FDI vs FII – Foreign Investment in India
1. What is FDI & FII?
| Parameter | FDI (Foreign Direct Investment) | FII (Foreign Institutional Investment) |
|---|---|---|
| Stake & Control | ≥ 10 % voting power; management control | < 10 % voting power; portfolio only |
| Entry Route | Automatic / Government (Approval) | 100 % Automatic since 1992 |
| Instruments | Equity, CCPS, CCD, JV, WOS, LLPs | Equity, Debentures, Mutual Funds, ETF |
| Tenure | Long-term (5-7 yrs average) | Short to medium (1-12 months) |
| Regulator | DPIIT + RBI + SEBI (for listed) | SEBI + RBI |
| Target | Real-sector assets | Capital-market securities |
| Repatriation | Free after lock-in (if any) | Free after paying STT/Cap-gain tax |
2. Milestones & Dates (Must-Remember)
| Date | Event | Fact |
|---|---|---|
| 1991 Jul | New Industrial Policy | FDI liberalisation starts |
| 1992 Jan | India opens stock market | FIIs allowed with SEBI registration |
| 1997 | FEMA replaces FERA | Current-account convertibility |
| 2000 | First FDI Policy issued | DPIIT (then DIPP) master circular |
| 2014 Nov | “Make in India” launched | 25 sectors opened for 100 % FDI |
| 2016 Nov | FIPB abolished | 90 % + now through automatic route |
| 2017 Apr | GST implemented | Makes India one common market |
| 2020 Apr | New FDI Rule | Border-country investment needs Govt nod |
| 2021 Oct | Rs 4 lakh cr | Annual FDI inflow crosses for first time |
| 2022 May | PLI Scheme 2.0 | Boosts manufacturing FDI |
3. FDI Equity Inflows – Top Contributors (RBI-DPIIT)
| