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R4: Foreign Direct Investments (FDI) Policy

Foreign Direct Investment (FDI) in India

Overview

Foreign Direct Investment (FDI) refers to an investment in the form of controlled ownership in a business in another country. India receives FDI through two main routes:

  1. Automatic Route: FDI is allowed without prior approval from the government or the Reserve Bank of India (RBI), subject to applicable laws and regulations.

  2. Government Route: Prior approval from the government is required for FDI. Some sectors have caps on FDI investments.

FDI Details

Detailed information on FDI is available on the website, operated by the Commerce Department of the Government of India. To promote the ‘Make in India’ initiative, the government has made the FDI policy more investor-friendly, permitting up to 100% FDI under the automatic route in most sectors/activities. Specific projects across sectors and states in India, mainly infrastructure-related, have been identified for investment opportunities by NRIs and foreign entities. Details such as project status, cost estimates, desired funding modes, and contact persons are specified.

Types of FDI Investors

The FDI policy recognizes various types of investors, including:

  • Non-Resident Indians (NRIs)

  • Persons of Indian Origin (PIOs)

  • Foreign Venture Capital Investors (FVCIs)

  • Foreign Institutional Investors (FIIs)

  • Foreign Portfolio Investors (FPIs)

  • Qualified Financial Investors (QFIs)

  • Overseas Corporate Bodies (OCBs)

  • Pension/Provident Funds

  • Financial Institutions

  • Foreign Trusts

  • Sovereign Wealth Funds

  • Private Equity Funds

  • Partnership/Proprietorship Firms

  • Others

Each investment option has specific features, benefits, and regulatory requirements. The main regulatory bodies governing FDI in India include the FDI policy, RBI, SEBI, FEMA, and other relevant bodies.

Recent Regulatory Changes

India recently amended its FDI regulations to prevent opportunistic takeovers of Indian firms during the Covid-19 pandemic. Previously, only investments from Pakistan and Bangladesh required the Indian government’s approval for security reasons. An order issued by DPIIT on April 17 expanded this policy to cover all neighboring countries that share a border with India, effectively including China.

Refer government site for FDI policy details and updates  https://dipp.gov.in/policies-rules-and-acts/policies/foreign-direct-investment-policy

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