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Indian Economy / External Sector

Foreign Investments in India

    Foreign investment is nothing but an investment by a foreign investor ( Individual / Institutional ) with an aim to obtain an interest in an enterprise or to exercise substantial influence in its management.

    Foreign investment comprises of Foreign Direct Investment ( FDI ) in the form of equity in a company, Portfolio Investment ( Participation of the Foreign Institutional Investors in the capital market ) and mobilized resources by RBI through American Depositary Receipts ( ADRs ) and Global Depository Receipts ( GDRs ). In India, the bulk of FDIs are being channeled into services sector, electronics, computers and engineering industries.

    Foreign Direct Investment Policy

    • Government of India took different measures to simplify Foreign Direct Investment Policy ( FDI Policy ). The FDI Policy of India dictates the foreign investment limits in various specified sectors.
    • Government's FDI Policy classifies various sectors into three categories, namely Prohibited sectors, Restricted sectors and Unrestricted sectors ( in which up to 100% foreign ownership is allowed ).
    • More recently, most of the activities were transferred to unrestricted sectors where 100% FDI is allowed.
    • FDI applicants are facilitated by Foreign Investment Facilitation Portal ( FIFP ). Previously, Foreign Investment Promotion Board ( FIPB ) used to clear FDI proposals for certain limit for which Finance Minister used to approve and for higher FDI proposals, Cabinet Committee on Economic Affairs used to approve it.
    • The FDI Policy lists sector-specific departments or ministries as 'Competent Authorities' that are empowered to approve FDI proposals.
    • There exists a 'Standard Operating Procedure ( SOP )' which details the timeline and procedure for applications as well as for the competent authorities to process the applications for approval of FDIs.
    • Under FDI Policy, there is free repatriation of profits and investment capital and there are special incentives and tax concessions for exports.