Foreign Direct investment is the investment made by a person resident outside India in a business entity in India. Foreign Direct Investments (FDI) are important to channelise growth in various sectors. However, there are certain critical sectors where foreign investment needs to be regulated. Therefore, the government has provided two routes (Approval & Automatic Route in FDI) for foreign direct investments. Further, certain sectors are specified where foreign direct investments are prohibited.
Let’s take a quick look at the above two routes for attracting foreign investments in India:
1.) Automatic Route in FDI
Under the automatic route in FDI, foreign direct investments can be attracted without requiring any approval from the government or the Reserve Bank of India.
2.) Approval Route in FDI
Also known as the government route in FDI, the approval route is where the foreign direct investments shall require the prior approval of the government or RBI. This ensures that the sectors where the involvement of foreign parties are critical is properly regulated.
Steps for FDI (Foreign Direct Investment) Under Government Route
Following are the steps for foreign direct investments under the government route:
- An application proposal shall be filed with the Foreign Investment Facilitation Portal. The application shall be as per the guidelines and requirements under the FDI policy and standard operating procedure laid down for processing FDI proposals. Further, the applicant shall upload all the requisite documents along with the proposal.
- The Department for Promotion of Industry and Internal Trade (DPIIT) shall identify the concerned ministry or department and e-transfer the proposal within 2 days. Further, the proposal shall also be circulated online to the RBI for comments from the FEMA perspective.
- Proposals requiring security clearance shall be forwarded to the Ministry of Home Affairs (MHA). Further, all the proposals shall be forwarded to the Ministry of External Affairs for information and comments. All the comments will directly be forwarded to the concerned ministry or department.
- Specific issues of proposals that require clarification from the FDI policy point of view shall be referred to the DPIIT for clarification with the approval of the Secretary for the concerned Administrative Department or Ministry. The clarification is need-based and not part of the regular procedure. The DPIIT shall provide its comments within 2 weeks on the specific issues of the FDI policy.
- The concerned Ministries and Departments shall provide their comments within 4 weeks of the receipt of the online application. If the comments are not received within the stipulated time, then it shall be assumed that they have no comments to offer on the concerned proposal. Further, if the clearance of MHA is required, the same shall be provided within 6 weeks. If the MHA is not able to provide the clearance within the stipulated time, then it shall intimate the ministry or the department of the time frame within which the MHA shall be able to provide the necessary clearance.
- The competent authority shall scrutinize the application within 1 week and ask for any clarification or additional documents that may be required from the applicant. These queries shall be intimated to the applicant online or via email to avoid delay. The applicant shall resolve the queries and provide the necessary clarifications within 1 week failing which it shall be reminded to expedite their clarifications within the next 7 days. If the applicant fails to expedite the application, then it shall be issued a final reminder to provide the necessary information within 7 days failing which the application will be closed due to incomplete or inadequate information or documents from the applicant. The time taken by the applicant in addressing the queries of the Competent Authority shall be excluded from the time limit specified for the disposal of the application.
- If the proposal involves FDI exceeding Rs. 5000 crores, the same shall be placed before the CCEA (Cabinet Committee of Economic Affairs) for consideration. After the receipt of the response from CCEA, the decision shall be conveyed within 1 week.
- Once the proposal gets complete in all respects, the Competent Authority shall process the proposal and convey the decision to the applicant within the next 4 weeks. The approval or rejection letter shall be sent online by the Competent Authority to the applicant, DPIIT, and concerned Ministries and Departments.
Above was the detailed procedure for raising foreign direct investments through the approval route. In case of any assistance, please feel free to contact the ASC Group.