Company Law: Foreign Direct Investment in India

Foreign direct investment is governed by company law in India. At a basic level, it comes into effect when a company from one country makes a physical and monetary investment into building a factory or office in another country. The investment involves many other factors as well.

Foreign Direct Investment (FDI) plays a major role in bringing a business into a global level. Typically, in India, globalization becomes a perfect opportunity to access new markets, marketing channels, cheaper production facilities and new technology. Further, in India, it brings foreign capital resources, business know-how and technical expertise. The risk and profit in FDIs depends on the extent of engagement of the investor, in the Indian market.

Company Law: Approval of FDI in India

As per company law, foreign direct investments in India are approved in two ways. One is by the Reserve Bank of India and the other is by the Foreign Investment Promotion Board (FIPB). The automatic approval accorded by the RBI is given within a period of 2 weeks. However, the approval is subjected to some specific terms and conditions. All other cases where the conditions of automatic approval are not met are approved by the FIPB. The FIPB takes a liberal approach for all sectors and takes a processing time of 4 to 6 weeks.

Since 2007, foreign investments are subjected to thorough scrutiny, by the regulatory bodies in India. Further, a government body, the Department of Industrial Policy and Promotion (DIPP) has issued new rules pertaining to FDIs in India. The new norms say that foreign funds will now need prior approval for investment in Indian venture funds. Further, they cannot be invested in unregistered trusts. These rules intend to curb money-laundering practices in India.

However, it is said that the changed FDI rules will make it difficult for foreign investors to invest in Indian markets. Further, experts have termed it as a retrograde step and fear that this could hinder the flow of foreign investments into India.