FDI in India Under Approval Route: An Overview Foreign direct investment, i.e., FDI in India under approval route refers to investments that are made with the necessary approvals from the government or the Reserve Bank of India. The Reserve Bank of India regulates Foreign Exchange Activities under the Approval/ Government Route. Foreign direct investment in India under approval route requires prior approval for investing under the Administrative Department/ Ministry. Furthermore, certain sectors are specified where foreign direct investments are prohibited. Need to understand the financial impact of FDI in India and which is the best sector to move ahead? Talk to our expert consultants, get end-to-end solutions and apply for FDI in India under approval route. What is Foreign Direct Investment? Foreign Direct Investment (FDI) is essential for developing the economy and improving the country's technology and digitisation. FDI is a self-explanatory term that signifies investments from another country to an investment in a business in the country. The FDI is the investment through capital instruments by a resident outside India. Furthermore, the FDI is considered an important tool of economic growth for a developing nation like India. Foreign Direct Investment in India under Approval Route- Forms There are two major routes for Foreign Direct Investment in India. Have a look over the following investment routes for foreign direct investment in India under approval route as discussed below: 1. Automatic Route The FDI under Automatic Route offers a more relaxed approach to foreign direct investment, allowing investments of up to 100%. However, the specific limits and caps would apply to the investments under this route, depending upon the sector involved. Furthermore, foreign entities make investments in shares or capital instruments without needing prior approval or consent from the government. 2. Approval Route The FDI in India under Approval Route, often referred to as the Government Route, requires prior permission or approval for the investment to flow in India. Various authorities grant approvals based on the specific sector of investment, which is required for sensitive areas where the amount of foreign direct investment has to be monitored regularly. Benefits of FDI in India under Government Route The benefits of FDI in India under government route are as discussed below: 1. Investor Protection Undergoing scrutiny for FDI in India under the approval route or government route ensures the protection and mitigation of risks associated with foreign involvement. 2. Strategic Partnership FDI in India under the approval route facilitates strategic collaboration with local businesses, enhancing market entry and operational success. 3. Market Insight FDI in India under the government route provides insights into the local market and industry trends. 4. Access to Incentives Making online foreign direct investment in India under the approval route may offer access to additional incentives like tax benefits or subsidies for investments. 5. Regulatory Oversight Online foreign direct investment in India under the approval route ensures alignment with regulatory oversight, national interests, and economic goals. 6. Long-Term Stability FDI in India under the approval route offers long-term stability and sustainability for investment strategies, aligning with the country’s long-term development goals. Market Size of Foreign Direct Investment in India The market size of foreign direct investment in India has attracted a total FDI inflow of USD 70.97 billion during the financial year 2023-24. Moreover, the top 5 States receiving the highest FDI Equity Inflow during the Financial Year 2023-24 are Maharashtra, i.e., 30%, Karnataka, i.e., 22%, Gujarat, i.e., 17%, Delhi, i.e., 13%, and Tamil Nadu, i.e., 5%. Investors Eligible for FDI in India Under Approval Route The below-mentioned investors and investment companies, if present in the following countries, must follow the approval route/ government route process. The FDI in India under approval route can be made through various types of business structures, as provided below: Foreign Institutional Investor, registered under the Foreign Exchange Management (Transfer of Security) Regulations, 2000. Foreign Portfolio Investors, registered under the Foreign Exchange Management (Transfer of Security) Regulations, 2000. Foreign Venture Capital Investors registered with the Securities Exchange Board of India. Erstwhile OCB, i.e., an entity classified as a company, partnership, firm, society, or trust owned directly/indirectly with 60% ownership. Neighbouring countries like China, Bhutan, Nepal, Bangladesh, Pakistan, Afghanistan, etc., sharing borders with India. Eligible Entities for FDI in India under Government Route The eligible investors who cannot invest through the automatic route must make online foreign direct investment in India under approval route. The following are the entities eligible for making FDI in India under government route: 1. Company A company can receive an online foreign direct investment in India under the approval route from a foreign investor. 2. 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 performance-linked conditions associated with this form of investment. 4. Start-up Companies According to the DIPP, start-up companies are entities utilizing advanced technologies and digitisation. Foreign Direct Investment is allowed in these types of entities. 5. Investment Vehicle The entity is registered and regulated under relevant regulations framed by SEBI or any other authority designated for this purpose. Document Required for FDI in India under Government Route Have a look over the following enlisted documents required for FDI in India under government route- Certificate of Incorporation of the Investee & Investor Companies Memorandum of Association (MOA) of the Investee & Investor Companies Board Resolution of the Investee & Investor Companies Last Year’s Audited Financial Statement of the Investee & Investor Companies Article of Association of the Investee & Investor Companies List of Names and addresses of all foreign collaborators along with Passport Copy Identification Proof of the Investor Company Diagrammatic representation of the flow & funds from the original investor to the Investee Company Representation of pre & post-shareholding pattern of the Investee Company Affidavit stating all information provided in hard copy 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/party to the proposed transaction Copy of Downstream Intimation Foreign Inward Remittance Certificate (FIRC) Details such as names and addresses of promoters, investment managers as Standard Operating Procedure for Processing FDI Proposals, and all contributors to the investment fund List of the downstream companies of the 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 How to Apply for FDI in India under Approval Route? The process/procedure to apply for FDI in India under Approval Route is explained below: 1. Arranging the Documents Initially, investors must arrange the documents mentioned above before proceeding with the further procedures required for foreign direct investment under the approval route. 