Foreign Direct Investment under the Approval Route

Foreign Direct Investment (FDI) is beneficial to the Indian economy. The government has brought out many relaxations regarding the inflow of foreign direct investment in India

Package inclusions for Approval Route/ Government Route Under Foreign Direct Investment
  • Advice on the procedure for obtaining foreign direct investment in the country.
  • Advice on the types of investments that can be made by Foreign Investors and NRIs.
  • Advice on the different routes for bringing in foreign investment in India.
  • Procedure on how foreign investment is brought into India through the Approval Route.
  • Guidance on compliance related to DIPP, RBI, and Foreign Exchange Management Act.
  • Monitoring your application regarding the Approval route process.

Foreign Direct Investment Under the Approval Route / Government Route

After liberalization occurred, the government has enacted the Foreign Exchange Management Act, 1999 (FEMA). This act deals with the requirement of foreign exchange in the country. After bringing out the foreign exchange management act, the government of India has considered many changes in the amount of foreign investment that is brought into India. However, the amount of Foreign Investment which is brought into India would depend on economic consequences that arise out of the amount of foreign investment in India. Foreign Direct Investment is essential for the development of the economy. It would not affect the development of the economy but also improve technology and digitization in the country. Therefore having sufficient flow of funds into India would contribute to the overall development of the country.

Investors who are eligible to invest in India under the Foreign Direct Investment under Approval Route

Foreign Direct investment can be brought into India by Eligible Investors. The following are the qualified investors who are allowed to invest in India:

  • Non-Resident investor who is an entity that is established outside the borders of India.

However, the Government of India recently updated the Foreign Direct Investment Policy. According to the new amendment, the following investors and investment companies, if present in the following countries, have to go through the approval route/ government route process. The neighboring countries that share borders with India have come under this purview of going through the approval route process for Investing in India:

  1. China
  2. Bhutan
  3. Nepal
  4. Bangladesh
  5. Pakistan
  6. Afghanistan

These countries share borders with India; hence they would have to take the approval route/ Government route. Before the amendment of the Foreign Direct Investment Policy 2017, investments from the above countries except Bangladesh and Pakistan were through the automatic route. Through the automatic route, the investment does not require approval from any other authorities.

  • Erstwhile OCBs- These are entities where the significant amount of controlling interest is through Non-Resident Indians. The type of control can be full control or beneficial control. Erstwhile Overseas Corporate Body means an entity that is classified as a company, partnership firm, society, or a trust body that is owned either directly or indirectly, and the ownership percentage is more than 60%. Non-Resident Indians hold this ownership percentage.
  • A company, trust, or partnership, which is owned by a Non-Resident Indian, can make such a form of investment. Foreign Direct Investment can be made through various types of business structures.
  • Foreign Institutional Investors and Foreign Portfolio Investors can also invest under this route.
  • Foreign institutional Investor, Foreign Portfolio Investors and Non-Resident Indians who are registered under the Foreign Exchange Management (Transfer of Security by a person who is resident outside India) Regulations,2000 can make the investment through a registered broker to invest in the capital of the company or in a particular instrument of the company.
  • FVCI- Foreign Venture Capital Investor, who is registered with the Securities Exchange Board of India (SEBI), can invest 100% in a capital instrument of the company in certain mentioned activities.

Which entities can receive Foreign Direct Investment under the Automatic Route/ Approval Route?

  • Company can receive foreign direct investment from a foreign investor.
  • A Partnership// Proprietary Concern– Foreign Investment can be made in a partnership/ and a proprietary concern.
  • Trust- Foreign Direct Investment cannot be made in a trust.
  • LLP/ Limited Liability Partnership- Foreign Direct Investment can only be made in an LLP through the automatic route. There must be no form of sort of performance-linked conditions to consider this form of investment.
  • Startup Companies- Startup companies, according to the DIPP, are considered as companies that use advanced technologies and digitization. Foreign Direct Investment is allowed in these forms of entities.

Only the above entities are permitted to receive Foreign Direct Investments from the concerned foreign investors. Hence foreign investment can be invested directly or indirectly in the above entities through the Automatic route and the Approval route.

Foreign Direct Investment can be made in the following ways

  • Direct Investment– As the name specifies direct investment is a form of investment made in a specific company. For example- If a foreign company wants to invest in the shares or capital instruments of an Indian entity, if it invests openly in the shares or capital instrument without any other party or through any other party, then such a form of investment is called as direct investment.
  • Indirect Investment- As the name specifies, indirect investment is a form of investment which is made through another entity or company. For- example when a foreign entity has some form share in the Indian entity. The share percentage or the amount of share control in the Indian entity is 40%. If the foreign company wants to invest in another company or partnership, then it can also go through the Indian Company where it has 40% ownership. This form of investment is called as indirect investment. This is an investment through another company in which form of control is present.

Therefore foreign investment can be made directly or indirectly from a foreign company into India. This form of investment can be made through the Automatic Route or the Approval route.

