Importance of Transparency in FDI

Importance of Transparency in FDI


India has drafted rules and regulations, which maintains high level of transparency for its foreign investors. The foreign policies are monitored on a regular basis to ensure, which minimizes the confusion in terms of foreign investment and can resolve arbitration arising between any Indian company and foreign investor.

Reserve bank of India, Foreign Investment Promotion Board, and SEBI are some of the regulatory bodies that help the government in formulation of different foreign trade policies. The Indian government has maintained high level of precision that helps in reducing any uncertainty, loss, or disputes between the investors belonging to other countries. These rules are monitored and amended regularly depending on the need of an hour.

India is considered the land of opportunities, which allows its investors to invest their funds, share technology, use natural resources of the country, and others for the development.  Investors are happy with the transparency polices helping them earn better returns for their investments.

Government has listed the various types of sectors for foreign investors that have highest percentage of transparency. They are as follows:

Various retain industries,
Single brand retail industries,
Licensing policy for different manufacturing sectors,
Investments in small scale industries,
Aviation industries, and
Banking and insurance sectors.

Polices are drafted by the RBI and the government, in order to maintain the transparency which encourages fair trade for interested investors from across the globe.

Foreign investments are divided into tow categories –

Automatic routing, and
Investments, which needs government approval.

Government prints out annexure, which lists out the types of sectors, the limitations of capital investments, and the approval required from the concerned authorities for carrying out the business smoothly.

Licensing is very important for various sectors like manufacturing, export, and import of different types of goods and services. India has drafted rules, which limits the capital investment in various profit making sectors. These investors can invest in shares, debentures, and equities of private, public limited companies and retail industries.

It is important to get an approval from the PIFB and RBI for transferring the funds from the foreign bank. The time frame for transferring the funds is normally 30 days, but it can be extended in special cases. These investors also need to get permission from the central government, state government, and local municipal body for carrying out business.

Sectors, which have capital limitation of up to 26% and 49%, can function only after getting an approval from the RBI and SEBI. Department of economic affairs and Ministry of Finance closely monitor the functioning of these sectors and amend rules on a regular basis.

Transparency is also maintained in sectors/industries that prohibits foreign investment in certain industries like alcohol production, defense products, cigarettes and tobacco production, certain chemical products, and explosive products.

It is important to obtain no objection certificate or clearance certificate relating to pollution control. This ensures that the manufacturing of any product does not harm the environment, and also to show that you are not abusing the natural resources of the country. It has been drafted with an intention of protecting environment.

However, if the investment is more than 1 million INR, then acquiring such certificates can be exempted. Government also specifies the area or place where the production of goods can be carried out. 

Ms. Sowmya Somaiah is a Company Secretary and Founder of “Sunshine Corporate Solutions Pvt Ltd” at Bangalore, India. For more information visit

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