EXTRA NOTES RELATED TO FDI TOPIC

1. SECTOR WISE FDI LIMITS (REVISED)

Sector FDI Entry Route & Remarks

Limit
Agriculture & Animal Husbandry 100% Automatic
• Floriculture, Horticulture, Apiculture and Cultivation
of Vegetables & Mushrooms under controlled conditions
• Development and Production of seeds and planting
material
• Animal Husbandry(including breeding of dogs),
Pisciculture, Aquaculture
• Services related to agro and allied sectors
Plantation Sector 100% Automatic
• Tea sector including tea plantations
• Coffee plantations
• Rubber plantations
• Cardamom plantations
• Palm oil tree plantations
• Olive oil tree plantations
Mining 100% Automatic
Mining and Exploration of metal and non-metal ores
including diamond, gold, silver and precious ores but
excluding titanium bearing minerals and its ores
Mining (Coal & Lignite) 100% Automatic
Mining 100% Government
Mining and mineral separation of titanium bearing
minerals and ores, its value addition and integrated
activities
Petroleum & Natural Gas 100% Automatic
Exploration activities of oil and natural gas fields,
infrastructure related to marketing of petroleum products
and natural gas, marketing of natural gas and petroleum
products etc
Petroleum & Natural Gas 49% Automatic
Petroleum refining by the Public Sector Undertakings
(PSU), without any disinvestment or dilution of domestic
equity in the existing PSUs.
Defence Manufacturing 100% Automatic up to 49%
Above 49% under
Government route in
 cases resulting in access
to modern technology in
the country
Broadcasting 100% Automatic
• Teleports(setting up of up-linking HUBs/Teleports)
• Direct to Home (DTH)
• Cable Networks (Multi System operators (MSOs)
operating at National or State or District level and
undertaking upgradation of networks towards
digitalization and addressability
• Mobile TV
• Head end-in-the Sky Broadcasting Service(HITS)
Broadcasting 100% Automatic
Cable Networks (Other MSOs not undertaking up
gradation of networks towards digitalization and
addressability and Local Cable Operators (LCOs))
Broadcasting Content Services 49% Government
• Terrestrial Broadcasting FM(FM Radio)
• Up-linking of ‘News & Current Affairs’ TV Channels
Up-linking of Non-‘News & Current Affairs’ TV 100% Automatic
Channels/ Down-linking of TV Channels
Print Media 26% Government
• Publishing of newspaper and periodicals dealing with
news and current affairs
• Publication of Indian editions of foreign magazines
dealing with news and current affairs
Publishing/printing of scientific and technical 100% Government
magazines/specialty journals/ periodicals, subject to
compliance with the legal framework as applicable and
guidelines issued in this regard from time to time by
Ministry of Information and Broadcasting.
Publication of facsimile edition of foreign newspapers 100% Government
Civil Aviation – Airports 100% Automatic
Green Field Projects & Existing Projects
Civil Aviation – Air Transport Services 100% Automatic up to 49%
• Scheduled Air Transport Service/ Domestic Scheduled Above 49% under
Passenger Airline Government route AND
• Regional Air Transport Service 100% Automatic for
NRIs
Civil Aviation 100% Automatic
• Non-Scheduled Air Transport Service
• Helicopter services/seaplane services requiring DGCA
approval
• Ground Handling Services subject to sectoral
regulations and security clearance
• Maintenance and Repair organizations; flying training
institutes; and technical training institutions
Construction Development: Townships, Housing, Built- 100% Automatic
up Infrastructure
Industrial Parks 100% Automatic
Satellites- establishment and operation, subject to the 100% Government ,
sectoral guidelines of Department of Space/ISRO In case of operations its
74%
Private Security Agencies 74% Automatic up to 49%
Above 49% & up to 74%
under Government route
Telecom Services 100% Automatic up to 49%
Above 49% under
Government route
Cash & Carry Wholesale Trading 100% Automatic
E-commerce activities (e-commerce entities would 100% Automatic
engage only in Business to Business (B2B) e-commerce
and not in Business to Consumer (B2C) e-commerce.)
Single Brand retail trading 100% Automatic
Local sourcing norms will be relaxed up to three years
and a relaxed sourcing regime for another five years for
entities undertaking Single Brand Retail Trading of
products having ‘state-of-art’ and ‘cutting edge’
technology.
Multi Brand Retail Trading 51% Government
Duty Free Shops 100% Automatic
Railway Infrastructure 100% Automatic
Construction, operation and maintenance of the
following
• Suburban corridor projects through PPP
• High speed train projects
• Dedicated freight lines
• Rolling stock including train sets, and
locomotives/coaches manufacturing and maintenance
facilities
• Railway Electrification
• Signaling systems
• Freight terminals
• Passenger terminals
• Infrastructure in industrial park pertaining to railway
line/sidings including electrified railway lines and
connectivities to main railway line
• Mass Rapid Transport Systems.
Asset Reconstruction Companies 100% Automatic
Banking- Private Sector 74% Automatic up to 49%
Above 49% & up to 74%
under Government route
Banking- Public Sector 20% Government
Credit Information Companies (CIC) 100% Automatic
Infrastructure Company in the Securities Market 49% Automatic
Insurance 49% Automatic
• Insurance Company
• Insurance Brokers
• Third Party Administrators
• Surveyors and Loss Assessors
• Other Insurance Intermediaries
Pension Sector 49% Automatic
Power Exchanges 49% Automatic
White Label ATM Operations 100% Automatic
Non-Banking Finance Companies (NBFC) 100% Automatic
Pharmaceuticals(Green Field) 100% Automatic
Pharmaceuticals(Brown Field) 100% Automatic up to 74%
Above 74% under
Government route
Food products manufactured or produced in India 100% Government
Trading, including through e-commerce, in respect of
food products manufactured or produced in India.

