Foreign Direct Investment under the Approval Route

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Foreign Direct Investment Under the Approval Route / Government Route

After liberalisation, the Government of India enacted the Foreign Exchange Management Act of 1999 (FEMA). It deals with the provisions of foreign exchange in the country. The government has made several changes in the amount of foreign investment post the enactment of this Act. However, such an amount depends on economic consequences that arise out of the said amount. Foreign Direct Investment is essential for the development of the economy as well as in improving technology and digitisation of the country. Therefore, having a sufficient flow of funds into India would contribute to the country's overall development.

There are two major routes for Foreign Direct Investment in India, i.e. the Automatic Route and the Approval/ Government Route. Prior permission is not needed by the investor for investment in the case of the automatic route; however, the same is required in the approval route. Therefore, it is essential for the investor to know about the approval route to avoid any complexities regarding Foreign Direct Investment under the Approval Route / Government Route. 

Different Forms of Routes- Automatic Route and the Approval Route

There are two major routes for foreign direct investment that are

Automatic Route-

In the Automatic Route, the investment is made by a foreign entity in a share or capital instrument, which does not require any form of prior approval or consent from the government. This type of foreign direct investment is relaxed and does not require any form of permission from the government. The investment made through this route can be up to 100%. However, specific investment-related caps would apply to the investment under these routes.

Approval Route/ Government Route-

The Approval Route is called the Government Route. Under this route requires prior permission or approval for the investment to flow into India. Different authorities approve based on the area of investment made. The Government of India considers that this form of approval is required for sensitive areas where the amount of foreign direct investment has to be monitored regularly. Therefore such sectors are brought in the approval route.

Who Regulates Foreign Direct Investment under Approval Route?

The Reserve Bank of India regulates Foreign Exchange Activities under the Approval/ Government Route. However, in Govt approval route, an application shall be made to the specific authority/Ministry for approval. The following are the ministries/ departments dealing with approval for different sectors: 

  • Ministry of Mines
  • Department of Defence Production, Ministry of Defence
  • Ministry of Home Affairs
  • Ministry of Information and Broadcasting
  • Ministry of Civil Aviation
  • Department of Space
  • Department of Telecommunications
  • Department of Industrial Policy and Promotion
  • Department of Economic Affairs
  • Department of Financial Services
  • Department of Pharmaceuticals

Investors eligible to invest in India under the Foreign Direct Investment under Approval Route

A non-resident investor is an entity established outside India's borders; the below-mentioned investors and investment companies, if present in the following countries, must follow the approval route/ government route process. The neighbouring countries that share borders with India also come under the purview of following this process for Investing in India:

  • China
  • Bhutan
  • Nepal
  • Bangladesh
  • Pakistan
  • Afghanistan
  • Erstwhile OCBs- These are entities where the significant amount of controlling interest is through Non-Resident Indians. The type of control can be full control or beneficial control. It is an entity classified as a company, partnership firm, society, or trust body owned directly or indirectly, and the ownership percentage is more than 60%. Non-Resident Indians hold this ownership percentage.
  • A company, trust, or partnership, which a Non-Resident Indian owns, can make such a form of investment. Foreign Direct Investment can be made through various types of business structures.
  • Foreign Institutional Investors and Foreign Portfolio Investors can also invest under this route.
  • Foreign institutional Investor, Foreign Portfolio Investors and Non-Resident Indians who are registered under the Foreign Exchange Management (Transfer of Security by a person who is resident outside India) Regulations,2000 can invest in a registered broker to invest in the capital of the company or a particular instrument of the company.
  • FVCI- Foreign Venture Capital Investor, registered with the Securities Exchange Board of India (SEBI), can invest 100% in a capital instrument of the company in certain mentioned activities.

Eligible Entities for Foreign Direct Investment under the Automatic Route/ Approval Route

The following entities are eligible for Foreign Direct Investment under the approval route.

1. A company

can receive foreign direct investment from a foreign investor.

2. A Partnership// Proprietary Concern

- Foreign Investment can be made in a partnership/ and a proprietary concern.

3. LLP/ Limited Liability Partnership-

 Foreign Direct Investment can only be made in an LLP through the automatic route. There must be no form sort of performance-linked conditions to consider this form of investment.

4. Start-up Companies-

According to the DIPP, Start-up companies are considered companies that use advanced technologies and digitisation. Foreign Direct Investment is allowed in these forms of entities.

5. An investment Vehicle

is an entity registered and regulated under relevant regulations framed by SEBI or any other authority designated for the purpose.

Eligibility Criteria for Foreign Direct Investment under Approval Route

Under the approval route, the foreign direct investment must fulfill the following eligibility criteria.

