Foreign Direct Investment (FDI) in India: Policy & Routes
Learn about FDI vs FPI, the role of FIPB, automatic vs government routes, and India's investment milestones and sectoral limits for international investors.
Foreign Direct Investment (FDI)
Role of FIPB • Automatic Route & Sectoral Limits • FDI vs FPI
PhD Research Presentation | April 2026
Table of Contents
Overview of Foreign Direct Investment (FDI)
Role of Foreign Investment Promotion Board (FIPB)
Automatic Route & Sectoral Limits
Foreign Portfolio Investment (FPI)
Key Differences: FDI vs FPI
PhD Research Presentation
What is Foreign Direct Investment (FDI)?
FDI is an investment made by a company or individual in one country into business interests in another country, involving establishing business operations or acquiring business assets.
Cross-Border Investment
Capital flows from one country to another
Long-Term Commitment
Investor gains lasting interest & control (10%+ ownership)
Technology & Knowledge Transfer
Brings expertise, technology & management skills
Economic Growth Driver
Boosts GDP, employment & infrastructure
Types of Foreign Direct Investment
Horizontal FDI
Investor replicates the same business operations in a foreign country.
McDonald's opening outlets in India
Vertical FDI
Investor expands supply chain abroad (upstream or downstream).
A car manufacturer buying a parts supplier overseas
Conglomerate FDI
Investment in an entirely unrelated business in a foreign country.
A tech company investing in foreign retail
Greenfield Investment
Building new operational facilities from scratch
Brownfield Investment
Acquiring or merging with existing foreign entities
Role of Foreign Investment Promotion Board (FIPB)
An inter-ministerial body under Ministry of Finance, India, reviewing and recommending FDI proposals requiring government approval.
Review FDI Proposals
Evaluated applications outside automatic route
Inter-Ministerial Coordination
Representatives from key ministries
Single Window Clearance
Fast-track approval mechanism
Policy Compliance
Ensured alignment with national interest
Investment Facilitation
Promoted investor confidence
Important Note: FIPB was abolished in May 2017. Approvals now handled by respective sectoral ministries.
Automatic Route vs Government Approval Route
No prior government approval needed
Investor only notifies RBI post-investment
Available for most sectors
Examples: IT, Pharma, Retail, Manufacturing
Fast, investor-friendly process
Prior approval from competent authority required
Reviewed by respective Ministry/Department
Applied to sensitive & strategic sectors
Examples: Defence, Broadcasting, Print Media
Ensures national interest is protected
After FIPB abolition (2017), Government Route approvals are handled by sectoral ministries.
Sectoral Limits for FDI in India
Sectors like Lottery, Gambling, Tobacco — FDI NOT permitted.
What is Foreign Portfolio Investment (FPI)?
FPI refers to the purchase of financial assets (stocks, bonds, mutual funds) in a foreign country by investors, without acquiring direct control or management in the business.
📊
Financial Assets Only
Invests in stocks, bonds, securities without acquiring a direct business stake.
⚡
Short to Medium Term
Highly liquid investments that can be withdrawn quickly.
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No Management Control
Investor holds less than 10% ownership, limiting direct operational power.
🌊
Volatile Nature
Subject to rapid market fluctuations and potential capital flight.
Equity Shares
Government Bonds
Corporate Bonds
Mutual Funds
ETFs
FDI vs FPI — Key Differences
FDI
FPI
Full Form
Foreign Direct Investment
Foreign Portfolio Investment
Nature
Direct investment in business
Investment in financial securities
Control
Yes — 10% or more ownership
No — passive investor
Tenure
Long-term
Short to medium term
Liquidity
Low — illiquid
High — easily tradable
Objective
Operational control & growth
Capital appreciation & returns
Impact on Economy
Creates jobs, infrastructure
Provides capital market liquidity
Stability
More stable
Volatile, susceptible to withdrawal
Regulated by
DPIIT + RBI
SEBI + RBI
Examples
Setting up a factory
Buying stocks on BSE/NSE
India's FDI Journey — Key Milestones
1991
Liberalization
India opens economy; FDI policy introduced under LPG reforms
2000
FIPB Strengthened
Automatic route expanded; more sectors opened
2005
Retail FDI
FDI in single-brand retail allowed (51%)
2014
Make in India
Modi govt launches initiative to boost manufacturing FDI
2017
FIPB Abolished
Sector-specific approval replaces FIPB
2020-Present
FDI Surge
Record inflows; key reforms in defence, space, insurance
India received USD 84.8 Billion FDI in FY 2021-22 — Highest ever recorded
Conclusion & Key Takeaways
FDI brings long-term capital, technology & employment — a pillar of economic development
FIPB played a crucial role in regulating and facilitating FDI approvals until its abolition in 2017
The Automatic Route simplifies FDI entry; Government Route protects strategic sectors
FPI provides liquidity to capital markets but is more volatile than FDI
Both FDI & FPI are essential for India's economic growth, but serve different investment purposes
A nation that invites foreign capital with clear policies and strong institutions attracts the trust of the world.
Thank You
PRESENTER
- fdi
- fpi
- foreign-direct-investment
- business-india
- economics
- finance
- investment-policy