India is the hot destination for FDI at the moment. Here is a brief summary on foreign investment in India.
Foreign Direct Investment in India
Foreign Direct Investment (FDI) in India in growing rapidly. Foreign
direct investment is an integral part of an open and effective
international economic system and a major catalyst to development. FDI
is highly beneficial for a country like India. Empirical studies suggest
that FDI triggers technology spillovers, assists human capital
formation, contributes to international trade integration, helps create
a more competitive business environment and enhances enterprise
development. All these factors contribute to higher economic growth and
consequently aid in alleviating poverty. Apart from bestowing economic
benefits FDI may also help improve environmental and social conditions
by transferring "cleaner" technologies and leading to more
socially responsible corporate policies.
Foreign Direct Investment in India is permitted as under the
following forms of investments:
- Through financial collaborations.
- Through joint ventures and technical collaborations.
- Through capital markets via Euro issues.
- Through private placements or preferential allotments.
FDI is not permitted in the
following industrial sectors:
- Arms and ammunition.
- Atomic Energy.
- Railway Transport.
- Coal and lignite.
- Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.
Foreign direct investments in
India are approved through two routes:
1. Automatic approval by RBI: The Reserve Bank of India accords
automatic approval within a period of two weeks (provided certain
parameters are met) to all proposals involving:
- Foreign equity up to 50% in 3 categories relating to mining activities.
- Foreign equity up to 51% in 48 specified industries.
- Foreign equity up to 74% in 9 categories.
Investments in high-priority
industries or for trading companies primarily engaged in exporting are
given almost automatic approval by the RBI.
FDI in India on automatic route
is not allowed in the following sectors:
- Proposals that require an industrial licence and cases where
foreign investment is more than 24% in the equity capital of units
manufacturing items reserved for the small scale industries.
- Proposals in which the foreign collaborator has a previous
venture/tie-up in India.
- Proposals relating to acquisition of shares in an existing Indian
company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas
Corporate Body (OCB) investor; and
- Proposals falling outside notified sectoral policy/caps or under
sectors in which FDI is not permitted and/or whenever any investor
chooses to make an application to the Foreign Investment Promotion
Board and not to avail of the automatic route.
2. FIPB Route: Foreign
Investment Promotion Board (FIPB) is a competent body to consider and
recommend foreign direct investment, which do not come under the
automatic route. Normal processing time of an FDI proposal in FIPB is 4
to 6 weeks. FIPB is located in the Department of Economic Affairs,
Ministry of Finance. Its constitution is as follows:
- Secretary, Department of Economic Affairs (Chairman)
- Secretary, Department of Industrial Policy & Promotion (Member)
- Secretary, Department of Commerce (Member)
- Secretary, (Economic Relation), Ministry of External Affairs (Member)
FIPB can co-opt Secretaries to the
Govt. of India and other top officials of financial institutions, banks
and professional experts of industry and commerce, as and when
Foreign Investment Implementation Authority (FIIA)
Government has set up Foreign Investment Implementation Authority
(FIIA) to facilitate quick translation of Foreign Direct Investment
(FDI) approvals into implementation by providing a pro-active one stop
after care service to foreign investors, help them obtain necessary
approvals and by sorting their operational problems. FIIA is assisted by
Fast Track Committee (FTC), which have been established in 30
Ministries/Departments of Government of India for monitoring and
resolution of difficulties for sector specific projects.
Note: The above information was last updated on 21-07-2007