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One of the key factors in India’s economic progress has been FDI. The government has also noted this and has ensured minimal compliance to liberalise the FDI policy. FDI is an investment made by a party outside the nation. India has grown to be a desirable location for global investors. They profit from the lower wages and lenient investment standards and regulations.
The economy was liberalised after the 1991 financial crisis. As a result, FDI has periodically increased over the years. It has long been one of the main sources in the nation. The FDI routes determine the country’s FDI influx. We shall have a brief overview of the FDI automatic route.
Table of Contents
There are two ways that foreign direct investment by an individual or a foreign company is regulated:
Certain sectors under the FDI Automatic route do not constrain investments. The overseas investor or the Indian company doesn’t need any prior approval from the government or the RBI, whereas, under the FDI Approval route, prior approval from the government is required. One might request such approval by applying through the Foreign Investment Facilitation Portal1. The application can be authorised because of the single-window clearing procedure used by the Portal.
The task of overseeing the entire process was handed to the Foreign Investment Promotion Board. However, in May 2017, the Central Government abolished the organisation. The appropriate ministries and departments have been processing FDI applications since 2017. According to the FDI policy, the Ministry of Commerce has established a uniform method for handling FDI applications.
Automatic Route: An Indian Company may offer capital instruments to persons residing outside India without obtaining the Government of India’s prior approval for the investment, subject to the FDI caps, sectoral regulations, and licencing requirements that apply to certain sectors. The above list can refer to the sectors where the automatic route is permitted.
Approval Route: The prior authorisation for the investment must be obtained from the Government of India using the approval route, often known as the government route. The relevant Ministry or Department considers proposals for foreign investments through the approval route. The business where the foreign investment is envisaged must apply on the Foreign Investment Facilitation Portal to request permission. Depending on the circumstances, the administrative ministry or department may decide to issue the approval. When assessing an investment request, it often considers factors, including the inflow and outflow of foreign currency, export potential, benefits to the Indian economy, etc.
In the table provided below, the list of sectors permitted under FDI Automatic Route is specified.
Apart from the sectors mentioned in the table above, there are sectors under FDI automatic route in India where up to 100% FDI is permitted. These are as follows:
Some sectors come under the Automatic Route and Government Route of FDI, where up to 100% FDI is permitted.
Before pursuing Foreign Direct Investment, start-ups and established businesses should bear the following in mind as part of India’s Foreign Direct Investment Automatic Route:
The following sectors are prohibited in foreign direct investment under the current policy:
Collaboration with foreign technology is prohibited in the lottery business, gambling industry, or betting operations. It includes licencing for franchises, trademarks, brand names, and management contracts.
FDI plays a key role in boosting a nation’s economy. It has a good effect on the nation’s technological advancements, employment system, and competitive environment. These variables are influenced by the nation’s foreign direct investment policy, which covers things like the FDI routes (FDI Automatic Route in India and Government Route), the sectors covered by these routes, the sectors that fall under the prohibited category, the FDI permitted limit, etc.
An ownership stake in a foreign company or project from another country is made by an investor, company, or government and is considered as FDI.
Foreign direct investments may be drawn via the automatic route in India without requiring the government or the Reserve Bank of India’s approval.
There are basically two ways to bring FDI into India. There is the Automatic Route, which doesn’t need consent or authorisation is required for investment.And there is a Government Route. No investment in this route is permitted without the Government of India’s prior approval.
The Automatic Route and the Approval/Government Route are the two main routes available for foreign direct investment into India. In the case of the automatic route, the investor does not need prior approval before investing; however, the same is required in the approved route.
Yes, the automated route in India allows 100% FDI into the food processing sector.
No, FDI investment in betting, gambling, and related business is prohibited in India.
FDI is considered a major engine of economic growth, as it can bring in capital, skills, technology, market access, and employment opportunities in the host country.
Also, Read: Government Approval under Foreign Direct Investment (FDI) In India.
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