Table of Contents
Introduction: FDI in India
Foreign Direct Investment (FDI) plays a significant role in the economic development of India. Over the years, India has emerged as an attractive destination for foreign investors due to its large consumer base, growing economy, and liberalized FDI policies. This article explores the key concepts with updated data about FDI in India.
Definitions: Foreign Direct Investment (FDI)
| Foreign Direct Investment | Foreign Direct Investment is an investment through capital instruments by a person resident outside India in an unlisted Indian company; or 10% or more of the post-issue paid-up equity capital of a listed Indian company. It is a non-debt financial resource. |
| Foreign Portfolio Investment | Any investment made by a person resident outside India through capital instruments where such investment is less than 10% of the post-issue paid-up share capital of a listed Indian company. |
| Indian Company | A company incorporated in India under the Companies Act. |
| Listed Indian company | An Indian company that has any of its equity instruments or debt instruments listed on a recognized stock exchange in India. |
Department for Promotion of Industry and Internal Trade (DPIIT)
- The Department for Promotion of Industry and Internal Trade (DPIIT) was established in 1995 and reconstituted in 2000 with the merger of the Department of Industrial Development.
- Formerly known as the Department of Industrial Policy & Promotion, it was renamed DPIIT in January 2019.
- Function:
- In 2018, DPIIT took over matters related to e-commerce.
- In 2019, DPIIT was given charge of matters concerning internal trade, the welfare of traders and their employees, and the promotion of startups.
- DPIIT’s primary role is to promote industrial development in the country by facilitating investment in emerging technologies, encouraging foreign direct investment, and fostering balanced growth of industries and trade.
FDI Entry Routes into India
- Automatic Route: Under the Automatic Route, investment by a person resident outside India does not require the prior approval of the Reserve Bank of India or the Central Government.
- Government Route: Under the Government Route, before investment, approval from the Government of India is required.
- Maharashtra received the highest FDI Equity Inflow during FY 2022-23 (29%).
- FDI exceeding INR 50 bn (approx. $ 775 mn) requires approval from the Cabinet Committee of Economic Affairs.
| Sectors Received Highest FDI (FY 2022-23) | Share (%) |
|---|---|
| Finance, Banking, Insurance, Non-Fin/ Business, Outsourcing, R&D, Courier, Tech | 16% |
| Computer Software & Hardware | 15% |
| Trading | 6% |
| Telecommunications | 6% |
| Automobile Industry | 5% |
FDI inflows in India
Government Approval for FDI in India
| Sector | Automatic Route | Government Route |
|---|---|---|
| Air Transport Services (non-scheduled and other services under the civil aviation sector) | 100% | |
| Air Transport Services (Scheduled air transport services, regional air transport services) | Upto 49% | Above 49% |
| Airports (Greenfield & Brownfield) | 100% | |
| Auto components | 100% | |
| Automobiles | 100% | |
| Biotechnology (Brownfield) | Upto 74% | Above 74% |
| Broadcast Content Services (Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels) | 100% | |
| Broadcasting Carriage Services | 100% | |
| Capital Goods | 100% | |
| Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) | 100% | |
| Chemicals | 100% | |
| Coal & Lignite | 100% | |
| Construction Development: Townships, Housing, Built-up Infrastructure | 100% | |
| Construction of Hospitals | 100% | |
| Defence | Upto 74% | Above 74% |
| Digital Media | Upto 26% | |
| Duty Free Shops | 100% | |
| E-commerce activities | 100% | |
| Electronic Systems | 100% | |
| Food Processing | 100% | |
| Food Products Retail Trading | 100% | |
| Healthcare (Brownfield) | Upto 74% | Above 74% |
| Healthcare (Greenfield) | 100% | |
| Insurance | Upto 100% | |
| IT and BPM | 100% | |
| Leather | 100% | |
| Medical Devices | Upto 100% | |
| Mining and Exploration of metal and non-metal ores | 100% | |
| Mining and mineral separation of titanium-bearing minerals and ores, its value addition, and integrated activities | 100% | |
| Multi Brand Retail Trading | 51% | |
| Petroleum & Natural Gas | 100% | |
| Petroleum Refining (by PSUs) | 49% | |
| Pharmaceuticals (Brownfield) | Upto 74% | Above 74% |
| Pharmaceuticals (Greenfield) | 100% | |
| Ports and Shipping | 100% | |
| Railway Infrastructure | 100% | |
| Renewable Energy | 100% | |
| Roads & Highways | 100% | |
| Telecom Services | 100% Automatic route up to 49% Government route beyond 49% | |
| Textiles & Garments | 100% | |
| Thermal Power | 100% | |
| Tourism & Hospitality | 100% |
Prohibited Sectors for FDI in India
| Lottery Business including Government/private lottery, online lotteries, etc. |
| Gambling and Betting, casinos |
| Chit Funds |
| Nidhi Company |
| Real Estate Business or Construction of farm houses |
| Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes |
| Sectors not open to private sector investment – Atomic energy, railway operations |
An NRI is not allowed to invest in a firm engaged in any agricultural activity or real estate business
or print media.