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  • 12 December, 2021

  • 10 Min Read

FDI Reforms

About Foreign direct investment (FDI)

  • The regulations for foreign investment in India have been framed by the RBI in terms of Sections 6 and 47 of FEMA, 1999.
  • FDI is an investment from a party in 1 country into a business or corporation in another country with intention of establishing a lasting interest.
  • RBI is the regulator but DPIIT (Ministry of Commerce & Industry) is implemented through consolidated FDI Policy.
  • It is a source of non-debt finance for the economic development of the country.
  • Lasting interest differentiates FDI from FPI, where investors passively hold securities from a foreign country.
  • It can be made by expanding one’s business or by becoming the owner of a company in another country.
  • It is allowed under two modes - either through the automatic route, for which companies don't need government approval or through the government route, for which companies need a go-ahead from the centre.

FDI Data till 2021-22

  • India has attracted a total FDI inflow of US$ 27.37 billion during the first four months of F.Y. 2021-22 which is 62% higher as compared to the corresponding period of F.Y. 2020-21 (US$ 16.92 billion).
  • FDI equity inflow grew by 112% in the first four months of F.Y. 2021-22 (US$ 20.42 billion) compared to the year-ago period (US$ 9.61 billion).
  • ‘Automobile Industry’ has emerged as the top sector during the first four months of F.Y. 2021-22 with 23% share of the total FDI Equity inflow followed by Computer Software & Hardware (18%) and Services Sector (10%) respectively.
  • Under the sector `Automobile Industry’, the majority of FDI Equity inflow (87%) was reported in the state of Karnataka during the first four months of the current financial year (2021-22).
  • Karnataka is the top recipient state during the F.Y. 2021-22 (up to July 2021) with a 45% share of the total FDI equity inflows followed by Maharashtra (23%) and Delhi (12%).
  • Total FDI into India from 2014-15 to 2018-19 has been US $ 286 billion as compared to the US $ 189 billion in the 5-year period prior to that (2009-10 to 2013-14).
  • In fact, total FDI in 2018-19 i.e. US $ 64.37 billion is the highest ever FDI received for any financial year.
  • As per UNCTAD's World Investment Report 2019, global FDI flows slid by 13% in 2018 - 3rd consecutive annual decline. Despite, dim global picture, India is an attractive destination.
  • As of now (March 2019), Singapore remains India’s top FDI source, twice that of Mauritius.

Sectors Foreign Direct Investment

  1. Coal Mining: 100% FDI under automatic route is allowed for coal & lignite mining for captive consumption by power projects, iron & steel, and cement units, etc. 100% FDI under automatic route is also permitted for setting up coal processing plants like washeries subject.
  2. The extant FDI policy provides for 100% FDI under automatic route in the manufacturing sector and contract manufacturing as well.
  3. 100% FDI for Single Brand Retail Trading (SBRT): If the SBRT entity has FDI > 51%, then 30% of the value of goods has to be procured from India.
  4. 100% FDI in e-Marketplace e-commerce model. Not in inventory model.
  5. 100% FDI is now allowed in Technical Textiles, the Defense sector, Pharma (brownfield), and Air transport.
  6. Now recently 100% FDI in Direct to Home (DTH) services.
  7. 49% FDI Govt route: under approval route in Up-linking of 'News & Current Affairs' TV Channels.
  8. 49% Automatic = insurance, Pension, Pvt security agencies.
  9. 26% FDI under government route for uploading/ streaming of News & Current Affairs through Digital Media, on the lines of print media.

Depository Receipts (DR) - Part of FDI

  • It is a Foreign Currency denominated instrument (whether listed or not), issued by a foreign depository in the permissible jurisdiction on the back of eligible securities issued to that foreign depository.
  • A DR is a financial instrument representing certain securities (like Shares, bonds, etc) issued by a company/ entity in a foreign jurisdiction.
  • They are called American DR (ADR), Global DR (GDR), or Indian DR (IDR) depending on the location in which these receipts are issued.
  • Thus, ADR and GDR are issued outside India by a foreign depository on the back of Indian security deposited with a domestic Indian custodian in India. GDR is also known as Euro issues.
  • ADR/ GDR issued are considered as a part of Foreign direct investment.

FII (Foreign Institutional Investor) Vs Foreign Direct Investment:

  • Where an investor has a stake of <= 10% in a company, it will be treated as FII. If >10% then it is FDI. Foreign direct investment is also permissible in lower dozes in unlisted entities.
  • FII necessarily has to be an institution. FDI can come from an individual also.
  • Foreign direct investment has more direct involvement in technology, management, etc while FIIs are interested in capital gain and momentary price differences.
  • Foreign direct investment involves an interest in the management of an enterprise and includes reinvestment of profits. FIIs do not generally influence the management of the enterprise.

New FDI rules, 2020

  • The Government of India has made its approval for Foreign Direct Investment by neighboring countries mandatory.
  • This revised FDI policy aims to curb opportunistic takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic.

New FDI policy, 2020:

  • An entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route. India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh, and Myanmar.
  • A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.
  • Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather than ask for prior permission from the relevant government department.

Foreign direct investment Routes in India

There are three routes through which Foreign direct investment flows into India. They are described in the following table:

Category 1

Category 2

Category 3

100% FDI permitted through Automatic Route

Up to 100% FDI permitted through Government Route

Up to 100%, FDI permitted through Automatic + Government Route

Automatic Route FDI

Automatic Route

In the automatic route, the foreign entity does not require the prior approval of the government or the RBI


  • Medical devices: up to 100%
  • Thermal power: up to 100%
  • Services under Civil Aviation Services such as Maintenance & Repair Organizations
  • Insurance: up to 49%
  • Infrastructure company in the securities market: up to 49%
  • Ports and shipping
  • Railway infrastructure
  • Pension: up to 49%
  • Power exchanges: up to 49%
  • Petroleum Refining (By PSUs): up to 49%

Government Route

Under the government route, the foreign entity should compulsorily take the approval of the government. It should file an application through the Foreign Investment Facilitation Portal, which facilitates single-window clearance. This application is then forwarded to the respective ministry or department, which then approves or rejects the application after consultation with the DPIIT


  • Broadcasting Content Services: 49%
  • Banking & Public sector: 20%
  • Food Products Retail Trading: 100%
  • Core Investment Company: 100%
  • Multi-Brand Retail Trading: 51%
  • Mining & Minerals separations of titanium bearing minerals and ores: 100%
  • Print Media (publications/printing of scientific and technical magazines/speciality journals/periodicals and a facsimile edition of foreign newspapers): 100%
  • Satellite (Establishment and operations): 100%
  • Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%

Sectors where FDI is prohibited

There are some sectors where any FDI is completely prohibited. They are:

  • Agricultural or Plantation Activities (with exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
  • Atomic Energy Generation
  • Lotteries (online, private, government, etc.)
  • Investment in Chit Funds
  • Trading in TDR’s
  • Any Gambling or Betting businesses
  • Cigars, Cigarettes, or any related tobacco industry
  • Housing and Real Estate (except townships, commercial projects, etc.)

Cabinet approved 100% Foreign direct investment in DTH service

Union Cabinet on Wednesday approved 100% Foreign Direct Investment in direct­ to­home (DTH) services, an extension of the licence period from 10 years to 20, and a reduced licence fee.

Source: PIB

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