Since the beginning of economic liberalization in 1991, the attractiveness of India as an investment destination has grown at a steady pace. According to a study by Goldman Sachs, Indian economy is expected to continue growing at the rate of 5% or more & is slated to become the fourth largest economy by 2050. This favorable scenario has been made possible through an increased level of flexibility & rationalization of the policies by the government as regards foreign direct investment.

Under the existing policy, FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require the prior approval of the Government

Activities/items that require an Industrial License

Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the ‘same’ field

Proposals for acquisition of shares in an existing Indian Company in

(ii) where Securities & Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations is attracted

All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted

FDI in sectors to the extent permitted under the automatic route does not require any prior approval either by the Government or Reserve Bank of India (RBI).the investors are only required to notify the Regional office concerned of RBI within 30 days of the receipt of inward remittances & file the required documents within 30 days of the issue of shares to the foreign investors.

FDI activities not covered under the automatic route require prior Government approval & are considered by the Foreign Investment Promotion Board (FIPB). An application can be made online or on a plain paper accompanied by all the relevant documents. The approvals are generally granted expeditiously.

The extant policy does not permit FDI in the following sectors:

· Agricultural or plantation activities or Agriculture (excluding Floriculture, Horticulture, Development of seeds. Animal husbandry, Pisiculture & cultivation of vegetables, & service related to agro & allied sectors) and Plantations (other than Tea Plantations)

The following comprise an illustrative list of the sectors not under the automatic route (subject to sectoral regulations & guidelines as notified by the respective Departments/ministries):

Asset Reconstruction Companies

Construction Development Projects (Resorts, Townships, commercial Premises etc.)

Investing Companies in infrastructure / services sector (except telecom sector)

Satellites establishment & operation

Equity participation by International Financial Institutions such as ADB, IFC, CDC, etc. in domestic companies is permitted through automatic route, subject to SEBI / RBI regulations & sector-specific cap on FDI.

Free repatriation of capital investment & profits is permitted subject to original investment having being made in convertible foreign exchange. The policy further permits Indian companies to raise funds in the international capital markets. The Indian capital market is also open to the Foreign Institutional Investors under the Portfolio Investment Schemes.

FDI in EOUs / SEZs / Industrial Park / EHTP / STP

FDI upto 100% is permitted under the automatic route for setting up of Special Economic Zone (SEZ). Proposals not covered under the automatic route require approval of FIPB.

FDI upto 100% is permitted under the automatic route for setting up 100% Export Oriented Units (EOU), subject to sectoral policies. Proposals not covered under the automatic route would be considered & approved by FIPB.

FDI upto 100% is permitted under automatic route for setting up of Industrial Park

Proposals for FDI / NRI investment in Electronic Hardware Technology Park (EHTP) Units & Software Technology Park (STP) Units are eligible for approval under the automatic route, subject to the parameters mentioned under the Automatic route. For proposals not covered under automatic route, the applicant should seek separate approval of the Government through the FIPB.