Updated on May 06, 2025 02:36:56 PM
Foreign Direct Investment (FDI) is the non-debt financial investment for economic development, made by the domestic company or an individual domestic investor to another international company for the motive of business interests, and for the establishment of business operations or acquisition of business assets. To accelerate the growth plan of the Indian economy, the government of India often aims to direct local products and services to reach beyond the national borders by monitoring follow-ups schemes, formulating effective initiatives, reform current strategy plans and working on comprehensive policies framework. Even though, uncertainties have been set so far due to US monetary rigidity and ongoing Russia-Ukraine war, India is promoting good relationships with other countries by following the steps to promote Ease Of Doing Business (EoDB), skilled manpower, presence of natural resources, liberal FDI policies with flexible tax regulations for import-export duties made the positive impact of FDI on the prospects of the healthy powering of GDP growth.
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Table of Content
Although India is currently performing amidst a dynamic and uncertain business environment, it seems volatile in various industries, however the objectives of FDI covers many critical control paths which is essential for powering the growth of Indian Economy. Following are the objectives of FDI which not only generates the revenues for growth but also manifests to channelize services abroad:
There are 3 main categorisation of FDI components in India which are as follows:
FDI percentage gives an upward slope in the diagrammatic scheme, stepping about 9% from 16% witnessing continuous improvement in share of GDP in manufacturing industries. The chief role coincided with the initiative of ‘Make In India’ introduced by the Government of India, focusing on larger parts for the development of infrastructure, transferring technology and innovation, enhancing skill development and structuring the world's largest manufacturing hub.
The ‘Make In India’ Initiative pronounced 4 pillars in the economy which have not only accelerated entrepreneurship but also benefited various sectors, briefly including pillars are: New Processes, New Infrastructure, New Sectors and New Mindset.
The FDI framework regarding investment for several sectors in India can broadly be divided under two routes- Automatic & Approval.
There are several plethora of industries which has been played a vital role in establishing sectors for growth of Indian Economy:
FIFP (Foreign Investment Facilitation Portal) refers to the type of portal which has been launched by the Government of India to make a single interface to exchange Foreign Direct Investment (FDI) with an aim to interconnect the global economy. It is controlled by the Department of Promotion Of Industry and Internal Trade.
FIFP is the easy medium which can regulate:
Following are the conditions for the procedure for government approval which has been cited below:
There may be a case which does not require fresh approvals due to certain conditions. Here is the cases given below which doesn’t require fresh approvals and can keep potential to take advantages of certain initiatives:
The documents which are required for FDI policy are as follows:
| S.No | Documents | Descriptions |
|---|---|---|
| 1 | Letter of authorizations by the applicant in favor of the person filing the Application | Letter of authorization needs to be on the Applicant’s Letterhead signed by a person competent to do |
| 2 | Summary on FDI Proposal | On applicant’s letter head, shall include details such as
|
| 3 | Shareholding pattern of Investee | Pre and Post transaction shareholding pattern |
| 4 | Diagrammatic representations | (i) Flow of funds from the investor to the investee (ii) Group structure / organizational chart of the company clearly indicating inter-se shareholding percentage and respective place of incorporation / registration / citizenship / residency |
| 5 | Beneficial Ownership Details | |
| (a) | Details of SBO (Significant Beneficial Owner) | In terms of the requirements under the Companies Act, 2013 and Rules thereunder |
| (b) | Details of beneficial ownership from Countries sharing land border with India | Entity-wise details of the existing shareholders/ investors/ directors/ Investment committee members/General Partners/Limited Partners/key managerial personnel of all the upstream entities (till the ultimate beneficial owner) of Investor(s) and detail of other and public shareholders; who are either from a country sharing land border with India or having beneficial ownership vested in a country sharing land border with India, along with their respective degree/percentage of ownership/shareholding/stake and control in the relevant entity(ies), clearly indicating the place of incorporation/existing citizenship/residency of all such entities/individuals |
| 6 | Investee Documents | |
| (a) | Certificate of Incorporation (CoI)) Of the Investee | In case of yet to be incorporated investee entities, a declaration on the Applicant’s Letterhead may be obtained that the investee is yet to be incorporated and the same will be incorporated after obtaining the approval of the FDI by the Government.
NOTE: The applicant shall be required to submit CoI of the investee within sixty (60) days of the issue of approval letter by the Competent Authority |
| (b) | Memorandum Of Association (MoA)Of the Investee | In case of a yet to be incorporated Investee, a draft MoA shall be sought.
NOTE: The applicant shall be required to submit MoA of the investee within sixty (60) days of the issue of approval letter by the Competent |
| (c) | Articles Of Association (AoA) Of the Investee | In case of a yet to be incorporated Investee, a draft AoA wherein internal laws / by-laws of the Investee are specified, shall be provided by the applicant.
