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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.