In common parlance, Foreign Direct Investment (FDI) is an investment which is made by a person (based in one country) into a business/company based in another country. It is basically an investment into a company based in a foreign jurisdiction by an investor (based in another jurisdiction). In FDI, the investors not only bring money but may also bring technology, know-how, skill and other resources for mutual benefits. Thus FDI helps the economy in which investment is made to enhance their resources and to grow further.
From Indian point of view, FDI is an investment into any entity based in India made by a person based out of India. It helps entity receiving investment to build required ecosystem, infrastructure and resources etc from long term perspective thereby adding long term value and wealth creation to overall growth of Indian economy and GDP growth. FDI also helps investors to participate in the growth story of company, contribute actively, earn profits and even repatriate funds as per the norms prescribed. FDI can be made by any person in an Indian company through two routes i.e. automatic route and government route.
“Automatic Route” is when a foreign investor does not require any prior approval of Government to invest in any sector in India. These are the sectors where Government has given general permission to foreign investors to invest without any restrictions or prohibitions. In this case, the concerned entity though has to report and intimate to the RBI regarding such transaction, post investment. Some of the sectors where 100% automatic route is allowed are automobile, capital goods, manufacturing, IT etc.
Government Route is when prior approval of government is required by an entity to invest in a sector in India. There are the sectors where prior approval is needed for investment keeping in mind the nature of the sector. For example multi brand product retailing, food products retailing etc are the sectors where prior approval of the Government is required.
Foreign investment is prohibited in the following areas:
• Lottery Business including Government / private lottery, online lotteries, etc.
• Gambling and Betting including casinos etc.
• Chit funds
• Nidhi company
• Trading in Transferable Development Rights (TDRs)
• Real Estate Business or Construction of Farm Houses
• Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
• Activities / sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations (other than permitted activities).
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