Last updated: January 11th, 2024 12:47 PM

8 Measures to Promote FDI

Increasing Foreign Direct Investment (FDI) in India has been one of the focus areas for the Government of India to generate employment and increase GDP. Various relaxations have been provided for Foreign Investors by the present Government and the 2016 Budget has also proposed new changes to increase FDI in India.

FDI in Insurance

The 2016 Budget has proposed to allow FDI under the automatic route for upto 49% in the insurance and pension sectors, subject to the extant guidelines on Indian Management and control to be verified by the Regulators.

FDI in Asset Reconstruction Companies

It has been proposed in the 2016 Budget to permit 100% FDI under the automatic route in Asset Reconstruction Companies. Asset reconstruction companies manage and to make profitable those assets which have been underperforming or have become formally classified as Non-Performing Assets (NPA).  Further, Foreign Portfolio Investors (FPIs) will permit upto 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps. The increase in FDI limit on Asset Reconstruction Companies will help the Banks reduce the NPAs on their books.

FDI in Stock Exchanges

Investment limit for foreign entities in Indian stock exchanges will increase from 5% to 15% on par with domestic institutions. The increased flow of FDI into the stock exchanges will help Indian stock exchanges globally compete and adopt the latest technologies and global market practices.

FDI in Public Sector Enterprises

The existing 24% limit for investment by Foreign Portfolio Investors in Central Public Sector Enterprises listed in stock exchanges, other than Banks, will be increased to 49% to remove the need for prior approval of Government for increasing the Foreign Portfolio Investors investment.

FDI in the Financial Sector

The 2016 Budget has proposed to allow FDI under automatic route in activities which are regulated by financial sectors regulators and are beyond the 18 specified NBFC activities.

Residency for Foreign Investors

Foreign investors in India will soon accord the Residency Status, subject to certain conditions to promote the Make in India initiative and make India a global investment destination. Currently, foreign investors can only obtain a business visa for upto 5 years and there is no provision for obtaining residency status.

Centre-State Investment Agreement

To effectively implement Bilateral Investment Treaties signed by India with other countries, the Hon'ble Finance Minister has proposed to introduce a Centre-State Investment Agreement in the 2016 Budget. The Investment Agreement will ensure fulfilment of obligations of the State Government under the Treaties and those States which sign the agreement with more attractive destinations for investment by Foreign Investors.

Expanding Eligible Instruments

The basket of eligible FDI instruments will extend to include hybrid instruments, subject to certain conditions.