In this article, Swati Garg, an Advocate and an LL.M. graduate from Gujarat National Law University discusses How approvals for government route investments is obtained in post Foreign Investment Promotion Board era.
In India, Foreign Direct Investments (FDI) can be made through Automatic Route or Government-Approval Route. By automatic route, it simply implies that the investor is not required to take permission from the government whereas in government-approval route, as the name suggests, there is a need to take permission from government. Till 2017, Foreign Investment Promotion Board (FIPB) was a nodal agency for 25 years for processing FDI applications for government-approval route. However, in May 2017, an office memorandum was issued which abolished FIPB and it gave the authority to the concerned departments. The important point to remember here is that the concerned department has to take a decision in consonance with the Department of Industrial Policy and Promotion (DIPP).
Important Points to Remember
The link here gives a comprehensive list of competent authorities for the government approval route FDI.
Competent authority/ministry/departments for sectors/activities requiring government approval route.
| S. No. | Sectors/Activity | Competent Authority/Ministry/Departments |
| 1 | Mining | Ministry of Mines |
| 2 | Defence | Department of Defence
Production, Ministry of Defence and Ministry of Home Affairs |
| 3 | Broadcasting and Print Media | Ministry of Information & Broadcasting |
| 4 | Civil Aviation | Ministry of Civil Aviation |
| 5 | Satellites | Department of Space |
| 6 | Telecommunications | Department of Telecommunications |
| 7 | Private Security Agencies | Ministry of Home Affairs |
| 8 | FDI from countries of concern falling under automatic route requiring security clearance | Department of Industrial
Policy & Promotion |
| 9 | FDI from countries of concern falling under approval route requiring security clearance | Nodal Administrative Ministries/Departments |
| 10 | Trading | Department of Industrial
Policy & Promotion |
| 11 | FDI proposals by Non-Resident Indians (NRIs)/ Export Oriented Units (EOUs)
requiring approval of the Government |
Department of Industrial
Policy & Promotion |
| 12 | Application relating to issue of equity shares under the FDI policy under the Government route for import of capital goods/machinery/equipment (excluding
Second-hand machinery) and for pre-operative/pre-incorporation expenses (including payments of rent etc.) |
Department of Industrial
Policy & Promotion |
| 13 | Unregulated Financial services | Department of Industrial
Policy & Promotion |
| 14 | FDI in Investment Company | Department of Economic
Affairs |
| 15 | Banking (Public and Private) | Department of Financial
Services |
| 16 | Pharmaceuticals | Department of Financial
Services |
A list of sector/activities where foreign investment can be made automatically up to a certain extent but there after, if anyone needs to invest more than that, government approval is required.
| S. No. | Sectors/Activities | Automatic Route | Approval Route |
| 1 | Defence | Up to 49% | Government route beyond 49% up to 100% wherever it is likely to result in access to modern technology or for other reasons to be recorded |
| 2 | Aviation:
(a) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (b) Regional Air Transport Service (For example: Vistara airlines which is a result of a joint venture between TATA Sons Limited and Singapore Airlines Limited, where they have adopted automatic route. TATA Sons Limited has 51% stake in the airlines and Singapore Airlines has 49% stake.) |
Up to 49%
For NRIs, up to 100% |
Government route beyond 49% up to 100% |
| 3 | Private Security Agencies | Up to 49% | Government route beyond 49% up to 74% |
| 4 | Telecom Services
(Singtel, a Singaporean telecommunication company has a stake of 39.5% in Bharti Airtel) |
Up to 49% | Government route beyond 49% up to 100% |
| 5 | Banking Private Sector
(In ICICI Prudential Life Insurance, ICICI holds a stake of 54.88% in ICICI prudential whereas Prudential, a UK based company, holds 25.83% stake) |
Up to 49% | Government route beyond 49% up to 74% |
| 6 | Pharmaceuticals: Brownfield
(In 2008, Fresenius acquired 73.3% of Dabur Pharma) |
Up to 74% | Government route beyond 74% up to 100% |
If there is some sector/activity which is not mentioned in the list, the concerned Ministry/Department will be the competent authority. If still there is a confusion left, DIPP will identify the competent authority.
