What is FDI
Foreign Direct Investment (FDI) is an organization’s transfer of funds from one country to another in order to create ‘lasting interest.’ According to the OECD (Entity for Economic Co-operation and Development), if the entity acquires at least 10 percent of voting power in another organization, a permanent interest is calculated.
FDI’s definition isn’t limited to international capital movement alone. Its concept also includes the international movement of complementary elements of capital-such as skills, systems, management, technology, etc.
Foreign Direct Investment (FDI) is one of the Indian company’s main sources of funds. Under FDI, money from individuals or from foreign companies is invested in Indian startups and existing companies. The FDI Policy is governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) 2000.
In India, the Foreign Direct Investment Policy is regulated by the Reserve Bank of India’s Foreign Exchange Management Act, 1999. An investment of 10 percent or above from overseas is known as FDI, according to the Organization for Economic Co-operation and Development (OECD).
FDI can be brought through
Foreign investment can be made in India through:
➲ Automated route
Under this route, there is no need for prior government approval for making an investment in the Indian company
➲ Approval route
Under this route, prior approval is need before making the investment in the Indian company
Sectors in which 100% FDI is allowed under automatic route:
➲ Agriculture sector
➲ Animal husbandry
➲ E-commerce activity
➲ Healthcare sector
➲ Textile garment
➲ Capital goods
Sectors where FDI is allowed under approval route
➲ Public sectors and Banks (public bank) – 20%
➲ Core investment company -100%
➲ Retail food product trading- 100%
FDI is not allowed for the following sector (prohibited sector) neither in the automatic route nor in the approval route:
➲ Lottery business including public/ private, online lottery, etc
➲ Betting/ gambling including casinos
➲ Chit fund
➲ Nidhi company
➲ Trading on transferable development rights (TDR)
➲ Real estate business
➲ Manufacturing of cigar, cigarettes, tobacco or tobacco substitutes
➲ Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)
Main compliances under FEMA
FEMA has acted as an important source in India for the growth and development of different sectors. FEMA’s main aim is to promote international trade, balance payments, promote orderly growth, and maintain India’s international-exchange market. Below is the list of main compliance to be followed under FEMA’s provisions: