Foreign investment in India is primarily governed by the FDI policy formulated by the secretariat for industrial assistance (SIA), the Department of Industrial policy and promotion (DIPP), the foreign investment promotion board (FIPB) and foreign exchange regulations, which are governed by the RBI. Under the present policies and regulations, foreign investment in India is possible through the following avenues:
A. As FDI;
B. By FIIs, directly, via the Portfolio investment scheme(PIS);
C. By NRIs/persons of Indian origin (PIO), directly and indirectly, via the PIS;
D. By qualified foreign investors, via the PIs; and
E. By foreign venture capital investors (FVCIs)
A. Foreign Direct Investment
In the wake of liberalization in 1980s and the introduction of the new industrial policy of 1991, substantial policy changes were made to pull down administrative barriers to allow for the free flow of foreign capital and international trade. The FDI regime has been progressively liberalized, largely by removing restrictions on foreign investment and simplifying procedures. As a result, among the emerging economies, India has one of the most liberal and transparent foreign investment regimes.
The government of India releases a compendium of FDI policy every six months. Foreign investment in India can be made either through the automatic route or the approval route.
Under the automatic route, no prior regulatory approval is required from either the RBI or FIPB. Under this route, investors are required to notify the concerned regional office of the RBI within 30 days of receiving investment money in India and to file the required documents and details of the shares allotted, with the same regional office, within 30 days of issuing such shares to the respective foreign investors.
FDI in business sectors not covered under the automatic route requires prior approval from the Government of India. Applications for foreign investments that need prior governmental approval are required to be submitted to the FIPB.
Foreign persons who can invest in India under the FDI regime
- A non-resident entity (other than a citizen of Pakistan or Bangladesh or an entity incorporated in Pakistan or Bangladesh) can invest in India subject to compliance with the extent FDI regulations.
- A person who is a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan can invest in India under the FDI provisions, subject to receiving the prior approval of the FIPB.
Entities into which FDI can be made under the FDI regime
a. FDI in an Indian company
This is subject to sectoral caps, pricing conditions and other conditions.
b. FDI in partnership firms/proprietary concern
- NRIs and PIOs can invest in the capital of the partnership firm or proprietary concern in India, on a non- repatriation basis, in accordance with the following conditions:
- The firm or proprietary concern is not engaged in any agriculture/plantation, real estate or print media business.
- Any amount so invested it brought in by inward remittances or out of an NRE/FCNR (B)/ NRO account maintained with an authorized dealer (AD) or other authorized banks.
- Any amount so invested cannot be remitted outside India.
- NRIs and PIOs may, however, seek the prior approval of the RBI for investment in partnership firms or proprietary concern with an option to repatriate funds out of India and the RBI, in consultation with the, government will decide on each application based upon the merits of the specific case.
- A non- resident other than an NRI or a PIO can apply and seek the approval of the RBI to invest in the capital of partnership firms/proprietary concerns and the RBI, in consultation with the government will decide on each application based upon the merits of the specific case.