Fdi in Indian Subcontinent
i. Automatic route
FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on ‘Entry routes for
Investment’ issued by the Government of India from time to time, are attracted.
FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India. ii. Government route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs, Ministry of Finance.
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.
As can be seen that since 2005-06 there has been a significant difference in the amount of FDI inflows through the two routes a possible explanation for which could be that with the investment climate in India improving and healthy competition among states to
3
http://www.rbi.org.in/scripts/FAQView.aspx?Id=26India’s Experience with FDI: Role of a Game Changer
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attract FDI, the government eased foreign investment regulations leading to a spurt in FDI coming through the RBI route, which is a positive sign. As per the data available there is an increase in share of inflows through the RBI’s automatic route, a decrease in the shares of inflows through the SIA/FIPB. (Chart 3) Why does the government differentiate between various forms of foreign investment?
FDI is preferred over FII investments since it is considered to be the most beneficial form of foreign investment for the economy as a whole. Direct investment targets a specific enterprise, with the aim of increasing its capacity/productivity or changing its
FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on ‘Entry routes for
Investment’ issued by the Government of India from time to time, are attracted.
FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India. ii. Government route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs, Ministry of Finance.
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.
As can be seen that since 2005-06 there has been a significant difference in the amount of FDI inflows through the two routes a possible explanation for which could be that with the investment climate in India improving and healthy competition among states to
3
http://www.rbi.org.in/scripts/FAQView.aspx?Id=26India’s Experience with FDI: Role of a Game Changer
8
attract FDI, the government eased foreign investment regulations leading to a spurt in FDI coming through the RBI route, which is a positive sign. As per the data available there is an increase in share of inflows through the RBI’s automatic route, a decrease in the shares of inflows through the SIA/FIPB. (Chart 3) Why does the government differentiate between various forms of foreign investment?
FDI is preferred over FII investments since it is considered to be the most beneficial form of foreign investment for the economy as a whole. Direct investment targets a specific enterprise, with the aim of increasing its capacity/productivity or changing its