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Foreign direct investment in India (FDI) for IAS

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Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

Foreign direct investment (FDI) in India is the major source for economic development in India. Economic liberalisation started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. It were Manmohan Singh and P. V. Narasimha Rao who brought FDI in India, which subsequently generated more than one crore jobs.

India continues to be among the top ten countries in terms of foreign direct investment (FDI) inflows globally and the fourth in developing Asia, as per the World Investment Report 2016 by the United Nations Conference for Trade and Development (UNCTAD).

There are two routes by which India gets FDI.

  • Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.
  • Government route: Prior approval by government is needed via this route. Foreign Investment Promotion Board is the responsible agency to oversee this route.

India receives most of its FDI from Mauritius, Singapore, USA, UK, Japan and Netherlands .

Major sectors for Foreign Direct Investment

Sector wise FDI Limits

SectorFDI LimitEntry Route & Remarks
Agriculture & Animal Husbandry

• Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions

• Development and Production of seeds and planting material

• Animal Husbandry(including breeding of dogs), Pisciculture , Aquaculture

• Services related to agro and allied sectors

100%Automatic
Plantation Sector

• Tea sector including tea plantations

• Coffee plantations

• Rubber plantations

• Cardamom plantations

• Palm oil tree plantations

• Olive oil tree plantations

100%Automatic
Mining

Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores

100%Automatic
Mining (Coal & Lignite)100%Automatic
Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities100%Government
Petroleum & Natural Gas

Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products etc

100%Automatic
Petroleum & Natural Gas

Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.

49%Automatic
Defence Manufacturing100%Automatic up to 49%

Above 49% under Government route in cases resulting in access to modern technology in the country

Broadcasting

Teleports(setting up of up-linking HUBs/Teleports)

• Direct to Home (DTH)

• Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability

• Mobile TV

• Head end-in-the Sky Broadcasting Service(HITS)

•Cable Networks (Other MSOs not undertaking up gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))

100%Automatic
Broadcasting Content Services

• Terrestrial Broadcasting FM(FM Radio)

• Up-linking of ‘News & Current Affairs’ TV Channels

49%Government
Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels100%Automatic
Print Media

• Publishing of newspaper and periodicals dealing with news and current affairs

• Publication of Indian editions of foreign magazines dealing with news and current affairs

26%Government
Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, subject to compliance with the legal framework as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting.100%Government
Publication of facsimile edition of foreign newspapers100%Government
Civil Aviation – Airports

Green Field Projects & Existing Projects

100%Automatic
Civil Aviation – Air Transport Services
• Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline• Regional Air Transport Service
100%Automatic up to 49%

Above 49% under Government route

100% Automatic for NRIs

Civil Aviation

Non-Scheduled Air Transport Service

• Helicopter services/seaplane services requiring DGCA approval

• Ground Handling Services subject to sectoral regulations and security clearance

• Maintenance and Repair organizations; flying training institutes; and technical training institutions

100%100% Automatic for NRIs
Construction Development: Townships, Housing, Built-up Infrastructure100%Automatic
Industrial Parks100%Automatic
Satellites- establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO100%Government
Private Security Agencies74%Automatic up to 49%

Above 49% & up to 74% under Government route

Telecom Services100%Automatic up to 49%

Above 49% under Government route

Cash & Carry Wholesale Trading100%Automatic
E-commerce activities (e-commerce entities would engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.)100%Automatic
Single Brand retail trading100%Automatic up to 49%
Local sourcing norms will be relaxed up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology.Above 49% under Government route
Multi Brand Retail Trading51%Government
Duty Free Shops100%Automatic
Railway Infrastructure

Construction, operation and maintenance of the following

• Suburban corridor projects through PPP

• High speed train projects

• Dedicated freight lines

• Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities

• Railway Electrification

• Signaling systems

• Freight terminals

• Passenger terminals

• Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line

• Mass Rapid Transport Systems.

100%Automatic
Asset Reconstruction Companies100%Automatic
Banking- Private Sector74%Automatic up to 49%

Above 49% & up to 74% under Government route

Banking- Public Sector20%Government
Credit Information Companies (CIC)100%Automatic
Infrastructure Company in the Securities Market49%Automatic
Insurance

• Insurance Company

• Insurance Brokers

• Third Party Administrators

• Surveyors and Loss Assessors

• Other Insurance Intermediaries

49%Automatic
Pension Sector49%Automatic
Power Exchanges49%Automatic
White Label ATM Operations100%Automatic
Non-Banking Finance Companies (NBFC)100%Automatic
Pharmaceuticals(Green Field)100%Automatic
Pharmaceuticals(Brown Field)100%Automatic up to 74%

Above 74% under

Government route

Food products manufactured or produced in India

Trading, including through e-commerce, in respect of food products manufactured or produced in India.

100%Government

 

 

 

 

Prohibited Sectors

 FDI is prohibited in the following sectors

  • 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 (Real estate business does not include development of townships, construction of residential /commercial premises, roads or bridges )
  • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  • Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway operations (other than permitted activities)

 

 

Economic growth without investment in human development is unsustainable and unethical” Amartya Sen

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