In the past eight to 12 months, Indian delegations travelled to Seoul and other major Korean industrial hubs to promote infrastructure collaboration and investment opportunities. Indian states also held roadshow campaigns, securing investment pledges from Korean firms in manufacturing, energy, mobility and industrial infrastructure in India. These developments reflect a broader trend: India is investing in its infrastructure sector, with a projected investment of more than USD1.5 trillion by 2025 under the National Infrastructure Pipeline. Korean institutions, in parallel, are exploring new outbound investment destinations, particularly in markets with scale and political stability, such as India.

Despite this alignment, Korean outbound M&A into India in 2024 stood at roughly USD250 million, underscoring a persistent gap between commercial interest and execution, which presents an outsized opportunity for the Korean investment community.

In interactions with our Korean counterparts as well as interested stakeholders, hesitations stemming from questions on legal structuring, regulatory clarity and market entry strategies continue to impede the full scalability of these opportunities. This is surprising considering the rapid liberalisation of India’s investment regime in recent years. For infrastructure and energy-related sectors in particular, several entry routes are now available, depending on investment objectives and strategy.

This article outlines three primary pathways relevant to Korean investors evaluating investments in Indian infrastructure-related sectors:

• Foreign direct investment (FDI) for strategic and operational participation;
• Foreign portfolio investment (FPI) for capital markets and fixed-income exposure; and
• Foreign venture capital investor (FVCI) route for investing through investments with maximum flexibility.

A clear understanding of these routes and their respective regulatory implications can help investors align legal compliance with commercial goals. In parallel, attention must also be paid to evolving tax implications, sector-specific norms and broader compliance landscapes. Increasingly, general counsels and in-house teams play a strategic role not just in execution but in designing structures to support long-term resilience and capital efficiency.

The FDI route

Korean investors have successfully used the FDI route to build market leading businesses in India. With India’s Consolidated FDI Policy and Foreign Exchange Management Act regulations, 100% foreign ownership is permitted under the automatic route in core infrastructure sectors (highways, renewable energy, ports and data centres). No prior approval is required, and post-investment reporting is completed via Reserve Bank of India (RBI) filings.

Two structural issues merit attention in multi-tier investments:

• Downstream investment. If an Indian company is owned (more than 50%) or controlled by foreign entities, its downstream investment is treated as indirect FDI – so all sectoral caps, pricing norms and filings apply to such an investment.
• Classification as an investing company. A holding company owning only equity in other Indian entities, without conducting any operational business, may either be classified as a core investment company (CIC) or as another company in the business of investing in the capital of Indian companies. Foreign direct investment in CICs or an investing company not registered with the RBI is not allowed under the automatic route, and requires prior approval and compliance with applicable RBI regulations.

To address these constraints, foreign investors structure their investment holding entities in a manner that avoids classification as a pure investing company or a CIC. A common solution is to have specific operational assets or business functions within the holding entity, so it also provides limited management or strategic services to its subsidiaries, resulting in either its revenues from these exceeding those earned from its financial assets, or its non-financial asset base being larger than its financial assets. Such structurings must comply with the prescribed classification thresholds, both in letter and in spirit.

The FDI regime permits investors to utilise a range of investment instruments, from common equity to compulsorily convertible preference shares or compulsorily convertible debt instruments. These convertibles allow upstreaming of dividends or coupons with no cap on returns.

Under Indian law, foreign investors may exit by selling their FDI instruments to a resident Indian at or below fair market value, as determined by a Securities and Exchange Board of India (SEBI)-registered merchant banker or independent chartered accountant. However, no pricing guidelines apply if these securities are transferred to a foreign party. Exit strategies often include IPOs or trade sales.

To enable an exit, Korean investors must ensure that exit clauses in joint ventures or shareholders’ agreements comply with Indian exchange control rules. Clauses stipulating assured returns or a fixed above-fair market value exit price are likely unenforceable and may trigger regulatory scrutiny. Investors must balance economic protections with what is legally enforceable. Thoughtful initial structuring and the use of optimal investment instruments can subsequently aid an easier exit while ensuring commercial objectives around capital returnability, participating rights, as well as sharing of exit upsides, can be achieved in a compliant manner.