2. Filing the Application Upon the arrangement of the required documents, the investor must file an application to the Department for Promotion of Industry and Internal Trade in the manner prescribed. 3. Submission of Documents Next, the applicant investor must compile and submit all the above-mentioned documents along with the application form. This step is essential to secure the necessary government clearance for applicants seeking to apply for FDI in India under the approval route. 4. Scrutiny of Application and Documents by DPIIT The DPIIT reviews and scrutinizes the application form and the documents submitted by the investors. Moreover, it ensures the accuracy of the documents to transfer the same to the concerned authority. 5. Approval Notification After the thorough review and scrutiny of the documents, the DPIIT approves the application forwarded to the concerned authority for further evaluation. Furthermore, in case of any discrepancy or insufficiency of documents, the DPIIT shall communicate it to the investor to rectify the same at the earliest. Sectors where Government Approval is Required The applicants seeking to apply for FDI in India under approval route are required to file an application to the relevant authorities. The sectors where applications are filed for approval under the purview of the government route are as discussed below: Sl No Activity/Sector Authority 1) Mining Ministry of Mines 2) Defence, Industries in Manufacturing of Defence equipment Department of Defence Production, Ministry of Defence 3) Satellites and manmade space objects Department of Space 4) Telecommunication/ Communication Activities Department of Telecommunications 5) Security Agencies / Country of Concern (Pakistan and Bangladesh) which require security clearance Ministry of Home Affairs 6) Manufacturing of small arms and ammunition Ministry of Home Affairs 7) Print Media and Broadcasting Ministry of Information and Broadcasting 8) Airlines Ministry of Civil Aviation 9) Food Products, Retail trading, Whole Sale Trading and other activities related to trading FDI from NRI/ Foreign Investor Department of Industrial Policy and Promotion 10) Civil Aviation Ministry of Civil Aviation 11) Banking – which includes private banks and public banks Department of Financial Services 12) Pharmaceutical Activities Department of Pharmaceuticals Recent Updates on FDI in India under Approval Route 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, which have limits for foreign investment. 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 thresholds for FDI in India under approval route. Under the current FDI policy, the establishment and operation of satellites is only allowed through the Government approval process. The entry route for the various activities related to the space industry under the newly amended policy for FDI in India under approval route is as mentioned below: 1. Up to 74% Under Automatic Route Foreign Direct Investment (FDI) up to 74% is allowed under the automatic route for the manufacturing and operation of satellites, other satellite data products, ground segments, and user segments. Activities beyond this limit are considered under the government route. 2. Up to 49% Under Automatic Route FDI up to 49% is permitted under the automatic route for launch vehicles of satellites and any associated systems or sub-systems, including the creation of any spacecraft for receiving and launching. Activities exceeding this limit fall under the government route. 3. Up to 100% Under Automatic Route FDI up to 100% is allowed under the automatic route for the manufacturing of components, systems, or sub-systems for satellites, as well as for ground segments and user segments. Timeline for Processing FDI in India under Approval 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 generalized timeline for processing FDI in India under approval route takes around 5 to 6 weeks. Additionally, applicants who proactively manage their submissions and maintain clear communication with the DPIIT, receive timely approval for their foreign investment proposals under the approval route. Why Choose Enterslice for FDI in India under Approval Route? We at Enterslice possess a team of expert professionals who comply with the new government norms or regulations related to FDI for approval as well as automatic routes. Given below are the reasons why we are the best choice for consulting for FDI in India under approval route or government route- Submission of the Concerned Papers to Authorities Assistance in Procedures Related to the Approval Route for Foreign Direct Investment Over 1200+ FDI Applications Submitted and Approved for FDI in India under Government Route Handled FDI Applications in Sectors such as Telecommunication, Mining, Aviation, etc. Strategic Partnerships with Government Bodies for Assistance in Online Foreign Direct Investment in India under Approval Route Monitor and Track the Application Status for FDI in India under Government Route Provides Post-compliance Services for FDI in India under Government Route Ensure Transfer of Shares/Convertible Debentures from Non-resident to Resident Comply with Entry Conditions on FDI in India under Approval Route Foreign Investment FDI Compliance Services
Up to 100% FDI is permitted under both, automatic and government routes like airport transport services, etc. For further details, talk to Enterslice experts.
The Foreign Investment Promotion Board (FIPB) under the Department of Economic Affairs, Ministry of Finance, is the authority responsible for approving the FDI in India.
The most common methods of foreign investments in India are alternative investment funds (AIF) and foreign portfolio investors (FPI). These two are widely recognized investment methods.
Maharashtra holds approximately 52.46% of India’s total investments, making it one of the highest FDI contributing states in India.
FDI in India under the approval route is known as the government route because, in this case, approval from the Government of India is required prior to investment.
There are two routes 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 amended the policy in April 2020 to include all the neighbouring countries that share borders with India to consider foreign direct investment under the approval route.
Neighbouring countries, except Bangladesh and Pakistan, did not have to obtain prior government approval to invest in India. They were allowed to do so 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 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 is: Not owned and not controlled by resident Indian citizens or Owned or controlled by a resident outside India.
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