seizure at customs. The lattice is wide - on the order of 180-plus QCOs covering several hundred products by 2025 (PIB, 2025) - and for an importer the certification lead time, not the duty, is often what sets the go-to-market date.
What there is not, as of 2026, is a single machinery-wide order. The Ministry of Heavy Industries' Machinery and Electrical Equipment Safety (Omnibus Technical Regulation) Order, 2024 - which would have brought broad categories of machinery and electrical equipment under one compulsory-certification regime - was deferred and then rescinded with effect from 14 January 2026 (gazetted 16 January 2026) (Gazette notification under the BIS Act 2016, in the public interest). So a foreign maker should not plan against a broad omnibus machinery QCO. The real task is narrower and concrete: map each product line and HS code against the QCOs actually in force for that product, and start BIS certification early on anything that is covered. Where you manufacture in India, the same product-specific standards apply to domestic production. The certification clock still belongs in the entry plan - it is simply assessed product by product, against the current orders, rather than against a machinery-wide rule.
Project Imports and the landed-cost model
How a machine is taxed on the way in is the second lever, and it is best treated as a landed-cost model: the basic customs duty and IGST, less what Project Imports or an FTA origin (CEPA) can compress, set against the customs valuation and any deferral or remission route - modelled per consignment, not assumed as a flat saving. India provides a route built specifically for capital projects. Under the Project Imports Regulations, 1986, the machinery and equipment required for the initial setting-up of a unit, or for a substantial expansion, can be classified together and assessed at a single concessional rate of customs duty under the dedicated tariff heading (Heading 9801), instead of each item being classified and rated separately. For a plant comprising many lines, instruments and auxiliaries - which would otherwise attract a spread of duty rates and a heavy classification burden - consolidated concessional assessment can materially lower both the duty cost and the administrative friction of importing a whole project.
It is not automatic. Project Imports treatment requires registration of the contract with Customs, and sponsorship/recommendation by the relevant sponsoring authority, before the goods are imported - sequencing it after shipment forfeits the benefit. The concessional rate and the list of eligible goods are set by notification and are revised, typically at the Union Budget, so the position must be confirmed against the current notification at the time of import rather than assumed from a prior year. A separate, export-conditional route also exists: under the EPCG scheme an exporting manufacturer can import its own capital goods free of customs duty against a binding export obligation. EPCG is a DGFT export-remission scheme, and its mechanics - the export-obligation multiple, the fulfilment period and the clawback on shortfall - are set out on the India trade, import-export and customs page (trade import export customs); consider it where your Indian output is destined for export. The two routes serve different facts: Project Imports compresses duty on the plant for a project regardless of whether the output is exported; EPCG removes it where the output is exported, in exchange for a commitment.
China+1 and Press Note 3 for machinery
Origin is where an otherwise automatic entry can become a government-approval matter. Under Press Note 3 of 2020, an investment by an entity of a country sharing a land border with India - or where the beneficial owner of the investment is situated in or is a citizen of such a country - requires prior government approval, whatever the sector and whatever the FDI route would otherwise allow. In capital goods this is not an edge case. A great deal of global machinery, machine-tool and component supply touches China, so a Chinese-origin equipment maker entering India, a joint venture with one, or a Chinese-owned supplier in the ownership chain is squarely a Press Note 3 question - and the test is beneficial ownership, not the immediate shareholder. Interposing a UAE or other intermediate holding company over the Indian entity does not cure it; the analysis looks through to who ultimately owns and controls the investment. Press Note 2 of 2026 (issued 15 March 2026) eased this only at the margin - a land-border beneficial owner holding up to 10% with no control may now invest on the automatic route on a reporting basis; a controlling or larger stake still needs prior approval.
This matters most under a China+1 strategy, where firms diversify manufacturing out of China into India and elsewhere. The China+1 motive frequently leaves a Chinese supplier, technology partner or co-investor somewhere in the structure, which makes the Press Note 3 review a recurring feature of these entries rather than a one-off. The right response is to establish the beneficial-ownership position before committing to a site, an entity or a transaction, and to plan for the approval timeline where it applies. The depth of the Press Note 3 analysis sits on the FEMA advisory page (fema advisory); the point here is that for machinery it is a live, common gate, not a remote one.
Export first, service first or manufacture first?
