By Shawn Greene
Nov. 26 – Navigating foreign investment in India can be daunting. The World Bank’s Doing Business 2014 report ranks India among the most difficult countries in which to start a business – 179th out of 189 countries analyzed. As such, foreign firms are highly recommended to hire a professional services firm to assist with setup and investment in the country.
For foreign institutional investors (FII) and firms considering foreign direct investment (FDI), a familiarity with India’s recent changes in FDI policy is critical. Below, important amendments made to India’s foreign investment policy in 2013 are summarized, and changes currently under discussion for 2014 explored.
Amendments made this year in Indian FDI policy impact a number of key business sectors, and in many instances eliminate the need for foreign investors to obtain approval from the Indian Government before investing. Additionally, policy changes in 2013 alter the legal definition of ‘control’ and regulations for single and multi-brand retail trading.
FDI Routes and Foreign Investment
Foreign investment into India falls under one of two FDI routes:
- Government Route: For investment in business sectors requiring prior approval from the Foreign Investment Promotion Board (FIPB)
- Automatic Route: For investment in business sectors that do not require prior approval from the government
Foreign investments take two principal forms:
- Foreign Direct Investment (FDI): The acquisition of shares or other securities in an Indian company
- Foreign Institutional Investment (FII): Investment by foreign institutional investors (such as hedge funds, insurance companies, or mutual funds) registered with the Securities and Exchange Board of India (SEBI) through recognized stock exchanges
Both distinctions are important when interpreting recent changes in foreign investment policy, as variations in foreign investment caps and approval routes often vary by both industry and investor.
