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FDI has been among one of the essential contributors to India’s economic growth. The Government has also taken note of this and has taken measures to liberalize the FDI regime by ensuring minimal compliances. Simply speaking, FDI is an investment by an entity outside the country. India has become an attractive place for foreign investors. They take advantage of the cheaper wages and liberal investment norms and policies.
Since the economic crisis in the year 1991, the economy has been liberalized. This has led to a periodic rise in FDI throughout the years. It has been one of the essential sources of employment in the country. The FDI routes determine the inflow of FDI in the country. In this article, we shall have a brief overview of the FDI automatic route.
Foreign Direct Investment by an individual or by a foreign company is regulated through two routes namely-
Under the FDI Automatic route , investments are not restricted under different sectors. 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, a prior approval from the Government is required. Such approval can be sought by filing an application through the Foreign Investment Facilitation Portal. The Portal works on a single-window clearance system and thus allows the application to be approved.
The Foreign Investment Promotion Board was given the responsibility of taking care of the entire procedure, but in May, 2017 this agency was abolished, and this move to scrap the agency was decided by the Central Government. Since 2017 the concerned ministries and departments have been handling the processing of the FDI applications. The Ministry of Commerce has formed a standard procedure for processing of FDI applications as per the FDI policy.
Under vertical investment, a business expands into some other country by moving to a different level of the supply chain. The business takes on different activities overseas, but such activities are related to the main business.
Under the horizontal investment, the business expands its inland operation to another country. Here the business undertakes the same activities, but it does that in a foreign country.
Under the Conglomerate Investment, the business is carrying out unrelated business activities in a foreign land. Such an investment is uncommon as it involves penetrating a new country and a wholly new market.
In the table provided below, the list of sectors permitted under FDI Automatic Route is specified.
Sector | Permitted Limit under Automatic Route | |
Agriculture and Animal husbandry It includes- Floriculture, Horticulture, and cultivation of fruits and vegetables.Production of seeds and planting material.Animal husbandry, pisciculture, aquaculture, apiculture. Agro services. | 100% FDI permitted under Automatic Route | |
Air Transport Services Non-scheduled air transport services Services under Aviation sector | 100% FDI permitted under Automatic Route | |
Airports (Greenfield and Brownfield) | 100% FDI permitted under Automatic Route | |
Asset Reconstruction Companies It means a company registered with the Reserve Bank of India (Section 3, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) | 100% FDI permitted under Automatic Route | |
Auto components Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route. | 100% FDI permitted under Automatic Route | |
Automobiles Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route. | 100% FDI permitted under Automatic Route | |
Biotechnology (Greenfield) | 100% FDI permitted under Automatic Route | |
Broadcasting Services (up-linking of Non-news and current affairs TV channels and Down linking of TV channels) | 100% FDI permitted under Automatic Route | |
Broadcasting Carriage Services Teleports,DTH,Cable Networks (MSOs operating at National, State or district level),Mobile TV,Headend in the sky Broadcasting Service,Cable Networks (other MSOs that do not undertake up-gradation of networks). | 100% FDI permitted under Automatic Route | |
Capital Goods Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route. | 100% FDI permitted under Automatic Route | |
Wholesale Trading including sourcing from MSEs Cash and Carry wholesale Trading | 100% FDI permitted under Automatic Route | |
Chemicals Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route. | 100% FDI permitted under Automatic Route | |
Coal and Lignite Mining of coal and lignite for captive consumption by power projects, iron and steel and cement units;Other eligible activities under the provisions of the Coal Mines (Nationalization) Act, 1973.Setting up of coal processing plants such as washeries provided that the company shall not do coal mining, not sell washed coal or sized coal from the coal processing plants in the open market and shall supply the same to those who are supplying raw coal to coal processing plants for washing or sizing. | 100% FDI permitted under Automatic Route | |
Construction Development- Townships, Housing, Built-up Infrastructure | 100% FDI permitted under Automatic Route | |
Construction of Hospitals | 100% FDI permitted under Automatic Route | |
Credit Information Companies | 100% FDI permitted under Automatic Route | |
Duty-Free Shops It means shops set up in the custom bonded area at International Airports, Seaports, and Land Custom Stations, where there is International Passenger Transit.Foreign investment in such shops is subject to compliance of conditions under the Customs Act, 1962, and other rules and regulations.Duty-Free Shop entity shall not involve in any retail trading in the domestic tariff area of the country. | 100% FDI permitted under Automatic Route | |