The route table reads off the law; this reads off the commitment, because most machinery entrants stage it rather than starting with a factory:
- Export-only (no entity): confirm the HS classification and duty, whether the product is under an in-force BIS/QCO, the importer obligations and the after-sales liability before the consignment ships.
- Sales/service subsidiary: the common first footprint where Indian customers need local engineers, spares, installation, warranty and AMC support - 100% automatic as a trading-and-services activity.
- Local assembly: test the tariff saving, the local-content expectations, the SKD/CKD classification, labour and land, and the supplier base.
- Full manufacturing: test FDI, land and state incentives, the customs cost of imported capital goods (Project Imports / EPCG), environmental approvals and any customer localisation requirements.
- Acquisition: diligence the licences, the customs history, any unresolved EPCG or advance-authorisation export obligations, imported second-hand machinery, environmental approvals, product certifications, customer warranties and the related-party valuation.
How a foreign company enters
A typical industrial-machinery entry runs in sequence rather than in one leap. The common vehicle is an Indian private limited company. Most entrants begin with a sales, installation and after-sales/spares subsidiary - 100% automatic as a trading-and-services activity, and the lowest-risk way to invoice locally, install, hold spares and honour warranties while testing demand. As volumes, tariff exposure and customer pull build, the same group localises: first assembly, then fuller manufacture, raising the customs and certification questions - Project Imports or EPCG on the imported plant, BIS certification of any covered product line - at the point of investment. The holding choice (direct, or through a UAE holdco) is made deliberately for substance and treaty reasons. The order of operations is itself a decision: certification lead time and any export-obligation or expansion timeline should be modelled before the site and the entity are fixed, not after.
Legal workstreams for an industrial-machinery entry
A capital-goods entry typically requires, in parallel:
- FDI and entity setup - confirming the 100% automatic route for the activity, incorporating the Pvt Ltd subsidiary and completing FEMA reporting (FC-GPR / FC-TRS). (india business setup)
- Press Note 3 / beneficial-ownership screen - establishing whether any land-border beneficial ownership triggers prior approval, against the Press Note 2 of 2026 position, before commitment. (fema advisory)
- Product-certification mapping - matching each product line and HS code to the QCOs actually in force (the 2024 machinery omnibus order having been rescinded) and starting BIS certification on the critical-path items.
- Customs and duty position - classifying the equipment, building the landed-cost model, and assessing Project Imports registration and/or the EPCG route for imported plant (trade & customs page for EPCG/duty-deferral).
- Tax, GST and transfer pricing - GST registration; the transfer-pricing model for service fees, spares mark-ups and management charges with the parent; treaty position on any UAE holdco. (india tax)
- Site, environmental and procurement - land/site under FEMA, state industrial and pollution-board approvals, and Class-I/II local-content positioning for public tenders.
The India-UAE corridor
Many groups enter India through a UAE holding company over the Indian operating entity, using the India-UAE tax treaty and the India-UAE CEPA on goods flows. The structure can be efficient, but it carries its own conditions - genuine substance and beneficial ownership for treaty access, place-of-effective-management exposure, and transfer pricing that has to be coordinated on both sides - and, critically, it does not displace Press Note 3 where the underlying beneficial owner is land-border (eased by Press Note 2 of 2026 only for a non-controlling stake up to 10%). The structuring of a UAE holdco over an Indian business, including treaty, POEM and CEPA considerations, is covered on the India-UAE business structuring page (india uae business structuring).
Where this goes wrong
- Treating FDI as the whole permission. The automatic route clears the investment, not the product. A machine still has to be certifiable (where a QCO covers it) and duty-cleared to be sold.
- Planning against a broad machinery QCO. The 2024 omnibus order was rescinded with effect from 14 January 2026 (gazetted 16 January 2026); certification is now assessed product by product against the orders actually in force - check the specific product, not a machinery-wide rule.
- Missing the Project Imports sequence. Registering the project contract with Customs after the goods have shipped forfeits the concessional assessment.
- Assuming a UAE holdco cures origin. An intermediate holding company does not defeat Press Note 3 above the 10% non-controlling threshold; the test looks through to the beneficial owner.
- Inheriting export obligations on an acquisition. Unfulfilled EPCG or Project Imports export obligations travel with the business; undiagnosed, they become a duty-plus-interest exposure for the buyer.
