Approval process of FDI

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FDI 

Simply, as its full form suggest Foreign Direct Investment (FDI) it means a country or individual from the country directly putting investment another country’s business or assets.Foreign Direct Investment (FDI) can be both monetary and non-monetary. (More)

An important factor in India's economic change and the country's rise to prominence as a top international investment destination has been foreign direct investment, or FDI. FDI has been a key factor in job creation and innovation, from global digital titans like Amazon expanding their operations to auto giants like Hyundai establishing manufacturing factories.

However, not all FDI flows freely into the country. The approval process ensures that investments align with India’s strategic interests and regulations. For instance, in 2020, the government tightened FDI rules for neighboring countries to safeguard against opportunistic takeovers during the COVID-19 crisis. 



This blog dives deep into the approval process of FDI in India, providing clarity on how investments make their way into the Indian market.

Foreign Direct Investment (FDI) in India can be made through two routes:

Automatic Route: No prior approval from the government is required.

Government Route: Approval from the government is mandatory for sectors not covered under the automatic route.


Automatic Route

Applicability:

Sectors (such as manufacturing, IT, and e-commerce platforms) where 100% FDI is permitted without governmental clearance.

Process:

1. Open a Bank Account in India:

A Non-Resident Ordinary (NRO) or Non-Resident External (NRE) account must be opened in an Indian bank by foreign investors.

2. Remittance of Funds:

The foreign investor remits funds into the Indian bank account.

3. Making an RBI filing:

Within 30 days after shares are issued, submit Form FC-GPR (Foreign Currency-Gross Provisional Return). The Reserve Bank of India's (RBI) FIRMS Portal is used for this.

4. Reporting Conditions:

The reports listed below ought to be submitted: 

Advance Remittance Form (ARF) Notify the RBI within 30 days of receiving the funds. 

Annual Return on Foreign Liabilities and Assets (FLA): File annually by July 15.

The automatic route Process completes within 15-30 days, depending on remittance and documentation accuracy.

Government Route

Applicability:

Required for sectors such as defense, media, telecom, mining, etc.

Approval Authority:

The Foreign Investment Facilitation Portal (FIFP), managed by the Department for Promotion of Industry and Internal Trade (DPIIT), facilitates the application process.

Process

Step 1: Application Submission

Register on the FIFP Portal (https://fifp.gov.in/).

  • Fill out an online application and attach the required files: 
  • Certificate of incorporation of the foreign entity.
  • Memorandum of Association (MoA) and Articles of Association (AoA).
  • Board resolution authorizing the investment.
  • Details of the proposed investment (sector, percentage, amount).
  • Financial statements of the foreign entity.
Step 2: Application Review

For a sector-specific review, the application is sent to the appropriate ministries or departments.

Step 3: Additional Clearance (if required)

Clearance from the Ministry of Home Affairs or other specialised organisations may also be necessary for industries like defence and telecommunications.

Step 4: Final Approval

DPIIT consolidates feedback and issues the approval or rejection.

The process takes approximately 6-8 weeks. However, delays may occur if additional clarifications are needed.

Where and How to Apply

Automatic Route:

  • Applications and filings must be done through the FIRMS Portal of the RBI (https://firms.rbi.org.in/).
  • Bank support is essential for reporting fund inflows.

Government Route:

  • Apply through the Foreign Investment Facilitation Portal (FIFP) (https://fifp.gov.in/).
  • Consult sector-specific guidelines before application.

Key points 

  • Check to see if the investment is made through the government or automatic process. 
  • Before starting the process, make sure all the paperwork is ready. 
  • For easy compliance navigation, speak with a financial or legal professional. 

This simplified procedure encourages foreign investments in India by ensuring that FDI applications are handled effectively.

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