The entry of Foreign Direct Investment by non residents into India is regulated through two routes –automatic route and approval route. This entry regulation is aimed to monitor the investment activities at the same time to avoid wasteful procedural delays. In most cases, FDI up to certain limits (% shares) and with certain conditions are made through the automatic route. In some sectors, FDI beyond a limit (in terms of the value of investment or percentage of investment made in a business venture) requires approval from the government.The automatic route is aimed for those sectors and levels of investment that are less restricted. On the other hand, in the case of approval route, government agencies regulate and scrutinises foreign investment while approving it.
The automatic and approval routes are aimed to have monitoring over the investment activities at the same time to avoid wasteful procedural delays. In most cases, FDI up to certain limits (in Rs crores) and with certain conditions can be made through the automatic route. In the same sectors, FDI beyond a limit (in terms of percentage of investment made in a business venture) and that generally have critical importance need approval from the relevant agencies.
Under the Automatic Route, the foreign investor or the Indian company does not require any prior approval from the Government of India. The automatic route is aimed for those sectors and levels of investment that are less restricted. The automatic route FDI is allowable in all sectors and activities specified under the Consolidated FDI Policy. Another feature of the automatic route is that foreign investor needs to inform the RBI only within thirty days of bringing their investment into the country, and within thirty days of issuing any shares.
Under the Government Route, the foreign investor or the Indian company should obtain prior approval of the Government of India agencies or bodies specified. Proposals are considered by the respective Administrative Ministry/Department or the CCEA as the situation requires (for example, in the case of mining projects, the Ministry of Mining will be the competent authority).
The approving agencies of the ‘Government route’ will be the Competent Ministry/Department for proposals up to ` 5000 crores. For above this limit, the Cabinet Committee on Economic Affairs (CCEA) is the approving authority. In the case of defence sector proposals, the Cabinet Committee on Securities will assist the CCEA. Regulations for approval also changes with time. The role of the approval route is minimised over the years as investment into most of the sectors were put through the automatic route.
As per the new FDI policy, in the defence sector, FDI, in more than 49% and also that involves more than Rs 5000 crores investment is to be approved by the Cabinet Committee on Securities. In the case of those Brownfield FDI, where the investment is greater than 74%, approval is needed.
The Ministry of Commerce and Industry is the nodal Ministry for monitoring and reviewing the FDI policy on a continued basis. It also decides the sectoral caps. The FDI policy changes are notified as Press Notes by the Secretariat for Industrial Assistance of DPIIT.