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50% FDI through green channel

Partha Ghosh in New Delhi

A majority of foreign investors have started routing their direct investment into the country through the automatic route, as compared to only 25 per cent a year ago.

During January-April this year, of the total FDI inflows worth $1.36 billion, $678 million came through the FIPB/SIA route, while the remaining $688 million (or over 50 per cent) came through the automatic route (seeking only Reserve Bank's approval).

"Just about a year ago, the ratio was 25:75 in favour of the FIPB route. Today, over 50 per cent of the foreign direct investment is coming through the automatic route," senior government officials told Business Standard.

A senior industry ministry official said the government's initiatives to make the FDI regime more liberal were bearing fruit. The government is also planning to liberalise the FDI regime by bringing about more investor friendly guidelines, details of which he declined to provide.

Another reason for more foreign investors opting for the automatic route is that the government has shifted key sectors like telecom to the automatic route.

Also, after the government revises its formula to calculate FDI in line with international (IMF) practices, the inflow figures through the RBI route will show a further increase, the official pointed out.

The ministry is working in collaboration with the RBI to devise the new FDI formula, he said.

In the past five years, FDI inflows through the FIPB/SIA route at $13.14 billion (which includes ARDs/GDR issues as well) was three times higher than $4.2 billion worth FDI which came in through the automatic route.

But most of the sectors were not put under the automatic route during these years. In 1997-98, FDI inflows through the automatic route stood at $562 million as compared to $3.64 billion, which came through the FIPB/SIA route.

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