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A Brief Understanding Of Foreign Investment In India

Foreign investment occurs when a corporation or an entity from one country invests in the assets or ownership holdings of a company or firm located in another country. Globalisation has accelerated the pace of foreign investment, encouraging large corporations and important individuals to expand and invest. Foreign investment in India has sprung up as a direct outcome of the liberal trade arrangements attempted and implemented by progressive governments. The administration’s advancement agenda aims for speedy and generous growth of the nation’s economy, as well as friendly coordination with the global economy. While foreign interest in India includes speculations made by foreign companies or organisations in India, the inversion, i.e. outflow of distant ventures from India, is also prevalent in the Indian economy. Foreign investment in India has created some fantastic prospects for the country in terms of creating jobs and strengthening the country’s fundamental base.

Types Of Foreign Investment
  1. Foreign Direct Investment (FDI)

After our independence, policymakers recognised the need to bring in technological advancement for development and get foreign exchange resources, and they devised FDI laws. FDI is defined as an investment made by an organisation or individual who is a substance or an entity in one country through controlling ownership of business interests in another country. FDI can take the form of either starting a firm or entering into joint ventures through mergers and acquisitions, creating new offices, and so on. It is not permitted in the betting and gambling or lottery industry, housing and real estate business, chit fund business, exchangeable expansion rights, retail trading, plantations, atomic energy, and agricultural industries.

2. Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment is an investment in Indian securities by foreigners and non-residents, comprising stocks, government securities, corporate securities, convertible securities, structural securities, and so on. The goal is to secure a controlling position for India at a lower level of speculation or investment than FDI, with flexibility for entry and exit. In light of the Coronavirus, SEBI has implemented measures to protect foreign investors and minimise the strain on their business operations by relaxing the requirements for FPIs to maintain their licences.

3. Foreign Institutional Investment (FII)

An investor’s investment in overseas markets is referred to as an FII. Companies that want to invest under the FII idea merely need to be listed on a stock exchange. It consists of a mutual fund, a pension fund, an insurance or reinsurance firm, and an investment trust that intends to invest in India. The overall investment limit under FII is 24 per cent of the Indian company’s paid-up capital. These investments are significant in our nation since they are net sellers, increasing the depth and breadth of Indian markets while also becoming a significant source of speculation. The distinctions between FPI and FII are primarily in the type of financial specialists, and hence the phrases FPI and FII are used interchangeably. 

Ways Of Foreign Investment In India
  1. Government Route

Foreign investment in areas not covered by the automatic route requires prior authorisation from the government via the Government route. The Foreign Investment Facilitation Portal is where you can apply for government permission. The Ministry of Commerce’s Department of Industrial Policy and Promotion is in charge of this portal.

2. Automatic Route

Foreign investment in India is permitted under the automatic route without prior clearance form the Government of India or the Reserve Bank of India (RBI) throughout all operations or sectors, as specified in Regulation 16 of the FEMA Regulations, 2017.


To improve chances for foreign investment in India, the government has recently loosened certain current rules and implemented new legislation in some cases. Many changes have occurred since the Indian economy was opened to foreign investors in 1991, with the goal of attracting foreign investment to India. Since the liberalisation, all administrations have begun to make policies that have made the Indian economy highly appealing to international investors. 

By Devanshi Shukla