Different Forms of Routes- Automatic Route and the Approval Route

  • Automatic Route- In the Automatic Route, the investment is made by a foreign entity in a share or capital instrument which does not require any form of prior approval or consent from the government. This type of foreign direct investment is a relaxed one that does not require any form of permission from the government. The investment which is made through this route can be up to 100% investment. However, there are specific investment-related caps which would apply to the investment under these routes.
  • Approval Route/ Government Route- The Approval Route is also called the Government Route. Under this route, prior permission or approval is required for the investment to flow into India. Different authorities approve based on the area of investment made. The Government of India considers that this form of approval is required for sensitive areas where the amount of foreign direct investment has to be monitored regularly. Therefore such sectors are brought in the approval route.

Who Regulates Foreign Direct Investment under Approval Route

The Reserve Bank of India regulates the Foreign Exchange Activities under the Approval/ Government Route. However in Govt approval route, application shall be made in DIPP portal and the department shall route such application to the specific authority/Ministry for the approval. The following are the authorities dealing with approval for different sectors:

  • Ministry of Mines
  • Department of Defence Production, Ministry of Defence
  • Ministry of Home Affairs
  • Ministry of Information and Broadcasting
  • Ministry of Civil Aviation
  • Department of Space
  • Department of Telecommunications
  • Department of Industrial Policy and Promotion
  • Department of Economic Affairs
  • Department of Financial Services
  • Department of Pharmaceuticals

Eligibility criteria for Foreign Direct Investment under Approval Route

  • Eligible Investors.
  • Investors who cannot invest through the automatic route.
  • Countries such as China, Bhutan, Nepal, Bangladesh, Pakistan, and Afghanistan.
  • Investments which is not prohibited as an Investment under the Approval Route.

Process / Procedure of Foreign Direct Investment under the Approval Route

  • The Online application for foreign direct investment is through the Standard Operating Procedure (SOP).
  • The proposals/ applications for getting clearances from the government have to be filed online on the Foreign Investment Facilitation Portal (FIFP).
  • The applicant/ investment entity has to fill up the application form for considering the investment. The application form has to be submitted online on the portal with the list of documents. The list of documents is mentioned in Annexure-1.
  • The DIPP would scrutinize the forms online and transfer the form to the concerned department. This form of transfer is done through the e-transfer mechanism. This would take a process of two days. The below table shows the authority to which the transfer would occur.




Ministry of Mines

Defense, Industries in Manufacturing of Defence equipment

Department of Defence Production, Ministry of Defence

Manufacturing of small arms and ammunition

Ministry of Home Affairs

Print Media and Broadcasting

Ministry of Information and Broadcasting


Ministry of Civil Aviation

Satellites and manmade space objects

Department of Space

Telecommunication/ Communication Activities

Department of Telecommunications

Security Agencies / Country of Concern ( Pakistan and Bangladesh) which require security clearance

Ministry of Home Affairs

Food Products, Retail trading, Whole Sale Trading and other activities related to trading

FDI from NRI/ Foreign Investor

Department of Industrial Policy and Promotion

Equity Shares application for import and export activities that are carried out in the country


Application for Equity Shares/ Pre-incorporation and Post Incorporation Activities of a company

Department of Industrial Policy and Promotion

Financial Services which is not regulated by the Finance agency/ investment in a Core Investment Company (CIC)

Department of Economic Affairs

Banking – which includes private banks and public banks

Department of Financial Services

Pharmaceutical Activities

Department of Pharmaceuticals

  • In case the application does not have a digital signature, the DIPP will notify the applicant online to submit a physical document to the concerned authority. The Physical document or copy has to be signed by the applicant and uploaded online on the portal. The applicant has to submit the physical report within five days of such notification by the DIPP.
  • The DIPP will consider the time limit of such applications on a case to case basis. However, if the physical copy of the signature is not submitted to the concerned authority within seven days, then the time limit will be taken will be based on the submission of the physical documentation.
  • In case specific applications come under the purview of the automatic route, but previously were considered as applications under the Government Route or the Approval Route. For such a form of application, permission would be needed to be taken. Such permission is considered as the post facto approval under the approval route. Such permission is required for foreign direct investment under the approval route.
  • If there are any concerns or doubts regarding where the application will be processed, the decision of the concerned authority would be taken as the place where the application is processed.