NOTE: the applicant shall be required to submit AoA of the investee within sixty (60) days of the issue of approval letter by the Competent Authority |
| (d) | Board Resolution of the Investee for proposed Investment | In case of yet to be incorporated Investee, a letter of authority/consent by the proposed shareholders / promoters / directors / partners of the investee in support of the application shall be provided on Letterhead of Investor |
| (e) | Audited Financial Statement of Last Financial Year of the Investee | In case of yet to be incorporated Investee or the Investee has not completed first audit cycle at the time of filing the application, a declaration on the Letterhead to that effect may be provided |
| 7 | Investor documents | Documents to be authenticated as per Foreign Exchange (Authentication of Documents) Rules, 2000 |
| 8 | Past Approvals | |
| (a) | Copy of relevant past Approvals. | Government/FIPB/SIA/RBI approvals in respect of FDI brought in previously, if any |
| (b) | Reporting Documents in support of past/existing foreign investment in Investee | |
| 9 | Signed executed copy(ies) of the Investment Agreement/JV agreement/shareholders agreement/share transfer agreement/technology transfer/trademark/brand assignment agreement, Approval(s) of NCLT / competent authority in respect of proposals involving mergers / demergers / amalgamations as applicable and required under Companies Act, 2013 and rules thereunder and/or any other rules/regulations | As applicable |
| 10 | Valuation certificate as required in the FDI Policy and FEM NonDebt Instrument Rules 2019 and the same should be on arm’s length basis, wherever applicable. | In case of shares issued by an Indian company or transferred from a resident to non-resident or transferred from a non-resident to resident, as required under pricing guidelines notified under FEMA |
| 11 | Any other approval / consent / NoC required by Investee or Investor(s) from any shareholder, third party or any other entity in respect of the proposed activity (ies)/ investment(s)/transaction(s). | As applicable |
| 12 | Declaration for proposals not falling under purview of Press Note 3 (2020) | A signed declaration on the Applicant’s letter head stating that none of the investors/shareholders of the Indian Investee company and the foreign investor(s) including their respective beneficial owners (having any percentage of shareholding) are situated in or are citizen(s) of country(ies) sharing land border with India |
| 13 | Duly recognized affidavit | To be paid…. |
Note: The aformentioned Fees is exclusive of GST.
Following are the eligibility required for FDI, which is essential to know prior to make investment in India:
1. A person who belongs to outside of India or the company incorporated other than India (other than an entity incorporated in Pakistan) is allowed to make investment in India. A person who belongs to Bangladesh or any entity incorporated in India is required to get approval from FIPB before making any investment.
2. Under the FDI Scheme, residents of Nepal and Bhutan as well as citizens of those countries are allowed to invest in convertible debentures and shares of Indian companies on a repatriation basis. However, the investment must only be made with consideration paid in the form of inward remittances in free foreign exchange through regular banking channels.
3. Once Overseas Corporate Bodies (OCBs) which doesn’t comes under Reserve Bank and incorporate outside the India can make fresh investments under the FDI scheme as incorporated non-resident entities, with the prior approval of the Government of India, if the investment is through the Government Route; and with the prior approval of the Reserve Bank, if the investment is through the Automatic Route.
Note: (i) It is not required for the fresh investments, if an individual/applicant has an NRO account.
(ii) For liquidating previous investments held on non-repatriation basis should be forwarded by the AD Bank to Foreign Exchange Department, Reserve Bank Of India, Central Bank, etc. NRO account holders can request for the generation of new NRO account.
Following are the components which are strictly prohibited under FDI through any route in any sector:
Following are the differences which have been given below on the basis of certain parameters:
| Parameters | Foreign Direct Investment | Foreign Portfolio Investment/ Non-Direct Investment |
| Control and Ownership | FDI provides total control and ownership over the company | FPI doesn’t provide any control and ownership over the company. |
| Investment Horizons | FDI involves long-term investment. | FDI involves short-term commitment investment. |
| Risk | FDI in general is more favorable for long term nature and growth. | Generally, FPI is more influenced by market fluctuations and volatile nature of demand and supply. |
| Focus | FDI focuses on business operations, assets (excluding speculation assets) and infrastructure. | FPI concentrates on stock markets such as bonds, equity shares and debt instruments |
| Flexibility | As it requires long-term commitment, it creates an everlasting impression on various opportunities such as technology transfers, local resources, and accessing new markets. So the flexibility in this type of investment is not as flexible as FPI. | It is easy to generate portfolio investment, flexible liquidity and conceivably higher returns in this type of investment. |
Conclusion
Foreign Direct Investment is the crucial driver that can bring the splendid transformation in the growth journey of the Indian Economy. From manufacturing units, our economy are well equipped with the lucrative opportunities which can have potential to strive for turning country into develop country on the status of innovation ignition, speaking great ideas of young entrepreneurs and driven along the factors, associated with government initiatives, rising domestic demand, choice of demand, and renewed focus on global competitiveness like ‘Make In India’ plays a major role in powering and accelerating gross domestic product.
At Professional Utilities, we leverage our industry knowledge and expertise to help businesses navigate complex regulations, minimize risks, and optimize operations for maximum efficiency and profitability.
FDI is a type of investment which is made by one entity of one country to another for business interests in the form of structuring business operations and acquiring business assets of other countries.
For bringing capital inflows and modern technologies in India, DPIIT approves FDI which is regulated under the Ministry Of Commerce And Industry. The Reserve Bank of India (RBI) issues FEMA (Foreign Exchange Management Act) and its framework regulations to facilitate the foreign exchange aspects of FDI.
The two different modes of FDI include– greenfields investment (which refers to higher extent of control over foreign investment) and mergers/acquisitions (when two companies merge to form a single company, acquiring existing assets of one company by another company).
The role of FDI in India proposes technology transfer, inflow of capital, infusion of capital and global integration for exchanging technology.
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