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What is Automatic route and Approval route in FDI?
The entry of Foreign Direct Investment by non residents into India is regulated through two routes –automatic route and approval route. The automatic route is aimed for those sectors and levels of investment that are less restricted. On the other hand, in the case of approval route, government agencies regulate and scrutinises foreign investment while approving it.
The automatic and approval routes are aimed to have monitoring over the investment activities at the same time to avoid wasteful procedural delays. In most cases, FDI up to certain limits (in Rs crores) and with certain conditions can be made through the automatic route. In the same sectors, FDI beyond a limit (in terms of percentage of investment made in a business venture) and that generally have critical importance need approval from the relevant agencies.
Automatic route
The automatic route stands for less restricted or more liberalized regulation. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. The approval route FDI is allowable in all sectors and activities specified under the consolidated FDI policy.
Approval Route
Under the approval route or government route, the foreign investor or the Indian company should obtain prior approval of the Government of India agencies or bodies specified.
Proposals for foreign investment under approval route as laid down in the FDI policy are considered by either Foreign Investment Promotion Board (FIPB) or Cabinet Committee on Economic Affairs or Cabinet Committee on Securities. In certain cases, the Department of Economic Affairs (DEA) or Department of Industrial Policy & Promotion are also assisting the above approving agencies. The FIPB considers those investments up to Rs 5000 crores for approval. Above this limit, approval will be made by CCEA.
Which body or agency has to give the approval for a specific FDI proposal depends upon the sector and nature of investment specified under the consolidated policy on FDI. For example, as per the new FDI policy on defence sector, FDI more than 49% and also that involves more than Rs 2000 crores investment is to be approved by the Cabinet Committee on Securities.
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FAQs on Automatic Route and Sectoral Limits -Interdisciplinary Issues in Indian Commerce - Interdisciplinary Issues in Indian Commerce - B Com
| 1. What is automatic route in Indian commerce? |  |
Ans. Automatic route in Indian commerce refers to a system where foreign direct investment (FDI) is allowed in certain sectors without requiring prior approval from the government. Under the automatic route, investors can directly invest in these sectors without any restrictions or limits.
| 2. What are sectoral limits in Indian commerce? | |
Ans. Sectoral limits in Indian commerce are the maximum limits set by the government on the amount of foreign direct investment (FDI) that can be made in specific sectors. These limits vary across different sectors and are determined by the government based on various factors such as national security, strategic importance, and economic considerations.
| 3. What are the interdisciplinary issues in Indian commerce? | |
Ans. Interdisciplinary issues in Indian commerce refer to the challenges and complexities that arise due to the interplay of various disciplines or fields of study within the realm of commerce. These issues could include the intersection of economics, law, finance, and other disciplines, and how they impact decision-making, policy formulation, and business operations in India.
| 4. How are automatic route and sectoral limits related in Indian commerce? | |
Ans. Automatic route and sectoral limits are related in Indian commerce as they both pertain to foreign direct investment (FDI) regulations. While the automatic route allows FDI without prior approval in certain sectors, sectoral limits determine the maximum amount of FDI that can be made in specific sectors, whether through the automatic route or through government approval.
| 5. What are the implications of automatic route and sectoral limits on Indian commerce? | |
Ans. The implications of automatic route and sectoral limits on Indian commerce are significant. The automatic route promotes ease of doing business and attracts foreign investment by removing bureaucratic hurdles, while sectoral limits ensure that sensitive sectors are protected and regulated. These regulations aim to strike a balance between attracting investment and safeguarding national interests. Understanding and complying with these regulations is crucial for businesses operating in India.
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