FDI Approval

Foreign direct investments in India are approved through two routes:
Automatic approval by RBI:
The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving:

• foreign equity up to 50% in 3 categories relating to mining activities (List 2).
• foreign equity up to 51% in 48 specified industries (List 3).
• foreign equity up to 74% in 9 categories (List 4).
• where List 4 includes items also listed in List 3, 74% participation shall apply.

The lists are comprehensive and cover most industries of interest to foreign companies. Investments in high-priority industries or for trading companies primarily engaged in exporting are given almost automatic approval by the RBI.

Opening an office in India
Opening an office in India for the aforesaid incorporates assessing the commercial opportunity for self, planning business, obtaining legal, financial, official, environmental, and tax advice as needed, choosing legal and capital structure, selecting a location, obtaining personnel, developing a product marketing strategy and more.


The FIPB Route:
Processing of non-automatic approval cases
FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.

Total foreign investment and FDI
Total foreign investment in IFY 1997-98 was estimated at dols 4.8 billion in 1997-98, compared to dols 6 billion in 1996-97. Foreign Direct Investment (FDI) in 1997-98 was an estimated dols 3.1 billion, up from dols 2.7 billion in1996-97. The government is likely to double FDI inflows within two years. Foreign portfolio investment by foreign institutional investors was significantly lower at dols 752 million for fiscal 1997-98, down compared to dols 1.9 billion in1996-97, partly reflecting the effect of the recent crisis in Asia.

Foreign institutional investors
Foreign institutional investors (FIIs) were net sellers from November 1997 through January 1998. The outflow, prompted by the economic and currency crisis in Asia and some volatility in the Indian rupee, was modest compared to the roughly dols 9 billion which has been invested in India by FIIs since 1992.

FII investments
FII net investment declined to dols 1.5 billion for IFY 1997-98, compared to dols 2.2 billion in 1996-97. The trend reversed itself in February and March 1998, reflecting the renewed stability of the rupee and relatively attractive valuations on Indian stock markets.

Large outflows of capital
Large outflows began again in May 1998, following India's nuclear tests and volatility in the rupee/dollar exchange rate. In an effort to avoid further heavy outflows, the RBI announced in June that FIIs would be allowed to hedge their incremental investments in Indian markets after June11, 1998.