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The role of Foreign Direct Investment (FDI) in the upgradation of technology, skills and managerial capabilities is now well accepted. Additional investments, over and above the investments possible with the available domestic resources, help in providing much needed employment opportunities.

The 2012 A.T. Kearney Foreign Direct Investment Confidence Index has ranked India second most attractive destination for FDI , an improvement from its third rank in the year 2010.

Foreign Direct Investment (FDI) inflows for the year 2012-13

Under the extant Foreign Direct Investment (FDI) policy, FDI upto 100 percent is allowed under the automatic route in most sectors/activities, except a few, where sectoral equity/entry route restrictions have been retained. FDI, under the automatic route, does not require any approval and only involves intimation to the Reserve Bank of India within 30 days of inward remittances and/or issue of shares to non-residents.

Amount of FDI inflows for the financial year 2012-13 for the month of December 2012 was US$ 1.1 billion. Amount of total FDI equity inflows into India (equity inflows + re-invested earnings + other capital) for the financial year 2012-13 (from April 2012 to December, 2012) was estimated at US$ 27.19 billion. Cumulative Amount of FDI Equity Inflows (excluding, amount remitted through RBI’s-NRI Schemes) (from April, 2000 to December, 2012) was recorded at US$ 187.80 billion.

Sector-wise distribution of FDI inflows

Top 10 Sectors attracting highest FDI inflows: During December 2012, top 10 Sectors attracting highest FDI inflows were: Services Sector (19 per cent), Construction development: Townships,housing, built-up infrastructure* (12 per cent), Telecommunications (7 per cent), Computer Software & Hardware (6 per cent), Drugs & Pharmaceuticals (5 per cent),Chemicals (other than Fertilizers) (5 per cent), Power (4 per cent), Automobile Industry (4 per cent), Metallurgical Industries (4 per cent), Hotel & Tourism (3 per cent).

*In line with the extant FDI policy, the Sectors “ Housing and Real Estates” &” Construction Activities” have been renamed as construction development: Townships, housing, built-up infrastructure and construction development projects and construction (Infrastructure) activities, respectively.

Country-wise distribution of FDI inflows

Top 10 Investing Countries: Top 10 investing countries during December 2012 were: Mauritius (38 per cent), Singapore (10 per cent),U.K (9 per cent), Japan (7 per cent), U.S.A (6 per cent),Netherlands (5 per cent), Cyprus (4 per cent), Germany (3 per cent), France (2 per cent), U.A.E (1 per cent).

Foreign Direct Investment Policy

India's foreign investment policy has been formulated with a view to inviting and encouraging FDI into India. The process of regulation and approval has been substantially liberalised. FDI under automatic route is permitted in most activities/sectors, except a few where prior approval of the Government is required.

Government of India welcomes FDI in all sectors where it is permitted, especially for development of infrastructure, technological upgradation of Indian industry through 'greenfield' investments and in projects having the potential of creating employment opportunities on a large scale. Investment for setting up Special Economic Zones (SEZs) and establishing manufacturing units are also welcomed.

Entry Routes for Investment

Procedure under Automatic Route

FDI in sectors/activities permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

Procedure under Government Approval

FDI in activities not covered under the automatic route require prior Government approval. Such proposals are considered by the Foreign Investment Promotion Board (FIPB), a Government body that offers single window clearance for proposals on foreign investment in the country that are not allowed access through the automatic route.

Government approval is required in the following cases:

  • Where a foreign investor has an existing joint venture/technology transfer / trademark agreement in the same field, prior to January 12, 2005, the proposal for fresh investment / technology transfer / collaboration / trademark agreement in a new joint venture would have to be under the Government approval route through FIPB.

  • In sectors with caps, including inter-alia defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites, Government approval / FIPB approval would be required in all cases where:

    • An Indian company is being established with foreign investment and is owned or controlled by a non-resident entity or

    • The control or ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, is being transferred to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares.

These guidelines do not apply for sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route.

Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian company without obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines.If the acquisition of shares directly or indirectly results in the acquisition of a company listed on the stock exchange, it would require the approval of the Security Exchange Board of India.

New investment by an existing collaborator in India

A foreign investor with an existing venture or collaboration (technical and financial) with an Indian partner in particular field proposes to invest in another area, such type of additional investment is subject to a prior approval from the FIPB, wherein both the parties are required to participate to demonstrate that the new venture does not prejudice the old one.

General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.

Participation by International Financial Institutions

Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI.

Applications for all FDI cases, except Non-Resident Indian (NRI) investments, Export Oriented Units (EOUs) and for FDI in retail trading (single branded product) should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. The procedure for filing FDI applications has been simplified through e-filing facility launched by the DEA. For e-filing, please see FIPB website at .

Applications for NRI investment, EOU and for FDI in single-brand retail trading should be submitted to Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy & Promotion (DIPP).



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