The entry of Foreign Direct Investment by non residents into India is regulated through two routes –automatic route and approval route. 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.
The automatic route stands for less restricted or more liberalized regulation. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. The approval route FDI is allowable in all sectors and activities specified under the consolidated FDI policy.
Under the approval route or government route, the foreign investor or the Indian company should obtain prior approval of the Government of India agencies or bodies specified.
Proposals for foreign investment under approval route as laid down in the FDI policy are considered by either Foreign Investment Promotion Board (FIPB) or Cabinet Committee on Economic Affairs or Cabinet Committee on Securities. In certain cases, the Department of Economic Affairs (DEA) or Department of Industrial Policy & Promotion are also assisting the above approving agencies. The FIPB considers those investments up to Rs 5000 crores for approval. Above this limit, approval will be made by CCEA.
Which body or agency has to give the approval for a specific FDI proposal depends upon the sector and nature of investment specified under the consolidated policy on FDI. For example, as per the new FDI policy on defence sector, FDI more than 49% and also that involves more than Rs 2000 crores investment is to be approved by the Cabinet Committee on Securities.