Foreign Direct Investment, or FDI, can happen when an investor from another country invests in a business that's also in their country. An investor could be any number of entities: an individual, a firm, or even a company. Generally, an investor will expand into other countries by acquiring assets of the business or establishing operations in a foreign country. This is different than buying equity in foreign companies, which is known as portfolio investment.
Automatic Route - The Automatic Route allows a foreign entity to invest in shares or capital instruments without any form of prior approval. Foreign investment undertaken under this route is relaxed and does not require the government's consent, and there are no restrictions on the rate of investment. The extent of the investment is also not restricted, and caps will also need to be taken into consideration.
Government Route - Government route is also known as approval route. This route is available to foreign companies that will invest in India. When using this route, the government approves investments based on what industry they are going to be invested in per their area regulations. The Government of India considers this method as the preferred form of approval for sensitive areas because it requires a higher volume of monitoring for foreign investment projects.
Eligibility criteria for FDI in India
Foreign Direct Investment (FDI) must adhere to these eligibility criteria under the approval route –