The government of India has established two routes through which foreign investors can make investments into the Indian economy. The routes for FDI are the automatic route and the government route. A thorough understanding of the two routes is required in terms of foreign investments as the government has divided the various sectors amongst them.

Government Route : As the name suggests, the route for foreign investments that has government involvement is known as the government route. To make foreign investments in the sectors that come under the government route, the foreign investors are required to first take approvals from the government as without approvals the foreign entities would not be able to make the investments in India. The foreign investors have to submit a proposal to the respective administrative ministry department who is responsible for granting permissions and then the investments can be made. 

Automatic Route : The sectors that come under the automatic route of FDI do not require any approvals from the government. The foreign investors can make the investments without taking any approvals from the government through the automatic route but the revised policies must be checked before making the investments to avoid any confusion. 

• One of the significant factors that make India an attractive destination for foreign direct investments is the market size. India has a vast customer base that foreign investors want to make the best use of. The buying capacity of the consumers is enormous, and India provides a good market for foreign goods.
• Due to the high return on investments, foreign investors want to invest in Indian companies and launch their products. The government of India plays its role rightfully in enhancing the number of foreign investments coming into the country by making time to time reforms in the FDI policy that increase the ease of doing business in the country.
• According to the World Bank data, India is currently in the 63 rd position in the Ease of Doing Business Rankings. It is a very positive thing for the country and aims to attract a high volume of foreign investments.
• According to the Department of Promotion of Industry and Internal Trade, the FDI equity inflow in India is at US$ 521.47 billion between April 2000 and December 2020. It indicates that India's hard work has paid off by improving the ease of doing business in India and making relaxations in the FDI norms.
• The FDI equity inflow in India is at the FDI equity inflows in India stood at US$ 51.47 billion in 2020-21 (between April 2020 and December 2020). The highest FDI equity inflow has been attracted by the computer hardware and software sector, which is US$ 24.39 billion.
• In 2020-21 (between April 2020 and December 2020), India attracted the highest FDI equity inflows from Singapore (US$ 15.72 billion), followed by the US (US$ 12.83 billion), the UAE (US$ 3.92 billion), Mauritius (US$ 3.48 billion), Cayman Islands (US$ 2.53 billion), the Netherlands (US$ 2.44 billion) and the UK (US$ 1.83 billion).

India has moved up the ranks to become one of the top ten countries globally in terms of foreign direct investment. According to a recent UN report, India received $59.64 billion in foreign direct investment in 2020. Moreover, foreign investments have increased by 19 percent, indicating that FDI India is in good shape.

The following are the recent developments that have taken place in foreign direct investments in India.

• Between April and December 2020-21, the Reliance Group sold roughly $28 billion worth of equity shares in seven companies to international investors. Jio Platforms, which has the most extensive wireless customer base in India, was sold to 14 international investors for more than $20 billion, including Facebook, Google, KKR & Co. Inc, and Qualcomm.
• In January 2021, Amazon joined hands with Startup India, Sequoia Capital India, and Fireside Ventures to launch a program that will support startups to take their brands to international markets and increase domestic exports.
• The Union Cabinet authorized Rs. 2,480 crore (US$ 337.53 million) in foreign direct investment (FDI) in ATC Telecom Infra Pvt Ltd. in November 2020.
• Amazon Web Services (AWS) announced in November 2020 that it would invest US$ 2.77 billion (Rs. 20,761 crores) in Telangana to build multiple data centers, making it the state's highest FDI ever.
• In May 2020, Philips, Dutch health tech and consumer electronics company, announced its plan to invest Rs 250-300 crore (US$ 35.47-42.56 million) to boost its manufacturing and R&D facilities in India.
• Since April 2020, the Government has received more than 120 FDI bids from China totaling Rs. 12,000 crore (US$ 1.63 billion). China invested $2.43 billion in India between April 2000 and September 2020.
• According to the Reserve Bank of India (RBI), India's Outward Foreign Direct Investments (OFDIs) in equity, loan, and guaranteed issue totaled US$ 1.85 billion in February 2021, up from US$ 1.19 billion in January 2021. The following are the government developments concerning FDI in India. In April 2021, Government increased FDI in insurance under the automatic route from 49 percent to 74 percent.

In April 2020, the Government amended the existing consolidated FDI policy for restricting opportunistic takeovers or acquisition of Indian companies from neighboring nations.

In March 2020, Government permitted non-resident Indians (NRIs) to acquire up to 100 percent stake in Air India.

The following are the recent measures that the Government of India has taken regarding foreign direct investment. According to the survey done by the Emerging Market Private Equity Association (EMPEA), India will be the most attractive emerging market for global partners (GP) investment.

The main aim of government initiatives taken for FDI in India is to bring ease of doing business and promote foreign investments in various sectors of the economy. In recent months, the Government has given 100% FDI in multiple industries and talks about giving 100% FDI in more sectors.

The Indian Government aims to achieve US $100 billion worth of FDI in just two years. India has been attracting significant foreign investments even when the world economy is not in good condition due to COVID 19 pandemic.

The following are the recent government initiatives taken for foreign direct investments in India.

• In March 2021, the parliament passed a bill to increase foreign direct investment (FDI) in the insurance sector from 49% to 74%.
• In March 2021, Mr. Shripad Naik, the Minister of State for Defence, stated that a total of 44 Indian companies, including public sector units, have received approvals related to FDI for joint production of defence items with foreign organizations.
• In December 2020, the Uttar Pradesh government agreed to grant special incentives to Samsung Display Noida Private Limited to establish mobile and IT display product manufacturing unit. Samsung will also receive a financial incentive of Rs. 460 crore (US$ 62.61 million) under the Central Government's scheme for the promotion of manufacturing electronic components and semiconductors (SPECS). This project would help Uttar Pradesh create a worldwide export hub and attract more foreign direct investment (FDI).
• In December 2020, changes in the guidelines for the provision of Direct-to-Home (DTH) services had been approved by the Union Cabinet, enabling 100% FDI in the DTH broadcasting services market. In May 2020, the Government increased FDI in defense manufacturing under the automatic route from 49 percent to 74 percent.

Types of FDI

To further understand the nuances of FDI in India, let us have a look at the types of foreign direct investments.

1. Horizontal FDI

• In this type of FDI the parent company initiatives the same business model in another country.
• The goods and services that are manufactured abroad are mostly similar to the products/services that are manufactured in the home country of the company.
• The term horizontal is given to this type of FDI because the similar operations of a company are carried out in another country

2. Vertical FDI

• This type of FDI is known as the export platform foreign direct investment in which the exports are sent back to the home market.
• The main contributor to this type of FDI is the increase of the trade blocks that have low internal trade barriers but have higher external barriers.

3. Platform FDI

• In the case of platform FDI, a business gets expanded to another country but the aim of this expansion is to take the output from the foreign country and export it to the third country.

Methods of FDI

Foreign investors have the opportunity of expanding their business into other countries through the means of foreign direct investment. The following are the various methods of foreign direct investment:

• Mergers and acquisitions
• Joint Ventures with foreign companies
• Starting subsidiary in an abroad country of the domestic company
• Getting voting stocks in a foreign company