Over the last few years, many changes have been made to Foreign Direct Investment (FDI) in India. Recently there was anews report that the government is eyeing to ease the flow of foreign funds into the Indian economy. What is FDI? What are the routes for it? Which are sectors where FDI is permitted in India? 

What is FDI?

FDI is an investment made by an individual or any firm of one country to another country for any business purpose/interest. The scheme is also a major source of monetary funds for the country and the rules related to FDI regulate the inflow and transfer of foreign currency to and from India. Ever since the economic crisis of 1991, there has been a liberalisation of the Indian economy, leading to a periodic increase in FDI throughout the years. This has led to the generator of over one crore jobs in India and has been a huge benefit to the economic stability of the country. 

The growth in FDI has been so exponential in India, that in 2015, as per a study conducted by the Financial Times, India overtook both China and the United States as the top accumulator of Foreign Direct Investment, attracting investment worth $31 billion. Here’s a look at all the sectors in which India allows Foreign Direct Investment.

Routes for FDI

There are primarily two routes by virtue of which India attracts foreign investment. They are:

1. Automatic Route: This allows FDI to enter the country without the prior approval of either the Government or the Reserve Bank of India.
   
   
2. Government route: Such a method requires the prior approval of the government and hence, an application must be made via the Foreign Investment Facilitation Portal. This platform works on a single-window clearance system and allows the required FDI application to be approved. The application is sent to the concerned ministries by the portal, and the ministries take the application forward as per prescribed procedures.

The Foreign Investment Promotion Board was handed the responsibility of overseeing the entire procedure and had been tasked with approving the right investment applications. But this agency was abolished in May 2017 after having held its 245th meeting in April. The move to scrap this agency was taken by the Central Government.

Since 2017, the concerned ministries have been handling all the work related to processing and ensuring the approval of FDI applications. The departments concerned will share this responsibility with the Department for Promotion of Industry and Internal Trade (DPIIT), and the Ministry of Commerce. The Ministry of Commerce has been tasked with creating a Standard Operating Procedure for processing such applications as per the FDI policy.

Permitted Sectors

Now that we know how FDI flows into India, let’s take a look at all the sectors which are permitted to accept foreign investment as per the FDI policy, and what routes these investments are liable to take.

Agriculture and Animal Husbandry: 100% Automatic

This includes:

• Floriculture, Horticulture, and vegetables, fruits, and mushroom cultivation
• Production of seeds 
• Any form of animal husbandry (including dogs)
• Pisciculture
• Aquaculture
• Apiculture
• Agro services
  
  
  

Air Transport Services:

• Non-scheduled- 100% Automatic (Helicopter and Seaplanes)
• Scheduled – up to 49% Automatic and the rest Government Route (Domestic and Regional Services)
• Services in the Aviation sector- 100% Automatic
• Asset Reconstruction Companies: 100% Automatic
• The said company must have registered with the RBI as per Section 3 of the SARFAESI Act, 2002

Automobiles and Auto Components: 100% Automatic

Banking Sector: 

• Private: up to 49% Automatic, and the rest via the Government
• Public: 20% through the Government

Biotechnology:

• Brownfield- up to 74% Automatic and the rest is contributed by Government
• Greenfield- 100% Automatic

Broadcasting:

• Non-News-100% Automatic
• DTH, Teleports, Cable Network, Mobile TV, HITS- 100% Automatic
• FM and News Channels- 49% Government
• Digital Media- 26% Government

Goods and Services:

• Capital Good-100% Automatic
• Wholesale- 100% Automatic
• Chemicals- 100% Automatic
• Coal and Lignite- 100% Automatic
• Electronic Systems- 100% Automatic
• Duty-Free shops- 100% Automatic
• Food Processing- 100% Automatic
• E-commerce – 100% Automatic
• Food Products- 100% Government
• Gems and Jewellery- 100% Automatic
• Leather- 100% Automatic
• Manufacturing- 100% Automatic
• Medical Devices- 100% Automatic
• Mining- 100% Automatic
• Mining of Titanium- 100% Government
• Multi-Brand Retail- 51% Government
• Petroleum and Gas- 100% Automatic
• Petroleum Refining- 49% Automatic
• Plantation- 100% Automatic
• Shipping- 100% Automatic
• Railway Infrastructure- 100% Automatic
• Roads- 100% Automatic
• Textiles- 100% Automatic
• Thermal Power- 100% Automatic
• Tourism- 100% Automatic

Construction:

• Townships-100% Automatic
• Hospitals- 100% Automatic

Investment Company:

• Core- 100% Government
• Defense: up to 49% Automatic and the rest through the Government

Healthcare:

• Brownfield – up to 74% Automatic and the rest is Government
• Greenfield- 100% Automatic

Insurance:

• Up to 49% Automatic and the rest through the Government

Pension: 49% Automatic

Pharmaceuticals

• Brownfield- up to 74% Automatic and the rest through the Government
• Greenfield- 100% Automatic

Print Media

• Scientific magazines, journals, and periodicals- 100% Government
• Newspaper- 26% Government

Prohibited Sectors

• Lotteries
• Gambling and Betting
• Casinos
• Chit Funds
• NIDHI Companies
• Transferable Development Rights 
• Real Estate Business
• Farm House Construction
• Cigars, cheroots, cigarillos and cigarettes, and tobacco substitutes
  
  

The following sectors will also not be viable to take up private investments- 

• Atomic energy
• Railway operations
  
  

Filing for Government Approval

• Filing

The application must be filed online and the required documents must be submitted online, through the Foreign Investment Facilitation Portal. 

• Internal Procedure

The portal will then send the application to the concerned Departments within two days. A copy must also be sent to the RBI to check for FEMA compliance. FDI from Pakistan and Bangladesh also requires the Home Ministry’s approval. By the end of 4 weeks, the ministries will give their verdict and the process will move on. If they are dissatisfied, they might ask for clarifications which must be made within the span of a week. For FDIs exceeding INR 50bn, the application must be approved by the Committee of Economic Affairs.

• Approval

Once all the comments have been studied, the application gets approved and the entire process takes up to 8 weeks.

Conclusion

As more and more sectors grow in terms of market size, the number of sectors eligible for FDI will also broaden. The larger the funding pool the more growth of domestic and indigenous industries. However, the concerns are over the use of illegal funds coming into the country from abroad which can cause unnecessary trouble locally and can affect the economy. FDIs also increase the demand for the Indian Rupee which is good in terms of improving our forex reserves. If you have any other queries or require assistance with regard to any legal matter, get in touch with us and we will connect you with our team of experts who will guide you through the process.

Also read: What is a MOU and how do I write it?

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