Foreign Direct investment in India | FDI - Procedure | Prohibited Sectors


Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that needed a boost and economic attention, and address the various problems that continue to challenge the country. India has among the most liberal and transparent policies on Foreign direct investment among the emerging economies. India received Foreign direct investment inflows of $14.54 billion during April-July this fiscal, showing a jump of 92 per cent despite global economic uncertainties. 

Procedure for receiving Foreign Direct Investment
An Indian company may receive Foreign Direct Investment under the two routes - Automatic route or the Government route.
Automatic Route : Most of the sectors fall under the automatic route for FDI. In these sectors, investment could be made without approval of the central government. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require prior approval of the Government:- 

1.Sectors prohibited for FDI
2.Activities/items that require an industrial license
3.Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field.
4.Proposals for acquisitions of shares in an existing Indian company in financial service sector.
5.All proposals falling outside notified sectoral policy/CAPS under sectors in which FDI is not permitted. 
Government Route : FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of Foreign Investment Promotion Board (FIPB). 

Sectors prohibited for FDI in India
FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors: 
1. Retail Trading (except single brand product retailing)
2. Atomic Energy
3. Lottery Business
4. Gambling and Betting
5. Business of Chit Fund
6. Nidhi Company
7. Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. and Plantations activities (other than Tea Plantations).
8. Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges).
9. Manufacture  of tobacco related products. 

Statictics on FDI in India - From April 2000 To April 2011
Top countries contributed  - Mauritius(41.5%), Singapore(10%), USA(7%), UK(5%)
Top sector wise inflow - Service Sector(21%), Computer S&H(8%), Telecommunication(8%)

Recent FDI liberalisation in India 
Moving further with liberalisation of the foreign direct investment (FDI) regime, the government revised FDI limit on FM radio at 26 per cent against the earlier 20 per cent. Similarly, conditions for FDI in respect of construction of old-age homes and educational institutions have been eased. 

Bio-technology and Pharma
For giving a boost to bio-technology, pharmaceutical and life sciences, research and development in these sectors would be covered under the ‘industrial parks' scheme, where 100 per cent FDI is permitted under the automatic route. 

Agriculture sector
To attract foreign investment in the agriculture sector, the government today allowed 100 per cent FDI in beekeeping, also known as ‘apiculture'. The government is bringing more farm areas under the 100 per cent FDI route to encourage investment in the sector. It has already permitted 100 per cent FDI in agricultural areas such as plantation, horticulture, seeds and cultivation of vegetables and mushrooms. 

Latest News on FDI in India
Dec 2011 : Multi-brand retail - Government has decided to hold back its decision to allow 51% FDI in multi-brand retail.

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