Faster FDI approvals on the horizon as India empowers trade missions

Indian missions abroad would be given the authority to grant in-principle approvals to foreign direct investment (FDI) proposals from different countries in a move that could cut through bureaucratic hurdles, the persons cited above said on the condition of anonymity. 

The Centre’s thinking–discussed in a recent high-level meeting involving key government ministries–comes in the backdrop of a global realignment of supply chains and keen interest from international businesses seeking manufacturing alternatives to China, which is facing unprecedented tariffs of up to 245% for exports to the US. 

The initiative would also look to break FDI inflows’ sliding trajectory over the past three years and shift the momentum to an upward curve.

“Proposals will be submitted to the trade missions, and it will be their responsibility to coordinate with the concerned stakeholders back home and facilitate the approval,” said the first person cited above. “It will allow investors to plan their India strategy more efficiently, without getting stuck in an endless loop of clearances.” 

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“The plan is under consideration and is expected to be approved soon,” said the second person. “The in-principle approvals will allow companies to begin planning, such as selecting sites and engaging with partners, while the final approvals will follow in a more streamlined process. The approvals will be granted within a specified time frame.”

The proposed shift, discussed at a recent meeting convened by the ministry of commerce along with the Department for Promotion of Industry and Internal Trade or DPIIT, ministry of external affairs (MEA), and ministry of finance, marks a significant departure from the traditional bureaucratic process, wherein such proposals take months to clear at the ministry level.

The sectors identified by the government for the initiative include defence, pension, other financial services, asset reconstruction companies, broadcasting, pharmaceuticals, single-brand retail trading, construction and development, civil aviation, power exchanges, e-commerce activities, coal mining, contract manufacturing, digital media, petroleum and natural gas, and telecom, among others.

Queries emailed to the ministries of finance, commerce, and external affairs remained unanswered till press time.

Biswajit Dhar, economist and distinguished professor at the Council for Social Development, pointed out that this is just one part of the process, and state governments also play a crucial role.

“Other approvals are needed at the state level, so the process must be streamlined across both levels of government,” said Dhar. “The goal should be to have both levels of government in sync to truly reduce the time taken, because real ease of doing business comes when multiple agencies involved in the investment process cooperate.”

The current system

Currently, an FDI proposal is first submitted to the DPIIT (which functions under the ministry of commerce), to assess for compliance with relevant laws and sector policies. 

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Depending on the nature of the investment, the proposal is sent to other ministries such as finance or home affairs for additional clearance. The process can take several months, depending on the complexity of the proposal and the need for inter-ministerial coordination.

In India, 100% FDI under the automatic route is allowed in most sectors, except a few strategically important ones such as defence and atomic energy.

FDI growth numbers

FDI inflows into India peaked at $84.83 billion in the fiscal year 2021-22, as per data shared by minister of state for finance Pankaj Chaudhary in the Lok Sabha on 10 March. Thereafter, the numbers declined to $71.35 billion in FY23 and $71.27 billion in FY24, following uncertainty about a potential global recession, economic crises triggered by geopolitical conflicts, and rising global protectionist measures.

During the fiscal, the share of insurance, telecommunications, and defence industries in FDI equity inflows stood at 4.13%, 0.63%, and 0.009%, respectively, according to Chaudhary’s statement. 

However, during the first half of the current financial year 2024-25, FDI inflows have increased by 26% compared to the first half of the previous financial year 2023-24 — rising from $33.51 billion to $42.10 billion, as stated by minister of state for commerce Jitin Prasada in the Lok Sabha on 11 February 2025.

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In FY24, the services sector (including finance, banking, and insurance) received $6.64 billion in FDI, followed by trading ($3.86 billion), non-conventional energy ($3.76 billion), hospitals and diagnostic centres ($1.53 billion), and electrical equipment ($1.05 billion).

FDI in the defence sector is allowed up to 74% through the automatic route (increased in September 2020 from the previous limit of 49%) for companies seeking new industrial licences. Additionally, 100% FDI is allowed in the telecom sector under the automatic route.

The sectoral cap for FDI in the insurance sector has been revised from 49% to 74% under the automatic route. The Union Budget 2025 also announced plans to further increase the FDI sectoral cap for the insurance sector from 74% to 100%. This enhanced limit will apply to companies that invest the entire premium in India.

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