All About Foreign Direct Investment In India

Foreign companies have the opportunity to invest in India. They can also benefit from unique benefits such as lower labour costs, tax exemptions, and other advantages through government and automatic foreign direct investment channels. This article explains what FDI is and how to invest.

There are many options for growing your wealth via market investments. There are many assets you can invest in: stocks, bonds, securities, commodities, currencies, and mutual funds. Before you invest, it is important to evaluate your risk appetite and diversify your investments. It is possible to invest in Indian and foreign companies. For those who live abroad and want to invest in India, the same is true. One such opportunity is i.e. foreign direct investment in India, in detail.

Foreign Direct Investment - Meaning and explanation

Foreign direct investment is often abbreviated to FDI. It's simply an investment made in another country by an individual or company into a business or company in a foreign country. Foreign direct investments are usually made when international business operations are established or an international company acquires an overseas business.

The majority of FDI transactions involve the controlling company owning the business or company. The foreign business is managed by the investing company. FDI can bring money, knowledge, skills, and technology. This is common in open economies that have a skilled workforce and a growth potential.

Foreign Direct Investment in India - The Routes for Investments

Let's now understand the role of foreign direct investment and its investment options in India.

India's economic growth is supported by FDI, which is a major source of foreign direct investment. After the 1991 economic crisis, India saw an increase in FDI.

Routes by which FDI takes place in India

Two common routes are available to India for foreign direct investments.

1. The automatic route

The automatic route is an Indian company or non-resident that does not require any permission from the RBI to invest in India. There are many sectors that fall under the 100 percent automatic route category. Industries such as agriculture, animal husbandry and air-transport services are the most prevalent. Some sectors also prohibit 100% automatic route foreign investment. These include insurance, medical devices and pensions.

2. The government route

The government route is the second way FDIs can be made in India. If FDI is done through the government route, Indian companies must obtain prior approval from the government. These companies must fill out and submit an application through the Foreign Investment Facilitation portal. This allows them to get single-window clearance. The portal forwards the request of the foreign company to the ministry responsible for approving or rejecting it. Before accepting or rejecting a foreign investment request, the ministry consults with the Department for Promotion of Industry and Internal Trade (DPIIT). The Standard Operating Procedure is issued by the DPIIT according to the existing FDI policy. This opens the door for foreign direct investments in India.

The government route allows up to 100 percent FDI, just like the automatic route. This is the sector- and percentwise break-up permitted by the government route

FDI SectorFDI per Cent In India
Public Sector Banks20%
Broadcasting Content Services49 Percent
Multi-Brand Retail Trade51 Percent
Print Media26 Percent

Outside of the above mentioned sectors, 100% FDIs may also be made through government sectors like core investment companies, food product trading, mining, satellite establishments, and operations.

Sektors where FDI is banned in India

Although foreign direct investment is permitted in many sectors, as previously mentioned, certain industries and sectors are prohibited from receiving FDI, regardless of whether it is through the government or automatic route. These are:

1. Atomic Energy Generation

2. Gambling, betting and lotteries

3. Chit fund investments

4. Agricultural and plantation activities (exclusions: fisheries, pisciculture and horticulture, tea plantations and animal husbandry).

5. Housing and real estate (exclusions townships, commercial projects).

6. Trading in TDR

7. Cigars and cigarettes are just two examples of products made by the tobacco industry.

Last note:

Both the country where the investment is made and the foreign company that invests in India reap the benefits of foreign direct investments. FDI means lower costs for the country investing. The country allowing the FDI can also develop its human resources, skills, and technologies. Common examples of FDI include mergers and acquisitions as well as logistics and retail services.

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