Foreign direct investment (FDI) occurs when a company controls an entity in another country. With FDI, foreign companies are directly involved in their day-to-day operations in other countries. This means that they not only bring money, but also knowledge, skills and technology.

Generally, FDI occurs when an investor establishes a foreign business or acquires foreign business assets, including the acquisition of ownership and management of equity in a foreign company.

FDI in India

FDI is an important source of funding for India’s economic development. The crisis in 1991 triggered the liberalization of the economy in India, and since then foreign direct investment in India has been steadily increasing.

How India receives foreign direct investment

Automatic route: The non-resident or Indian company does not require prior nod of the RBI or government of India for FDI.

Govt route: Government approval is mandatory. Companies should apply through the Foreign Investment Promotion Portal, which facilitates single-window approval. The application will then be forwarded to the relevant department, which will approve / reject the application in consultation with the Department of Commerce’s Department of Industry and Trade Promotion (DPIIT). DPIIT issues standard operating procedures (SOPs) for processing applications based on existing FDI policies.