Role of RBI in Foreign Investment

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This article presents a clear view on the role of RBI in foreign investment. The foreign investors are mandated to get the approval from RBI in terms of investing in various industrial units in the Indian market either in the form of Joint Venture or an affiliated firm of the parent company.

Major Areas of Activity for RBI in Foreign Investment

The major areas in which the Reserve Bank of India (RBI) plays a significant role in terms of foreign investment are -
  • Foreign Direct Investment
  • Foreign Venture Capital Investment
  • Foreign Portfolio Investment
  • Investment in Government Securities and Corporate debt
  • Foreign Technical Collaboration
  • Procedure for opening Branch/Project/Liaison Office

RBI Approval for Foreign Investment

RBI approves foreign investments through two routes - Automatic Route and Government Route.

Automatic Route- 100 percent Foreign Direct Investment (FDI) is permitted under the automatic route in many industrial units except those which require prior approval of the government. Areas which acquire prior approval of the government are as follows:
  • Units which attract provisions of Press Note 1 (2005 Series) issued by the Government of India
  • Small scale sectors which attract more than 24 percent equity in the manufacturing of products
The foreign investors are required to inform the Regional Office under RBI within 30 days of receiving the inward payments and record the necessary documents along with the FC-GPR form with the regional office within 30 days of handing over the shares to the NRI investors.

Government Route- Certain activities do not require FDI approval and they are regulated by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. No fee is required while filling up the application form which is Form FC-IL.

Role of RBI in Foreign Investment-

RBI is entrusted with pertinent laws in order to make it more flexible in recommending statutory pre-emptions for CRR (cash reserve ratio) and SLR (statutory liquidity ratio). RBI also governs the combined balance sheets of banks and their subsidiaries with regard to the best global practices. RBI largely dealt with the entry of foreign banks. RBI also acts as a roadmap for the reform of the banking sector in terms of foreign investments.

Last Updated on 05/07/2011