Indian Economy / External Sector
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
- 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.