Foreign Investment in India

The passage of the entry of foreign investment in India mainly comprises of joint venture agreements with an existing Indian company. The other important source of foreign investment in India is through direct investment made by an overseas firm in a wholly owned subsidiary in which it has management interest.

Foreign Investment in India- Facts:

The liberalization procedures that took off in the year 1991,


incorporated modifications in the foreign investment policy on account of the immense potential of FDI to facilitate technology transfer, improvement in foreign exchange reserves and so on. The foreign investment in India is sanctioned either through the automatic approval route or through the approval of the Foreign Investment Promotion Board (FIPB).

Foreign Investment Promotion Board:

The foreign investment promotion board (FIPB) is established under the Department of Industrial Policy and Promotion. The entry of foreign investment in Indian economy initially required the approval of the foreign investment promotion board (FIPB), apart from the investments that enter through the automatic approval route. The process for approval through the foreign investment promotion board (FIPB) has been simplified and the "in principle" approval provided by the Reserve Bank of India for the entry of foreign investment has been removed. Such approvals of the Reserve Bank of India was to be obtained either before the receipt of the foreign investment or the permission was required to be obtained during the issuance of shares in the foreign market. Though this has been removed yet the company issuing the shares is required to prepare a report about the same for examination by the Reserve Bank of India within a maximum period of thirty days.

Procedure for Autonomic Approval:

Automatic approval is applied to thirty-five high priority sectors mentioned under Annexure-III within the statement of the New Industrial Policy. The approval was allowed in case of direct foreign investment up to 51 % foreign equity. The revised foreign direct investment policy now includes three more sectors within the mining industry that are allowed automatic approval for half of the quantity of foreign investment and thirteen other categories have been introduced for automatic approval of foreign investment. These export units similar to the other export units are required to work as per the export-import policy of the central government and it is also necessary for the export unit to register under the Ministry of Commerce.

Modifications in Foreign Direct Investment Policy:

Significant modifications have been made with regard to the foreign direct investment policy for example:

• The money changing business as well as credit card business are included within foreign equity investment in case of Non-Banking Finance Company
• Cent percent cent inflow of foreign investment with regard to strategic sectors like vehicular tunnels, roads, ports and harbors, highways on the condition that the total foreign investment in case of each sector should not cross rs.1500crores Any increase in the share of foreign investment within the prescribed limit does not require the permission of foreign investment promotion board
• FDI inflow with regard to the transmission, production as well as distribution of electricity and so on.