Processing time for Foreign Investment Proposals under Approval Route/ Government Route

  • Once the DIPP receives an application, it would be forwarded to the RBI within two days. This is done to find out if there are all the compliances met as per the foreign exchange management act.
  • Applications that require security clearances would be submitted to the Ministry of Home Affairs (MHA). A similar form of clearance would be submitted to the Ministry of External Affairs (MEA) or the Department of Revenue.
  • The MEA and the department of revenue will provide their comments within the time.
  • The following applications/ proposals require security clearances-
  1. Investment in broadcasting, defense, private security, civil aviation, and mining activities.
  2. Investments from Pakistan and Bangladesh.
  • If there are specific clarifications regarding the amount of investment that is required, the DIPP will look into it. The DIPP will get back with the clarification issues in 15 days.
  • Ministry or other authorities that receive some form of clarifications have to respond within four weeks. These responses have to be done by the ministry in the online portal. If there are no comments which are provided in time, then it would be accepted that no comments would be required for the application.
  • Comments from the Ministry of Home Affairs would be given in 6 weeks. In case there are no comments provided, then the ministry has to intimate how long it will take to provide the comments.
  • After receiving the application, the competent authority will scrutinize the application. If no comments are received from the applicant, then this would not be required. Clarifications from the applicant must be made during the initial stages itself.
  • The authority has to keep in mind all the relevant rules and regulations while scrutinizing an application for FDI.
  • When the application has been scrutinized and decided (which would take 6 to 8 weeks), the authority will process the decision within the next two weeks to be sent to the applicant.
  • Acceptance or Rejection Letters will be sent to be applied through the DIPP or the concerned ministries.
  • If the amount of investment is more than Rs 5000 Crores, this would be placed before the Cabinet Committee on Economic Affairs. They will review the application and get back with the permission.
  • Proposal for acceptance or rejection would be sent by the competent authority in consultation with the DIPP.
  • The format of approval letters have to be according to Annexure- 2 (
  • For proper monitoring, the DIPP and other authorities have to maintain a database for all the applications.


Sl No




E-transfer of proposal from DIPP to Authority

Two days



Time given for signing physical copy.

Five days


Initial Scrutiny of the proposal

One week


Clarifications for DIPP on FDI

Two weeks


Time for submission by ministry/RBI/ any other department.

Four weeks



Time for MHA to for clarifications

Six weeks


Time limit for proposal requiring security clearance and proposals not requiring clearance.

Two weeks

When it comes to monitoring every month, the concerned ministries will hold a meeting regarding monitoring.

Documents Required

  • Certificate of Incorporation of the Investee & Investor Companies/Entities.
  • Memorandum of Association (MOA) of the Investee & Investor Companies/Entities.
  • Board Resolution of the Investee & Investor Companies/Entities.
  • Audited Financial Statement of Last Financial Year of the Investee & Investor Companies/Entities.
  • Article of Association of the Investee & Investor Companies/Entities.
  • List of Names and addresses of all foreign collaborators along with Passport Copy/ Identification Proof of the Investor Company/Entity.
  • Diagrammatic representation of the flow and funds from the original investor to the Investee Company and Pre and Post shareholding pattern of the Investee Company.
  • An affidavit stating that all information provided in hard copy and online is the same and correct.
  • A signed copy of the JV agreement/shareholders agreement/ technology transfer/trademark/brand assignment agreement (as applicable), in case there are existing ventures.
  • Board resolution of any joint venture company.
  • Certificates of Incorporation and charter documents of any joint venture/company, which is a party to the proposed transaction.
  • Copy of Downstream Intimation.
  • Copy of relevant past FIPB/SIA/RBI approvals, connected with the current proposal (in case of amendment proposal).
  • Foreign Inward Remittance Certificate (FIRC) in case investment has already come in and in case of post-facto approval.
  • In the cases of investments by entities which themselves are pooled investment funds, the details such as names and addresses of promoters, investment managers as Standard Operating Procedure for Processing FDI Proposals well as all the contributors to the investment fund.
  • List of the downstream companies of the Indian company and the details of the equity held by the Indian Company along with the details of the activities of the companies.
  • High Court order in case of a scheme of arrangement.
  • Valuation certificate as approved by a Chartered Accountant.
  • Non-compete clause certificate of the investor and investee company in case of investment in the pharmaceutical sector.
  • Certificate of statutory auditors as mandated in the FDI policy, as applicable.
  • Standard Operating Procedure (SOP) form.

How can Enterslice help

  • We can help you with the procedure related to the approval route for foreign direct investment.
  • We will submit the concerned documentation to authorities on behalf of you.
  • We monitor and track the application status.
  • We value your time and money.
  • We also offer post compliance services.

Frequently Asked Questions

What are the routes available under FDI?

Two routes are available under Foreign Direct Investment:

• Automatic Route- No consent or prior approval is required in this route.

• Approval Route consent is required from the government.

What is the difference between Foreign Institutional Investor and Foreign Portfolio Investor?

Foreign Institutional Investor (FII) is considered as an entity that is registered to invest in India. Foreign Portfolio Investor (FPI) means an individual who is registered under the SEBI (FPI) regulations 2014.

When was the amendment regarding FDI policy for neighboring countries brought out?

Due to hostile takeovers, the government has brought out an amendment in April 2020 to include all the neighboring countries which share borders with India to consider foreign direct investment under the approval route.

What was the scenario before this amendment in the FDI?

Neighboring countries except Bangladesh and Pakistan did not have to take prior approval from the government for investing in India. They were allowed to invest in India under the Automatic Route.