2. DIFFERENCE BETWEEN FDI AND FII

Foreign Direct Investment (FDI) is defined as the type of investment into production or
business in a country, by an enterprise based in another country. It is often contrasted
with Foreign Institutional Investment (FII), which is an investment fund, based in the
country, other than the country, in which investment is made. Both are the forms of
investment made in a foreign country. FDI is made to acquire controlling ownership in an
enterprise but FII tends to invest in the foreign financial market. In most cases, the former is
given preference over the latter because it benefits the whole economy.

Definition of FDI

Foreign Direct Investment shortly known as FDI refers to the investment in which foreign
funds are brought into a company based in a different country from the investor company’s
country. In general, the investment is made to gain a long lasting interest in the investee
enterprise. It is termed as a direct investment because the investor company looks for a
substantial amount of management control or influence over the foreign company.
FDI is the considered as one of the primary means of acquiring external assistance. The
countries where the availability of finance is quite low can get finance from developed
countries having the good financial condition. There are a number of ways through which a
foreign investor can get controlling ownership like by way of merger or acquisition, by
purchasing shares, by participating in a joint venture or by incorporating a wholly owned
subsidiary.

Definition of FII

FII is an abbreviation used for Foreign Institutional Investor, are the investors that pool their
money to invest in the assets of the country situated abroad. It is a tool for making quick
money for the investors. Institutional investors are companies that invest money in the
financial markets in the country based outside the investor country. It needs to get itself
registered with the securities exchange board of the respective country for making the
investment. It includes banks, mutual funds, insurance companies, hedge funds, etc.

FII plays a very crucial role in any country’s economy. Market trend moves upward when
any foreign company invests or buys securities, and similarly, it goes down if it withdraws
the investment made by it.

BASIS FOR FDI FII

COMPARISON

Meaning When a company situated in one FII is when foreign companies

country makes an investment in a make investments in the stock
company situated abroad, it is known market of a country.
as FDI.

Entry and Exit Difficult Easy

What it brings? Long term capital Long/Short term capital

Transfer of Funds, resources, technology, Funds only.

strategies, know-how etc.

Economic Growth Yes No

Consequences Increase in country's Gross Domestic Increase in capital of the

Product (GDP). country.

Target Specific Company No such target, investment

flows into the financial market.

Control over a Yes No

company

Key Differences between FDI and FII

The significant differences between FDI and FII are explained below:

1. Foreign Direct Investment or FDI is defined as the investment made by a company in

the company situated outside the country. Foreign Institutional Investor or FII is when
investors, most commonly in the form of institutions that invest in the country’s
financial market.

2. FII is a way to make quick money, the entry and exit to the stock market are very
easy. On the other hand, the entry and exit are not easy in FDI.

3. FDI brings long-term capital in the investee company whereas FII may bring long or
short term capital in the country.

4. In the case of FDI, there is the transfer of funds, resources, technology, strategies,
know-how. Conversely, FII involves the transfer of funds only.

5. FDI increases job opportunities, infrastructural development in the investee country

and thus leads to economic growth, which is not in the case of FII.

6. FDI results in the increase in the country’s productivity. As opposed to FII that results
in the increase in the country’s capital.

7. FDI targets a particular company, but FII does not target a particular company.

8. FDI obtains management control in the company. However, FII does not enable such
control.

After the above discussion, it is quite clear that the two forms of foreign investment are
completely different. Both have its positive and negative aspects. However, foreign
investment in the form of FDI is considered better than FII because it does not just bring
capital but also amounts to better management, governance, transfer of technology and
creates employment opportunities.