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Foreign Investment in India has been the direct result of policies undertaken and implemented by successive governments and of the liberal trade. The liberalization program of the government leads to a harmonious integration with the global economy besides effecting a rapid and substantial growth of the country’s economy. In India, foreign investment comprises of investments made by foreign companies in India, the reverse, which means the outflow of foreign investment from India is also common in the Indian economy. Foreign investment in India has led to many positive impacts on the country in terms of employment generation and improving the basic infrastructure of the country.
Foreign investment has enormous potentials in India. There may be some uncertainties as well that the investors might face; however, India provides an excellent opportunity for global players to invest in the market. Most of them have already invested in India, and some companies are planning to invest in India.
India is the world’s fifth-largest economy and is among one of the few markets in the world that offers a high prospect of growth and earning in all sectors of the economy. One factor that ensures a good return on the investments of foreign investors is the substantial skilled workforce. Foreign investors need to estimate and calculate the opportunities and the drawbacks that the Indian markets present in order to be successful.
Investors must formulate a proper plan, and they need to research extensively. If the foreign companies are thinking of short term benefits, then they may be disappointed to know that it may not be fruitful; however, long term returns can be expected for an investor who has understood the Indian market prior to investing his money. If these factors are kept in mind and considered seriously, then investors can reap the rewards of their investments.
The Indian government has taken numerous steps to attract foreign investments in the country. In India, foreign investments are principally governed by the Foreign Exchange Management Act 1999. With a view to regulate the foreign investments, the Reserve Bank of India had published the Foreign Exchange Management Regulations 2000 and then the Foreign Exchange Management (Transfer of Issue of Security by a person resident outside India) Regulations 2017 under FEMA. Moreover, the Department for Promotion of Industry and Internal Trade had put in place a framework that consolidated the sectoral requirements and conditions that are to be complied with by the foreign investors investing in Indian entities.
The principal legislation that governs and regulates acquisitions and foreign investment in India is the FEMA, as well as the notifications, circulars issued from time to time by the Central Government and RBI pertaining to foreign investments.
This is the conventional method of making foreign investments in the country. The foreign institutional investors/NRIs and foreign partnerships may invest through this medium. It is the primary form of remittance to the country.
It is a form of investment made by a person resident outside India in capital instruments wherein such investments is less than 10% of the post issue paid-up equity capital on a fully diluted terms of a listed company or less than 10% of the paid-up value of each series of capital instruments of a listed company.
Any investment made by a person resident outside India on a repatriable basis in capital instruments of the Indian Company or to the capital of a Limited Liability Partnership (LLP).
The routes under which foreign investments can be made are as provided-
Under the automatic route, foreign investment in India is allowed without prior approval from the Government of India or the Reserve Bank of India (RBI) in all activities or sectors, as mentioned in Regulation 16 of FEMA Regulations, 2017.
Under the Government route, foreign investment in activities not covered under the automatic route needs prior approval from the government. An application seeking approval from the government can be made at the Foreign Investment Facilitation Portal. This portal is administered by the Department of Industrial Policy and Promotion, Ministry of Commerce.
Foreign Investment Facilitation Portal is the online single-window interface of the Finance Ministry to facilitate foreign investment in India. The portal is administered by the Department of Industrial Policy and Promotion Board. Its functions are-
Read, Also: Foreign Investment: Compliance under RBI/FEMA.
The FIFP replaced the erstwhile Foreign Investment Promotion Board (FIPB) in order to increase the transparency and to facilitate the clearance procedure of the FDI proposals so that the inflow of FDI could be increased in the country. Since the abolition of FIPB, the individual departments of the government have been empowered to clear the FDI proposals in consultation with DIPP, which shall also issue the Standard Operating Procedures for processing applications.
Foreign investment in the sectors or activities provided in the regulation 16 of the FEMA Regulations, 2017, is permitted up to the limit indicated against each sector or activity subject to laws and regulations applicable. The sectoral cap for the sectors or activities is the limit indicated against each sector. The total foreign investment should not exceed the sectoral cap. Up to 100% foreign investment is permitted on the automatic route subject to the applicable laws and regulations in sectors not listed in regulation 16 of the FEMA Regulations, 2017 and not prohibited under regulation 15 of the FEMA Regulations, 2017. However, this condition is not applicable to activities in financial services.
With a view to protect the interest of the nation, some sectors are prohibited from foreign investment in India. These include Business of chit funds, Nidhi Company, Agricultural or plantation activities, Real estate business, trading in Transferable Development Rights, etc.
Bonus Read: Chinese Investment in India.
Any investment by a person resident outside India will be subject to the entry routes, sectoral caps, or to the investment limits. A person residing outside India can make investment as provided under-
A person resident outside India having invested in an Indian Company is allowed to invest in the capital instruments issued by such company subject to the following conditions:
The government has, in recent times, relaxed certain existing laws and have enacted new laws in some instances to ensure better opportunities for foreign investment in India. Since the opening of the Indian economy for foreign investors in 1991, many changes have taken place with an aim to attract foreign investment in India. Since the liberalization, all governments started implementing the changes that made the Indian economy more attractive to foreign investors.
Also, Read: Types of Foreign Investment in India.