Automatic route and government route
Also called: Approval route · Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
These are the two ways foreign direct investment (FDI) can enter India. Under the automatic route, the foreign investor needs no prior approval from the government. Under the government route (approval route), the investor must get prior approval from the ministry concerned. The route depends on the sector and on where the investor comes from. The Foreign Investment Promotion Board (FIPB), which used to handle approvals, was abolished in 2017, and its work passed to the ministries.
Example
Press Note 3 (2020) put all FDI from countries that share a land border with India on the government route. So a Chinese firm investing in an Indian company needs prior government approval, even in a sector where investors from other countries could come in automatically.
Don't confuse with
- FDI vs FPI: the routes decide how FDI is approved. The FDI-FPI split is about the size of the stake: 10% or more of a listed company's equity is FDI, and less is FPI.
Related concepts
- Capital account
- BPM6
- Capital flows
- Foreign Direct Investment
- Foreign portfolio investment
- Greenfield and brownfield investment
- Overseas direct investment
- Round-tripping
- External commercial borrowings
- Non-resident deposits