  • Eligible Investors.
  • Investors who cannot invest through the automatic route.
  • Countries such as China, Bhutan, Nepal, Bangladesh, Pakistan, and Afghanistan.
  • Investments which is not prohibited as an Investment under the Approval Route.

Necessary Papers Required for Foreign Direct Investment under Approval Route

The below-mentioned Documents are required for foreign direct investment under the approval route. 

  • Certificate of Incorporation of the Investee & Investor Companies/Entities.
  • Memorandum of Association (MOA) of the Investee & Investor Companies/Entities.
  • Board Resolution of the Investee & Investor Companies/Entities.
  • Audited Financial Statement of Last Financial Year of the Investee & Investor Companies/Entities.
  • Article of Association of the Investee & Investor Companies/Entities.
  • List of Names and addresses of all foreign collaborators along with Passport Copy/ Identification Proof of the Investor Company/Entity.
  • Diagrammatic representation of the flow and funds from the original investor to the Investee Company and Pre and Post-shareholding pattern of the Investee Company.
  • An affidavit stating that all information provided in hard copy and online is the same and correct.
  • A signed copy of the JV agreement/shareholders agreement/ technology transfer/trademark/brand assignment agreement (as applicable) in case there are existing ventures.
  • Board resolution of any joint venture company.
  • Certificates of Incorporation and charter Documents of any joint venture/company which is a party to the proposed transaction.
  • Copy of Downstream Intimation.
  • Copy of relevant past FIPB/SIA/RBI approvals connected with the current proposal (in case of amendment proposal).
  • Foreign Inward Remittance Certificate (FIRC) in case investment has already come in and in case of post-facto approval.
  • In the cases of pooled investment funds, the details such as names and addresses of promoters, investment managers as Standard Operating Procedure for Processing FDI Proposals, and all the contributors to the investment fund.
  • List of the downstream companies of Indian entity and the details of the equity held by them, along with the details of the activities of the companies.
  • High Court order in case of a scheme of arrangement.
  • Valuation certificate as approved by a Chartered Accountant.
  • Non-compete clause certificate of the investor and investee company in case of investment in the pharmaceutical sector.
  • Certificate of statutory auditors as mandated in the FDI policy, as applicable.
  • Standard Operating Procedure (SOP) form. 

Process / Procedure of Foreign Direct Investment under the Approval Route

The investor must follow the below-mentioned procedure for foreign direct investment under the approval route.

Arranging the Documents

The investor must arrange the Documents mentioned above before proceeding with the further procedure for foreign direct investment under the approval route.

Filling the Application

After arranging the required Documents, the investor must file an application with the DPIIT as per the prescribed norms for obtaining clearance from the government with regard to making the foreign direct investment.

Submission of Documents

The above-mentioned Documents should be submitted by the investor along with the application form.

Scrutiny of Application and Documents by DIPP

The DPIIT shall scrutinise the application form and the Documents submitted by the investor to check the adequacy and accuracy of the Documents and application to transfer the same to the concerned authority. In case there is any discrepancy or insufficiency of Documents, the DIPP shall communicate it to the investor to rectify the same at the earliest.




Ministry of Mines

Defence, Industries in Manufacturing of Defence equipment

Department of Defence Production, Ministry of Defence

Manufacturing of small arms and ammunition

Ministry of Home Affairs

Print Media and Broadcasting

Ministry of Information and Broadcasting


Ministry of Civil Aviation

Satellites and manmade space objects

Department of Space

Telecommunication/ Communication Activities

Department of Telecommunications

Security Agencies / Country of Concern ( Pakistan and Bangladesh) which require security clearance

Ministry of Home Affairs

Food Products, Retail trading, Whole Sale Trading and other activities related to trading

FDI from NRI/ Foreign Investor

Department of Industrial Policy and Promotion

Equity Shares applications for import and export activities that are carried out in the country

Application for Equity Shares/ Pre-incorporation and Post Incorporation Activities of a company

Department of Industrial Policy and Promotion

Financial Services which is not regulated by the Finance agency/ investment in a Core Investment Company (CIC)

Department of Economic Affairs

Banking – which includes private banks and public banks

Department of Financial Services

Pharmaceutical Activities

Department of Pharmaceuticals

In case specific applications come under the purview of the automatic route but previously were considered as applications under the Government Route or the

Approval Route. Prior permission shall be needed for such a form of application; such permission is considered post facto approval under the approval route.

In case of any concerns or doubts regarding where the application will be processed, the decision of the concerned authority would be taken regarding such a place.

Processing time for Foreign Investment Proposals under Approval Route/ Government Route

Upon receiving the application by DPIIT, it would be forwarded to the RBI within two days to check if the application fulfils the prescribed compliance requirements under the foreign exchange management Act.

The application shall be submitted to the Ministry of Home Affairs (MHA), and a similar form will be submitted to the Ministry of External Affairs (MEA) or the Department of Revenue for security clearances which shall provide their comments within the time.

