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The article provides information about FDI, policy governing FDI in India and FDI across different sectors.

Foreign Direct Investment

Foreign Direct Investment (FDI) is normally defined as a form of investment made in order to gain unwavering and long-lasting interest in enterprises that are operated outside of the economy of the shareholder/ depositor. In FDI, there is a parent enterprise and a foreign associate, which unites to form a Multinational Corporation (MNC). In order to be deemed as a FDI, the investment must give the parent enterprise power and control over its foreign affiliate.

Foreign Direct Investment in India
In India, Foreign Direct Investment Policy allows for investment only in case of the following form of investments:
  • Through financial alliance
  • Through joint schemes and technical alliance
  • Through capital markets, via Euro issues
  • Through private placements or preferential allotments
Foreign Direct Investment in India is not allowed under the following industrial sectors:
  • Arms and ammunition
  • Atomic Energy
  • Coal and lignite
  • Rail Transport
  • Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc
FDI In India Across Different Sectors

Hotel & Tourism
Hotels include restaurants, beach resorts and business ventures providing accommodation and food facilities to tourist. Tourism would include travel agencies, tour operators, transport facilities, leisure, entertainment, amusement, sports and health units.

100 per cent FDI is permitted for this sector through the automatic route.

For trading companies 100 per cent FDI is allowed for
  • Exports
  • Bulk Imports
  • Cash and Carry wholesale trading.
For business activities in power sector like electricity generation, transmission and distribution other than atomic plants the FDI allowed is up to 100 per cent.

Drugs & Pharmaceuticals
For the production of drugs and pharmaceutical a FDI of 100 per cent is allowed, subject to the fact that the venture does not attract compulsory licensing, does not involve use of recombinant DNA technology.

Private Banking
FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the investment adheres to guidelines issued by RBI.

Insurance Sector
For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition of getting license from Insurance Regulatory and Development Authority (IRDA).

  • For basic, cellular, value added services and mobile personal communications by satellite, FDI is 49 per cent.
  • For ISPs with gateways, radio-paging and end to end bandwidth, FDI is allowed up to 74 per cent. But any FDI above 49 per cent would require government approval.
Business Processing Outsourcing
FDI of 100 per cent is permitted provided such investments satisfy certain prerequisites.

NRI's And OCB's
They can have direct investment in industry, trade and infrastructure

Up to 100 per cent equity is allowed in the following sectors
  • 34 High Priority Industry Groups
  • Export Trading Companies
  • Hotels and Tourism-related Projects
  • Hospitals, Diagnostic Centers
  • Shipping
  • Deep Sea Fishing
  • Oil Exploration
  • Power
  • Housing and Real Estate Development
  • Highways, Bridges and Ports
  • Sick Industrial Units
  • Industries Requiring Compulsory Licensing
  • Industries Reserved for Small Scale Sector

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