The FPI route

The FPI route is suitable for Korean institutional investors seeking exposure to Indian infrastructure assets without governance rights. SEBI registration requires a local custodian, full KYC (know your customer), and obtaining a permanent account number. FPIs are permitted to invest in:

• Listed or privately placed debt securities, including non-convertible debentures issued by infrastructure developers; and
• Equity in listed companies are subject to an individual cap of 10% per FPI.

Because FPIs are restricted from exercising control, this route is appropriate for passive investment. Many Korean investors use it for exposure to Indian infrastructure assets via quasi-fixed income products. From a compliance perspective, FPIs must adhere to the 10% equity cap, trade only through their custodian and disclose beneficial ownership. Breaching the 10% cap triggers reclassification to FDI status, with five trading days to divest any excess, or else face reclassification as FDI investors.

FVCI structuring

For unlisted infrastructure platforms or early stage asset aggregators, Korean investors can consider the FVCI route for its flexibility. These SEBI-registered investors may invest in unlisted Indian companies engaged in permitted sectors, including infrastructure, without being subject to RBI pricing restrictions. Advantages include:

• Optionally Convertible Instruments. The use of optionally convertible instruments, which are not permitted in the standard FDI route; and
• Pricing freedom. Entry, exit pricing not constrained by RBI pricing requirements.

For instance, an investing entity registered with the securities regulator as an FVCI can invest through optionally convertible preference shares with terms allowing conversion into equity or redemption for cash, depending on commercial outcomes. Such flexibility is not available under the traditional FDI route.

FVCIs must invest at least two-thirds of their corpus in eligible unlisted equity instruments and may invest the remainder in permissible debt or other assets. The registration process is now streamlined and aligned with the FPI process. Korean institutional investors with a long-term sectoral thesis for any infrastructure sector (listed as infrastructure in a central government published list) may find this viable, since this structural latitude makes the route attractive for bespoke structuring in early stage or platform contexts.

Debt as ECBs

Foreign investors may also support their Indian operations via debt, particularly under India’s external commercial borrowing (ECB) framework. Parent-to-subsidiary loans are permitted under the automatic route, subject to the following conditions:

• Minimum average maturity of three years (typically five years for infrastructure or larger ECBs);
• Compliance with all-in-cost ceiling; and
• An annual borrowing cap of USD750 million per Indian borrower.

ECB proceeds cannot be used for on-lending, investment in capital markets or real estate speculation. All loans must be reported to the RBI and each must be allocated a loan registration number. In practice, Korean conglomerates leverage lower global borrowing costs by lending to their Indian subsidiaries via ECBs. To combine fixed returns with equity upside, a loan can carry an option to convert into equity (subject to FDI pricing guidelines).

Conclusion

India’s infrastructure policy and Korea’s investment ambitions are well-aligned. Korean investors have long been committed to India’s automotive, electronics, finance and industrial sectors, so extending into infrastructure is a natural next step. India offers a broad range of investment routes, from sector-specific FDI concessions to bond market access via FPI to structuring flexibility via FVCI, in addition to newly liberalised rules for instruments such as infrastructure trusts and alternative investment funds. Successful execution, however, depends on aligning the entry route with the investor’s operational intent, return expectations and risk appetite.

Legal execution must also be forward-looking. Early structuring decisions, such as equity v convertible preference shares, and direct v downstream holdings, can affect future tax treatment, regulatory approvals, and exits. GCs and in-house teams should stay engaged during the transaction’s life cycle. A thoughtful approach to legal planning, proactive compliance and collaboration with experienced Indian advisers will help Korean investors to participate meaningfully in India’s infrastructure sector, building long-term value and deepening bilateral economic ties.

This article was originally published in Asia Business Law Journal on 17 September 2025 Co-written by: Kushal Sinha, Partner; Dhrupad Pant, Partner. Click here for original article

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