India’s foreign direct investment (FDI) rules have been substantially liberalized over the past several years.
Most sectors are now open to 100% FDI, meaning thereby, that the foreign companies do not need a prior approval for investment either by the Government or the Reserve Bank of India.
The investors are only required to intimate the Regional office concerned of the Reserve Bank within 30 days of receipt of inward remittance.
The automatic route allows Indian companies engaged in various industries to issue shares to foreign investors up to 100% of their paid up capital in Indian companies.
The investors are also required to file necessary documents within 30 days of issue of shares. The following documents need to be filed with the RBI:
Name of the collaborators/ promoters/ shareholders
Details of allotment
Copy of the foreign collaboration agreement
The original foreign inward remittance certificate from the authorised dealer and other specified information
What is Approval route in FDI?
There are certain activities that are not covered under the automatic route and that require prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).
Following list include the activities for which automatic route for foreign investment is not available:
NBFC's Activities in Financial Services Sector,
Petroleum Including Exploration/Refinery/Marketing,
Housing & Real Estate Development Sector for Investment from Persons other than NRIs/ OCBs,
Venture Capital Fund and Venture Capital Company,
Investing Companies in Infrastructure & Service Sector,
Atomic Energy & Related Projects,
Defence and Strategic Industries,
Agriculture (Including Plantation),
Applications for all FDI cases except Non-Resident Indian (NRI) investments, 100% Export Oriented Units (EOUs) should be submitted to the FIPB Unit, Department of Economic Affairs (DEA) Ministry of Finance.
However application for NRI investment and 100% EOU cases should be presented to Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy & Promotion. (DIPP).