These authorities will also be responsible for monitoring the compliances of FDI regulations by these companies.
For foreign investment more than Rs. 5000 crore, the competent authority has to place the proposal before Cabinet Committee on Economic Affairs (CCEA) for their consideration. Ministry can also refer the proposals to CCEA for consideration.
Any rejection of the proposal has to be done by competent authority in consultation with DIPP.
Central government in consultation with Ministry of Corporate Affairs and DIPP has published Standard Operation Procedure for filing proposals for FDI which can be accessed here:
Procedure for filing proposals for FDI
Government has tried to make the FDI procedure less complex and expeditious by making the whole procedure online, even clarifying all confusions over e-mail and by fixing the time period to process the proposal.
- All the proposals for foreign investment requiring government approval has to be filed on Foreign Investment Facilitation Portal at http://www.fifp.gov.in/. There is no fees to file the proposal.
Mandatory documents which has to be attached with the proposal are:
- Certificate of Incorporation of the Investee & Investor Companies/Entities
- Memorandum of Association (MOA) of the Investee & Investor Companies/Entities
- Board Resolution of the Investee & Investor Companies/Entities
- Audited Financial Statement of Last Financial Year of the Investee & Investor Companies/Entities
- Article of Association of the Investee & Investor Companies/Entities
- List of Names and addresses of all foreign collaborators along with Passport Copy/ Identification Proof of the Investor Company/Entity
- Diagrammatic representation of the flow and funds from the original investor to the investee company and Pre and Post shareholding pattern of the Investee Company
- Affidavit stating that all information provided in hard copy and online are the same and correct
Moreover, the format of approval letter and list of other documents which has to be attached can be found by visiting this link.
2. After filing, DIPP has to identify the right competent authority and e-transfer the proposal.
3. If the proposal is not digitally signed, one need to file physical signed copies of the proposal only after intimation by DIPP.
4. Other than the competent authority, DIPP has to forward the proposal to the following authorities within 2 days:
| Name of Authority | Purpose | Time Period | Significance |
| RBI | For comments from FEMA perspective | Four weeks | Mandatory to send comments |
| Ministry of Home Affairs | For security clearance if any | Six weeks | Mandatory to send comments |
| Ministry of External Affairs | For information | Four weeks | May or may not send any comments |
| Department of Revenue | For information | Four weeks | May or may not send any comments |
All these comments have to be send directly to competent authority/ministry. If comments has to be required from any other ministry, reasons has to be mentioned.
Security clearance from Ministry of Home Affairs is required in the following cases:
- Investments in Broadcasting, Telecommunication, Satellites – establishment and operation;
- Investments in Private Security Agencies, Defence, Civil Aviation;
- Investments in Mining & mineral separation of titanium bearing minerals and ores, its value addition and integrated activities; and
- Investments from Pakistan and Bangladesh.
5. If competent authority/ministry needs some clarification as to the FDI policy, they can ask for comments from DIPP. DIPP has to reply within two weeks.
6. After receiving all the comments, competent authority has to scrutinise and ask for clarifications from applicant, if any, by email. Applicant should reply within a week.
7. Once all the above aspects are covered, competent authority/ministry should process the proposal within two weeks and convey the same to applicant.
8. If it is the case of foreign investment more than 5000 crore, competent authority/ministry should send the proposal to CCEA for consideration and after their reply, competent authority/ministry should convey the decision within one week to the applicant.
9. Total expected time period for processing the proposal is 8 weeks and 10 weeks in case if security clearance is required.
10. If the proposal has to be rejected, DIPP must be consulted and that consultation may take an extra two weeks time.
