Focus: GS-III Indian Economy, Industry and Infrastructure
Why in news?
With reference to the ongoing auction process of coal mines for commercial coal mining in India: Foreign Direct Investment (FDI) Policy, 2017 was amended in 2019 to permit 100% FDI under automatic route in coal mining activities.
- The Auctioning process for coal mines for commercial mining was launched by the Nominated Authority, Ministry of Coal, Government of India.
- The Amendment permitting 100% FDI under automatic route in coal mining included changes to associated processing infrastructure, for sale of coal, subject to the provisions of Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time and other relevant Acts on the subject.
- The 100% FDI is subject to the recent government order that entities of countries sharing border with India can invest only under the Government route, with Government scrutiny and approval.
Restriction on FDI: Govt. Approval Mandatory for Neighbours
- A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
- However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
- Pakistani investors face further restrictions in requiring government approval for FDI in defence, space and atomic energy sectors as well.
- A transfer of ownership of any existing or future FDI in an Indian entity to those in the restricted countries would also need government approval.
- Investors from countries not covered by the new policy only have to inform the RBI after a transaction
Foreign direct investment (FDI)
- It is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest.
- Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country.
- Foreign direct investment can be made by expanding one’s business into a foreign country or by becoming the owner of a company in another country.