Government Approval under Foreign Direct Investment (FDI) In India

Bhawna Dang

30 Mar, 2020

In the current economic scenario, there is no country that is left out from the impact of globalization, and every country is dependent on each other to form a strong global economy. Foreign Direct Investment has become an important source for private external finance and is always welcomed by the regulators. That is why the policy related to Foreign Direct Investment (FDI) in India has been liberalized and most of the sectors have been allowed under the automatic route. There are only a few sectors which are not under automatic route and required the approval from the government.

Let us understand in detail about the automatic route and approval route for FDI in India.

Routes under Foreign Direct Investment (FDI) in India

Investment in the form of FDI can be made in the following ways in India:

Automatic Route: Prior approval is not required from Reserve Bank of India or Government of India for the activities/ Sectors mentioned under Regulation 16 of FEMA 20(R).

Government Route: Prior approval is required from the Government of India or Reserve Bank of India. Activities/ Sectors which are not covered under the automatic route, are covered under the Government route.

Foreign Direct Investment Policy: Sectors Where Government Approval Is Required

Prohibited Sectors

• Gambling and betting;
• Lottery Business,
• Atomic Energy
• Retail Trading
• Plantation activities or Agricultural (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea plantations)

Procedure of FDI in India under Government Approval

File online Application with Foreign Investment Facilitation Portal (FIFP), formerly known as Foreign Investment Promotion Board. FIFP is the new online single point interference of Government of India to facilitate Foreign Direct Investment. This Portal is administered by the Department for Promotion of Industry and Internal trade.

Steps involved in it:

1. Register on the Portal provided by the Foreign Investment Facilitation Portal, DIPP, and Ministry of Commerce.
2. OTP will be generated on mobile and Email ID for the verification.
3. After OTP, details of login and weblink to generate the password will be sent to the registered mobile or email ID.
4. After Login, Online Application shall be filed with the mentioned documents of Investor and Investee company as per Standard Operation Procedure (SOP):

Also, Read: FEMA/ RBI Compliances Checklist: Foreign Direct Investment.

Documents Required:

1. Summary of Proposal on Company (Applicant) Letterhead.
2. Certificate of Incorporation (COI) of the Investee & Investor Companies/ Entities.
3. Memorandum of Association (MOA)
4. Board Resolution 
5. Audited Financial Statement of the Last Financial Year
6. Article of Association
7. Names and address of foreign collaborators along with Passport and Identification Proof.
8. Flow chart presentation of the flow of funds from the original investor to the investee company
9. Pre and Post -shareholding pattern of the Investee Company.
10. An affidavit stating that all information provided in hard copy and online are the same and correct.

After online Application, DIPP will identify the concerned Administrative department for the same and will transfer the case to the relevant department.

Concerned Departments:

Physical submission of the Application needs to be made within five days of the communication received from DIPP to the concerned department, If the Application is digitally signed, then there is no need to submit the physical application.

Once the documents are received by the concerned authority, the department conducts the preliminary investigation of the documents within one week of receiving them.

Other departments give their comments, if any, within two/ four/ six weeks as specified under the regulation to the concerned authority. The concerned Authority, after receiving the comments, approves or rejects the application within two weeks. The complete procedure takes a total of ten weeks to get the approval from the concerned Authority.

Explained in the Flow Chart:

Conclusion

This is a procedural matter which requires the expert advice for understanding the sectors that fall under the government approval route, set of documents to be produced with the department, liasoning with the department, resolving to the query of the department based on a preliminary investigation, understanding the requirement of the department. The inflow of capital without taking government approval will attract the penalty for non-compliance as mentioned regulations. Taking Professional advice may help you in saving your time and protect you from the penalties imposed in case of any errors.

More on FDI: Changes in FDI Rules – Unlocking Investment Potential of NBFCs.