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FDI in India: Foreign Direct Investment Approval and Policy of India



Foreign direct investment (FDI) is an investment in the form of controlling ownership in a firm in one nation by a company headquartered in another. The concept of direct control distinguishes it from foreign portfolio investment. Foreign direct investment is broadly defined as "mergers and acquisitions, new facility construction, reinvestment of earnings obtained from abroad activities, and intra-company loans." As seen in the balance of payments, FDI is the total of equity capital, long-term capital, and short-term capital. FDI often entails management engagement, joint ventures, technology transfer, and expertise transfer. The stock of FDI is the net cumulative FDI (i.e., outbound FDI minus inbound FDI) for any given time. Direct investment does not include investments made via the purchase of stock (if that purchase results in an investor controlling less than 10 percent of the shares of the company).

Foreign direct investment in India is a significant source of funds for the country's economic development. Foreign firms engage directly in fast-growing private Indian enterprises to capitalize on India's lower labor and changing economic climate. Economic liberalization began in India in the aftermath of the 1991 economic crisis, and since then, FDI has gradually expanded in India, resulting in the creation of more than one crore (10 million) employment.

Read Our Blog: How to Get Foreign Direct Investment (FDI) In NBFC

Foreign direct investment (FDI) occurs when a corporation acquires control of a commercial entity in another country. Foreign enterprises that engage in FDI are directly involved in the day-to-day activities of the host country. This implies they're contributing more than just money; they're also bringing knowledge, skills, and technology.

In general, FDI occurs when an investor develops overseas business activities or buys foreign business assets, such as acquiring ownership or controlling stake in a foreign firm.

FDI Generated:

Foreign Direct Investment is frequently made in open economies with a qualified workforce and a promising economic outlook. FDIs provide not only money, but also skills, technology, and expertise.

Foreign Direct Investment In India:

Foreign direct investment (FDI) is an essential source of funds for India's economic development. Economic liberalization began in India in the aftermath of the 1991 crisis, and FDI has gradually risen in the nation since then. India is now a member of the top 100-club for Ease of Doing Business (EoDB) and ranks first in the world for greenfield FDI.

Routes Via Which India Receives FDI:

Automatic route: For FDI, a non-resident or Indian firm does not need the RBI's or the government of India's previous approval.

The government route requires the consent of the government. The corporation must submit an application through the Foreign Investment Facilitation Portal, which allows for single-window clearance. The application is subsequently transmitted to the appropriate ministry, which will accept or reject it in collaboration with the Ministry of Commerce's Department for Promotion of Industry and Internal Trade (DPIIT). The DPIIT will issue the Standard Operating Procedure (SOP) for the processing of applications under the current FDI policy.

Sectors Which Come Under The ' 100% Automatic Route' Category Are.

 Agriculture and animal husbandry, Air-Transport Services (non-scheduled and other civil aviation sector services), Airports (Greenfield + Brownfield), Asset Reconstruction Companies, Auto-components, Automobiles, Biotechnology (Greenfield), Broadcast Content Services (TV channel up-linking and down-linking, Broadcasting Carriage Services, Capital Goods, Cash & Carry Wholesale Trading (including sourcing from MSEs), Chemicals, Coal & Lignite, Construction Development, Hospital Construction, Credit Information Companies, Duty Free Shops, E-commerce Activities, Electronic Systems, Food Processing, Gems & Jewellery, Healthcare, Industrial Parks, IT & BPM, Leather, Manufacturing, Mining & Exploration of me.

Sectors that fall within the 'up to 100 percent Automatic Route' category are as follows:

  • Infrastructure Company in the Stock Exchange: 49%
  • Insurance coverage: up to 49%
  • Medical Devices: up to 100%
  • Pension: 49 percent
  • Petrochemical refining (by PSUs): 49%
  • Exchanges of power: 49%

The Government's Route:

Sectors that fall within the 'up to 100 percent government route' category include: 

  • Banking and the public sector account for 20% of the total.
  • Content Services for Broadcasting: 49%
  • 100 percent of the core investment company
  • 100% of food products are sold at retail stores.
  • Separations of titanium-bearing minerals and ores in mining and minerals: 100 percent
  • Multi-Brand Retail Trading: 51%
  • Print Media (publications/printing of scientific and technical magazines/specialty journals/periodicals, as well as facsimile editions of foreign newspapers): 100%
  • Print Media (the publication of newspapers, journals, and Indian versions of foreign publications dealing with news and current affairs): 26%
  • Satellite (setup and operation): 100 percent

Prohibition of FDI:

There are a few industries where all forms of FDI are absolutely forbidden. These are the industries.

  • Atomic Energy Production.
  • Any gambling or betting establishments.
  • The Lottery (online, private, government, etc).
  • Chit Funds Investing.
  • Nidhi Enterprises.
  • Plantation or agricultural activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc).
  • Real Estate and Housing (except townships, commercial projects, etc).
  • Investing in TDRs.
  • Cigars, cigarettes, or any other tobacco-related industry.

The Different Types of FDI:

Let us look at the different sorts of foreign direct investments to better grasp the subtleties of FDI in India.

  • FDI on the Horizontal:
  1. The parent firm initiates the same business model in another country under this sort of FDI.
  2. The goods and services made overseas are typically identical to the products/services created in the company's home country.
  3. This sort of FDI is referred to as horizontal since comparable operations of a corporation are carried out in another country.
  • FDI Vertical:
  1. This is known as export platform foreign direct investment, and the exports are returned back to the home market.
  2. The biggest contribution to this form of FDI is the expansion of trade blocs with low internal trade barriers but higher external trade barriers.
  • FDI Through Platforms:

In the instance of platform FDI, a firm expands to another nation, but the goal of this growth is to take the production from the foreign country and export it to the third.

FDI Methodologies:

Foreign investors can use foreign direct investment to develop their businesses into other nations. The different techniques of foreign direct investment are as follows:

  • Acquisitions and mergers.
  • Joint ventures with foreign firms.
  • establishing a subsidiary of a local corporation in a foreign nation.
  • Obtaining voting shares in a foreign corporation.
FDI Compliance

If your business dwells in the category of cross-border investments and wants to explore the world of foreign direct investment compliance, Corpseed is here to assist you in the process.

Foreign Direct Investment (FDI) Approval

The investment that required Government Approval shall file an application via its designated portal for submission of plan and proposal for approval.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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