E-Commerce Activities Subject to FDI policy, e-commerce entities shall not engage in Business to Consumer e-commerce but would engage only in Business to Business e-commerce. | 100% FDI permitted under Automatic Route | |
Electronic Systems Subject to the provisions of FDI policy, investment in the manufacturing sector is under automatic route. | 100% FDI permitted under Automatic Route | |
Food Processing Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route in India. | 100% FDI permitted under Automatic Route | |
Gems and Jewellery Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route in India. | 100% FDI permitted under Automatic Route | |
HealthCare (Greenfield) | 100% FDI permitted under Automatic Route | |
Industrial Parks (New and Existing) | 100% FDI permitted under Automatic Route | |
IT and BPM | 100% FDI permitted under Automatic Route | |
Leather Subject to the provisions of FDI policy, investment in the manufacturing sector is under automatic route. | 100% FDI permitted under Automatic Route | |
Manufacturing Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route in India. | 100% FDI permitted under Automatic Route | |
Mining and Exploration of metal and nonmetal ores Including gold, diamond, silver, and precious ores but not including titanium bearing minerals and its ores,Subject to the Mines and Minerals Act, 1957. | 100% FDI permitted under Automatic Route | |
Other Financial Services Financial Services Activities regulated by the regulators of financial sectors such as RBI, SEBI, IRDA, NHB, or any other regulator of the financial sector as may be notified by the Government of India. | 100% FDI permitted under Automatic Route | |
Services under the Civil Aviation sector such as Maintenance and Repair Organisations Including flying training institutes and technical training institutes. | 100% FDI permitted under Automatic Route | |
Petroleum and Natural Gas Exploration activities of oil and natural gas fields;Infrastructure related to marketing of petroleum products and natural gas;Marketing of natural gas and petroleum products;Petroleum product pipelines, market study and formulation, and petroleum refining in the private sector. | 100% FDI permitted under Automatic Route | |
Pharmaceuticals (Greenfield) | 100% FDI permitted under Automatic Route | |
Plantation sector FDI is allowed in the Tea sector;Coffee Plantations;Rubber plantations;Cardamom Plantations;Palm oil tree plantation and olive oil tree plantation.Besides it, FDI is not allowed in any other plantation sector. | 100% FDI permitted under Automatic Route | |
Ports and Shipping | 100% FDI permitted under Automatic Route | |
Railway Infrastructure | 100% FDI permitted under Automatic Route | |
Renewable Energy | 100% FDI permitted under Automatic Route | |
Roads and Highways | 100% FDI permitted under Automatic Route | |
Single Brand Product Retail Trading | 100% FDI permitted under Automatic Route | |
Textile and Garments Subject to the provisions of FDI policy, investment in the manufacturing sector is under FDI automatic route in India. | 100% FDI permitted under Automatic Route | |
Thermal Power | 100% FDI permitted under Automatic Route | |
Tourism and Hospitality | 100% FDI permitted under Automatic Route | |
White Label ATM Operations | 100% FDI permitted under Automatic Route | |
Apart from the sectors mentioned in the table provided above, there are sectors under FDI automatic route in India where up to 100% FDI is permitted. These are as follows:
There are sectors that come under the Automatic Route and Government Route of FDI, where up to 100% FDI is permitted.
The following is a checklist under FDI Automatic Route in India that start-ups and established companies must keep in mind before proceeding for Foreign Direct Investment-
Subject to the prescribed FDI caps, sectoral regulations, licensing requirements applicable to different sectors, an Indian Company may issue capital instruments to persons living outside India without taking the prior approval of the Government of India for the investment. Sector-wise list where automatic entry is allowed may be referred to by the table made above.
Under the Approval route or the government route, prior approval must be taken from the Government of India for the investment. Proposals for foreign investments through the approval route are considered by the concerned Ministry or Department. For seeking approval, the company in which the foreign investment is intended must make an application on the Foreign Investment Facilitation Portal. The approval may be granted at the prudence of the concerned Administrative Ministry or department, as the case may be. Usually, it considers the matters like inflow and outflow of foreign exchange, Export potential, benefit to the Indian economy, etc. for approving an investment proposal.
FDI is instrumental in improving a country’s economy. It positively impacts the employment system, technological aspect and creates a competitive environment in the country. These factors depend upon the FDI policy of the country, which includes the FDI routes (FDI Automatic Route in India and Government Route), the sectors under these routes, which sectors are under the prohibited category, the FDI permissible limit, etc.
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