It was recently reported in a section of the press that the amendment to Foreign Exchange Management Act (FEMA), 1999 introduced to the Finance Act, 2015 will do away with the need for the Reserve Bank of India’s approval for foreign direct investments (FDI) in India.

It is clarified that in terms of the Regulations framed under FEMA, 1999, an Indian company receiving FDI does not require any prior approval of the Reserve Bank of India at any stage. It is only required to report the capital inflow and subsequently the issue of shares to the Reserve Bank in prescribed formats.

It may be noted that, FDI in India can be made through two routes, namely, the automatic route, where no prior approval from any authority is needed for an Indian company to receive FDI and the approval route, where the company receiving FDI requires prior approval of the Foreign Investment Promotion Board (FIPB). FDI under both the routes is subject to FDI policy and the conditions laid down in the relevant Regulations framed under FEMA.

Alpana Killawala

Principal Chief General Manager

Foreign direct investment: no prior central bank approval required, but mandatory reporting and route specific compliance apply. An Indian company receiving foreign direct investment is not required to obtain prior Reserve Bank approval; instead there is a mandatory reporting requirement for capital inflows and subsequent share issuance in prescribed formats under the Regulations. FDI may be routed either through an automatic route with no prior approval or through an approval route requiring prior government consent, and investments under both routes remain subject to the applicable FDI policy and regulatory conditions.