Foreign Direct Investment (FDI) in India is primarily regulated by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Foreign Exchange Management Act (FEMA). As one of the world’s top FDI destinations, India ranked as the eighth-largest recipient of FDI in 2023, according to the World Investment Report 2023. India’s economic growth is leading to an increase in income and consumer spending which presents tremendous opportunities for Canadian companies.
Routes of FDI
Investments can be made through automatic route or the government approval route. The available route of investment is dependent on depends on the business sector of the Indian company and the investment amount. FDI Routes in India
Automatic Route
Under the automatic route, investments do not require government approval.[i] The amount of investment permitted depends on the sector that the investee entity operates in. For instance, selling products manufactured in India through e-commerce, marketplace model of e-commerce and manufacturing allow 100% FDI without government approval.
Government Approval Route
Some sectors need prior government approval, such as multi-brand retail (up to 51%) and brownfield pharmaceuticals (above 74%). Certain sectors, like lottery and tobacco manufacturing, prohibit FDI. The Government of India, on April 17, 2020, revised its existing FDI policy to require government approval for investments from nations that share a border with India if the beneficial owner is a resident or citizen of such country. This requires that all investment from Afghanistan, Bangladesh, Bhutan, Myanmar, Nepal, Pakistan, and most importantly, China, as countries that share a land border with India, to go through the government approval route.
The New Operating Procedure for FDI
The DPIIT released a new standard operating procedure (New SOP) for processing FDI on August 17, 2023. This New SOP replaces the previous one from November 9, 2020 (Old SOP), and brings several important updates aimed at streamlining and digitizing the application process.
Paperless Process:
All FDI applications must now be submitted digitally, eliminating the previous need for physical copies. This change is part of a broader move towards digitizing administrative processes in India. Applications must be digitally signed using digital signature certificates (DSCs). Under the old SOP, physical copies were permissible if digital signatures were not available.
New Submission Platform:
Previously, online applications were filed through the Foreign Investment Facilitation Portal (FIFP). Now, they must be submitted via the National Single Window System (NSWS). This is part of India’s efforts to create a more efficient and user-friendly system for business approvals.
Exclusive Submission by Investor Entity:
Unlike the old SOP, which allowed either the investor or the investee entity to submit the proposal, the New SOP specifies that only the investor entity can file the application. This requires the investor to provide an affidavit and use their own login credentials on the NSWS.
Review Procedure and Timelines
Initial Processing:
Once submitted on NSWS, the DPIIT forwards the application to the relevant authorities, including the administrative ministry or department, Ministry of External Affairs (MEA), and Reserve Bank of India (RBI) within 2 days.
Review and Approval:
The primary responsibility for processing and deciding on the application lies with the designated Competent Authority. This authority must communicate its decision to the applicant within 12 weeks, excluding any additional time required for addressing deficiencies or gathering more information. Additional comments from the RBI and MEA are sought as part of the review process. For certain sectors such as broadcasting, telecommunications, and defense, a security clearance from the Ministry of Home Affairs is mandatory. Proposals involving foreign equity inflows exceeding ₹50 billion Indian rupee (approximately, US$600 million) require an assessment by the Cabinet Committee on Economic Affairs.
Navigating FDI Regulations with Trustiics
Understanding and complying with India’s complex FDI regulations can be daunting. Whether you’re a seasoned investor or new to the Indian market, having expert legal guidance is crucial to navigating this landscape smoothly. Trustiics connects you with top-tier legal professionals in India who specialize in FDI regulations. Visit Trustiics today to learn more about how we can assist you in making informed and compliant FDI investments in India.
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