Significant Rise in FDI via Government Approval Route
India Witnesses 277.6% Surge in Government Route Foreign Direct Investment (FDI) in FY25
India saw an impressive 277.6% year-on-year increase in foreign direct investment (FDI) through the government route, reaching $2.20 billion in the fiscal year 2024-25. Foreign Direct Investment (FDI) under the government route observed a significant surge to $2.20 billion in 2024–25, reflecting a growing trend of foreign companies investing resources in acquiring existing shares. The FDI for acquisition of existing shares, which includes partial or full exits by current domestic or foreign investors, has exhibited consistent growth, climbing to $13.1 billion in 2024–25 from $12.0 billion in 2023–24 and surpassing the $8.2 billion recorded in 2022–23 according to official government data.
Most sectors of the economy are open to FDI under the automatic route; however, specific sectors such as defence, space, aviation, financial services, banking, and telecom require government approval under certain conditions. For instance, in the defence sector, FDI over 74% must go through the government route; while in air services, an FDI exceeding 49% necessitates prior government approval. Additionally, in private banking, FDI above 49% and up to 74% requires scrutiny from both the government and the Reserve Bank of India (RBI). In the pharmaceutical sector, investments beyond 74% in an existing company need government approval as well.
In the fiscal year 2024–25, the services sector, encompassing banking, insurance, and other financial services, emerged as the primary recipient of FDI, attracting $9.34 billion or 18% of the total inflow. Regulations also allow the conversion of External Commercial Borrowings (ECBs) into equity through the approval route, which might impact the data. Apart from sectoral restrictions, investments from countries sharing land borders with India such as Pakistan, China, Bangladesh, Nepal, Bhutan, and Myanmar have to undergo the government approval route.
Notably, FDI from land-border countries covered by Press Note 3 remains minimal; for instance, FDI from China stood at a mere $2.67 million, while investments from Hong Kong totaled just $81.29 million. Despite this, the most significant source of FDI continues to be the automatic route, with $34.6 billion out of $50.0 billion coming through this channel in the fiscal year 2024-25.
