India is a key destination for global infrastructure investors. From logistics corridors to smart city tech to public-private port developments, the opportunities are undeniable. But for companies outside India, even the most compelling opportunity can become a compliance trap if regulatory risks aren't handled with precision.
The real challenge isn't investing in India — it's understanding how India regulates investment when public interest, security sensitivity, and sovereign partnerships intersect.
In our experience working on complex infrastructure transactions, the lesson is clear: those who treat regulatory navigation as a checklist often lose the plot before the project begins.
The Three Risk Fronts: FDI, Security, and Public Procurement
Public infrastructure contracts involving foreign players — especially from geopolitically sensitive jurisdictions — raise three layers of scrutiny:
1. Foreign Direct Investment (FDI) Interface
India's FDI rules under the Foreign Exchange Management Act (FEMA) divide sectors into automatic and government approval routes. Public infrastructure may fall under either, depending on the structure.
Where things go wrong:
- Investing via traditional "treaty route" jurisdictions like Mauritius or Singapore without considering post-GAAR implications. The General Anti-Avoidance Rule now allows Indian authorities to deny treaty benefits if they suspect lack of commercial substance.
- Using a layered investment vehicle without early RBI or DPIIT review, leading to retrospective restructuring when the deal is already underway.
- Ignoring sector-specific caps or conditionalities, especially in multi-sector projects like data-backed smart infrastructure or ports with telecom overlays.
What the data says: According to the DPIIT FDI Factsheet 2024, Mauritius and Singapore together account for over 40% of India's cumulative FDI inflows — but both are now subject to tighter treaty scrutiny and documentation requirements.
2. Security Clearance Risks in Sensitive Sectors
Infrastructure investments in ports, airports, telecom, or digital infrastructure often require clearance from the Ministry of Home Affairs (MHA) — especially when the foreign investor is from a strategic location like the UAE.
Where things go wrong:
- Not flagging the need for security clearance early. Some investors assume clearance is "post-facto" and proceed with project timelines, only to hit a wall.
- Underestimating the complexity of MHA review, especially where subcontractors are foreign or where data is involved.
- Failing to engage in background clarifications or source of funding disclosures, leading to opaque applications that are stalled or denied.
Example from practice: In 2023, a UAE-based port logistics company was delayed in acquiring an equity stake in an Indian special purpose vehicle (SPV) because the port was classified as "strategic," and security clearance had not been factored into the project calendar. By the time the MHA asked for clarifications, the project deadline had passed, and the EPC contract had lapsed. Months of effort, lost.
3. Public Procurement Compliance: More Than Just Tendering
India's public procurement laws — while transparent — are not intuitive for foreign investors.
Common trouble spots:
- Conflict-of-interest rules are far stricter than commercial norms. If you or your group company are involved in a similar tender or consultancy, disqualification is likely.
- Offset obligations in sectors like defense and transport may require foreign players to invest a percentage of the contract value in India — something often discovered too late.
- E-bidding platforms like GeM (Government e-Marketplace) have very specific formatting and document upload protocols. Failure to comply, even on technical grounds, can result in automatic disqualification.
As Mondaq's India Public Procurement Insight 2023 report on public procurement cautioned: "Bid rejections in India are increasingly due to procedural non-compliance, rather than price or eligibility concerns."
Why Being Proactive Is Non-Negotiable
You can't negotiate with Indian regulators after the fact. The systems are rules-based, and while interpretation can be flexible, compliance timing is not.
Let's look at what happens when you don't front-load regulatory planning:
- Using offshore structures without GAAR-compliant reasoning: FDI approval delays or denial of tax benefits
- Submitting incomplete MHA security clearance requests:Delays of 3–6 months or complete rejection
- Assuming your global procurement SOPs match Indian public tenders: Disqualification for non-compliance with Indian bidding norms
- Assuming the contract jurisdiction will be international: Indian regulators may strike down foreign governing law if the subject matter involves sovereign interest
Regulatory Readiness Is Not Paperwork — It's Strategy
For Dubai-based infra players, working with Indian public sector clients is not just a contract — it's a compliance ecosystem.
The regulatory map involves:
- RBI filings under FEMA
- DPIIT notifications under Press Note 3
- Home Ministry vetting in sensitive projects
- Procurement compliance under GFR, Manual of Procurement, or PSU-specific rules
- Sectoral regulators like TRAI, SEBI, or MoEF depending on project vertical
How Global Funders Complicate — and Clarify — the Game
Many public infra projects are co-funded by:
- Sovereign funds (like ADIA, DP World's IPF)
- Multilateral banks (World Bank, ADB, AIIB)
- Impact funds (with ESG mandates)
These funders require adherence to their own procurement and environmental frameworks, in addition to Indian law.
In a recent case, a UAE-based company secured a contract backed by ADB financing but faced complications because their bid document did not address ADB's integrity clauses. The project's funding approval was temporarily withheld until clarifications were filed.
You Need to Know the Rules — Or Risk Sitting Out
India rewards investors who do their regulatory homework. But it does not tolerate procedural shortcuts — especially in sectors touching national interest.
For Dubai-based infrastructure players, this means:
- Integrating legal compliance into commercial strategy
- Budgeting for timelines associated with regulatory interface
- Treating MHA, DPIIT, and RBI filings as milestones — not formalities
- Bringing in regulatory insight early — not after things go sideways
There is no shortage of opportunity in India. But the question is: will your investment withstand regulatory scrutiny when it matters most?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