  • The following applications/ proposals require security clearances-
  1. Investment in broadcasting, defence, private security, civil aviation, and mining activities.
  2. Investments from Pakistan and Bangladesh.
  • If there are specific clarifications regarding the amount of investment required, the DPIIT will look into the same. The DIPP will get back with the clarification issues within 15 days.
  • Ministry or other authorities may receive some form of clarification which should be responded to within four weeks of receipt of such clarification; If there are no comments provided in time, then it shall be assumed that there are no comments in this regard.
  • Comments from the Ministry of Home Affairs will be given in 6 weeks. In case there are no comments provided, the ministry has to intimate the time period required to provide the comments.
  • After receiving the application, the competent authority will scrutinise the application. This will not be required if no comments are received from the applicant. Clarifications from the applicant must be made during the initial stages itself.
  • The authority has to keep in mind all the relevant rules and regulations while scrutinising an application for FDI.
  • When the application has been scrutinised and decided (which would take 6 to 8 weeks), the authority will process the decision within the next two weeks to be sent to the applicant.
  • Acceptance or Rejection Letters will be sent to be applied through the DIPP or the concerned ministries.
  • If the investment amount is more than Rs 5000 Crores, this would be placed before the Cabinet Committee on Economic Affairs, which shall review the application and get back with permission. 

Sanction under the Approval Route 

After completing the above-discussed steps, the investor shall obtain the sanction for the Government/approval route enabling the investor to proceed with the foreign direct investment Proposal for acceptance or rejection will be sent by the competent authority in consultation with the DPIIT.

For proper monitoring, the DIPP and other authorities must maintain a database for all the applications.


Sl No




Transfer of proposal from DIPP to Authority

Two days


Time given for signing physical copy.

Five days


Initial Scrutiny of the proposal

One week


Clarifications for DIPP on FDI

Two weeks


Time for submission by the ministry/RBI/ any other concerned department.

Four weeks


Time for MHA for clarifications

Six weeks


Time limit for a proposal requiring security clearance and proposals not requiring clearance.

Two weeks

When it comes to monitoring, every month, the concerned ministries will hold a meeting regarding monitoring.

Changes made in FDI for Space Industry in 2024

The Union Cabinet has cleared the amendment in FDI policy on the space sector. The satellite sub-sector is now divided into three sub-sectors. Each sub-sector has its limits for foreign investment. Under the current FDI policy, the establishment and operation of satellites is only allowed through the Government approval process. In light of the vision and strategy of the Indian space policy, the Union Cabinet has relaxed the FDI policy in the space sector by prescribing liberalised FDI thresholds for different sub-sectors or activities. Our expert professionals comply with the new government norms or regulations related to FDI for approval as well as automatic routes. The entry route for the various activities related to the space industry under the new amended policy as mentioned below:

Upto 74% under Automatic Route

For manufacturing and operation of the satellite, other satellite data products, ground segment & user segment and beyond this limit activities are considered under government route.

Upto 49% Under Automatic Route

For launch vehicles of the satellites and any other associated systems or any sub-systems, the creation of any spacecraft for receiving and launching the spacecraft and beyond this limit activities are considered under government route.

Upto 100% Under Automatic Route

For manufacturing the components and system or sub-systems for satellites, also ground segment and user segment.

How can Enterslice help?

Enterslice can help the clients by providing the below-mentioned services

  • Submission of the concerned Paper works to authorities
  • Assistance in procedures related to the approval route for foreign direct investment.
  • Monitor and track the application status.
  • Post compliance services.

Frequently Asked Questions

Two routes are available under Foreign Direct Investment:

  • Automatic Route- No consent or prior approval is required in this route.
  • Approval Route consent is required from the government.

Foreign Institutional Investor (FII) is considered an entity registered to invest in India. Foreign Portfolio Investor (FPI) means an individual who is registered under the SEBI (FPI) regulations 2014.

Due to hostile takeovers, the government brought out an amendment in April 2020 to include all the neighbouring countries which share borders with India to consider foreign direct investment under the approval route.

Neighbouring countries except Bangladesh and Pakistan did not have to take prior approval from the government to invest in India. They were allowed to invest in India under the Automatic Route.

The approval is not required until the foreign shareholding in the entity remains the same and there is no corporate action regarding the sector being brought under the approval route.

Foreign Venture Capital Investors registered under SEBI may invest in terms of schedule 7 of FEMA 20(R) as per the prescribed conditions.

An investment made by an Investment Vehicle into an Indian company or an LLP shall be an indirect foreign investment for the investee company or the LLP if either the Sponsor, the Manager, or the Investment Manager.

  1. is not owned and not controlled by resident Indian citizens or
  2. is owned or controlled by a resident outside India.

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