India is evolving as one of the ‘most favored destination’ for FDI in Asia and the Pacific (APAC). It has displaced US as the second-most favored destination for foreign direct investment (FDI) in the world after China according to an AT Kearney's FDI Confidence Index. India attracted more than three times foreign investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38 billion during the corresponding period of 2004-05.

FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, a competitive business environment.

FDI policy

• FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which will require approval of the Government :
• Activities/items that require an Industrial Licence;
• Proposals in which the foreign collaborator has a previous/existing venture/tie up in India in the same or allied field
• All proposals relating to acquisition of shares in an existing Indian company by a foreign/NRI investor.
• All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.

An ongoing review of the FDI policy is carried out so as to initiate more liberalization. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes. This is done by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. Policy announcement by SIA are subsequently notified by RBI under FEMA.

• FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route.
• FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
• The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt. They will have to file the required documents with that office within 30 days after issue of shares to foreign investors.

Automatic Route
Areas/sectors/activities till now not open to FDI/NRI investment shall continue to be so unless otherwise decided and notified by Government. An investor can make an application for prior Government approval even when the proposed activity is under the automatic route.

Procedure for obtaining Government approval- FIPB
The Foreign Investment Promotion Board (FIPB) considers approving all proposals for foreign investment, which requires Government approval. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration.

Other than NRI Investments and 100% EOU, applications seeking approval for FDI in form FC-IL, should be submitted to the Department of Economic Affairs (DEA), Ministry of Finance.

FDI from NRI & for 100% EOU
Applications for FDI with NRI Investments and 100% EOU should be submitted to the Public Relation & Complaint (PR&C) Section of Secretariat of Industrial Assistance (SIA), Department of Industrial Policy & Promotion.

Proposals requiring Government’s approval
Application for proposals requiring prior Government's approval should be submitted to FIPB in FC-IL form. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

All the proposals submitted to FIPB seeking FDI approval should include the following information:

• Whether the applicant has had or has any previous/existing financial/ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought;
• If an applicant has any approved proposal earlier, details thereof and the justification for proposing the new venture/ technical collaboration (including trademarks) has to be submitted.
• Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs (DEA) for further processing.
• Foreign investment proposals received in the DEA are placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.

The decision of the Government in all cases is usually conveyed by the DEA within 30 days of submission of the FDI proposal.

Liberalization of FDI
Beside 100 percent relaxation of FDI in real estate, the government policies on FDI also offer opportunities for foreign investors to invest in different sectors. This includes 100 percent in power trading, processing, development of new airports, laying of natural gas pipelines, petroleum infrastructure and warehousing of coffee and rubber. Limit for telecoms services firms have been raised from 49 per cent to 74 per cent.

Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet. The government is now set to initiate a second wave of reforms in the segment by liberalizing investment norms further. And this has also brought about a conspicuous interest by towards investments in the Indian hospitality sector. Industry reports suggest the inflow of about US$ 500 million into the real estate sector over the past six months and is expected to rise to a massive $ seven to eight billion over the next 18-30 months.