How many routes of Foreign Direct Investments are available in India?

The correct answer is Two.

Key Points

• Foreign Direct Investment (FDI) in India can be made through two primary routes: Automatic Route and Government Approval Route.
• The Automatic Route allows foreign investors to invest without prior approval from the government or Reserve Bank of India (RBI).
• The Government Approval Route requires investors to obtain permission from the government, specifically from the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, or other authorities depending on the sector.
• Most sectors in India fall under the Automatic Route, with certain sensitive sectors requiring approval under the Government Approval Route.
• The policy framework for FDI in India is governed by the Foreign Exchange Management Act (FEMA), 1999, and is regularly updated by the Department for Promotion of Industry and Internal Trade (DPIIT).

Additional Information

• Automatic Route:
  • Investments do not require prior approval from the government or RBI.
  • Examples include sectors like IT, real estate, and some manufacturing industries.
  • Foreign investors are required to adhere to sectoral caps and guidelines specified by the Indian government.
• Government Approval Route:
  • Investments in sensitive sectors like defense, media, and telecommunications require prior approval.
  • Applications are reviewed by the concerned ministry or department based on FDI policy guidelines.
  • This route ensures that investments align with national security and strategic interests.
• Key Regulatory Bodies:
  • Department for Promotion of Industry and Internal Trade (DPIIT): Responsible for formulating and updating FDI policies.
  • Reserve Bank of India (RBI): Regulates foreign exchange transactions and ensures compliance with FEMA.
  • Foreign Investment Promotion Board (FIPB): Handles approval for investments under the Government Approval Route (now abolished; replaced by DPIIT).
• Sectoral Caps:
  • FDI limits are specified for each sector, expressed as a percentage of equity ownership.
  • For example, FDI in insurance is capped at 74%, while in defense, it is capped at 74% under the Automatic Route and 100% under the Government Approval Route.