- Importer-only in a procurement-led market. A pure importer counts as non-local under public-procurement rules (Class-I >=50% local content; Class-II 20-<50%) and is disadvantaged on government and PSU tenders that local manufacture or assembly would unlock.
- Using a current duty rate from last year. Project Imports rates and EPCG terms change at the Budget; the position must be confirmed against the notification in force at the time of import.
How ATB Corporate helps
ATB Corporate advises foreign machinery and capital-goods makers on the structuring and sequencing of an India entry - confirming the FDI route and beneficial-ownership position, mapping each product line against the BIS/QCO orders actually in force, building the customs landed-cost model including Project Imports and the EPCG option, and choosing the vehicle, holding structure and entry stage that fit the commercial plan. We coordinate the work across incorporation, FEMA, tax and customs advisers and the relevant structuring pages, so the certification clock, the duty position and the origin screen are settled before a site or an entity is committed, not after.
Industrial Machinery & Capital Goods — Answered
Yes. Manufacturing of industrial machinery and capital goods is on the 100% automatic route, so the foreign investor can own the Indian manufacturing subsidiary outright without prior government approval for the investment - subject to FEMA reporting and to Press Note 3 where a land-border beneficial owner is involved.
Yes. Press Note 3 of 2020 requires prior government approval where the investor is from, or the beneficial owner sits in, a land-border country such as China - regardless of sector or the otherwise automatic route. The test is beneficial ownership, and an intermediate UAE or other holding company does not cure it; Press Note 2 of 2026 lets only a non-controlling stake up to 10% proceed on the automatic route.
Industrial machines need BIS/QCO certification only where the specific product is covered, so it depends on the product line. Where a product falls under an in-force Quality Control Order, it cannot be imported, made, stocked or sold without BIS certification, and non-compliant goods can be seized at customs. There is no machinery-wide order - the 2024 Machinery and Electrical Equipment Safety (Omnibus Technical Regulation) Order was rescinded with effect from 14 January 2026 (gazetted 16 January 2026) - so map each product line and HS code against the orders actually in force and certify early on anything covered.
Project Imports allow the machinery for the initial setting-up of a unit, or a substantial expansion, to be classified together and assessed at a single concessional rate of customs duty under Heading 9801 (Project Imports Regulations, 1986), instead of item by item. You must register the contract with Customs before importing, and the rate and eligible-goods list are per the current notification.
EPCG lets an exporting manufacturer import its own capital goods duty-free against a binding export obligation. It is a DGFT export-remission scheme; its mechanics are set out on the India trade, import-export and customs page. Consider it where your Indian output is exported; it is distinct from Project Imports, which does not require export.
Most entrants stage it. A sales, installation and after-sales/spares subsidiary (100% automatic) is the common first footprint, with local manufacture added once volumes, tariffs and demand justify it. The transition trigger - and the certification and duty position at that point - should be modelled in advance.
Public procurement grades suppliers by local content under the Make-in-India procurement rules - Class-I at 50% or more local content, Class-II at 20% to under 50%, with a purchase-preference margin. A pure importer is treated as non-local and is disadvantaged on those tenders, so local manufacture or assembly can be what unlocks a large slice of capital-goods demand.
Unfulfilled export obligations under EPCG or Project Imports travel with the business. Diligence the status and the remaining obligation carefully, because a shortfall on the inherited commitment becomes a duty-plus-interest exposure for the buyer; diligence imported second-hand machinery, environmental approvals, product certifications and customer warranties alongside.
The India-UAE CEPA can reduce duty on machinery shipped from the UAE, for qualifying goods, subject to the agreement's rules of origin. CEPA tariff and rules-of-origin treatment is covered on the trade and customs page; it does not affect the BIS/QCO certification or Press Note 3 analysis.
A machinery entry into India typically involves DPIIT / Invest India (FDI policy), the RBI (FEMA reporting), DGFT (EPCG and foreign-trade policy), CBIC / Customs (Project Imports and duty), BIS with the Ministry of Heavy Industries (certification), the MCA (company law), and state industrial agencies and pollution boards for the site.
For a machinery maker, FDI is the settled part; saleability turns on the product's BIS/QCO position, landed cost on Project Imports, and the route on whether origin engages Press Note 3.
Licensing, approvals and any tax treatment are decided by the authorities on the facts. Talk to our team when you are ready.
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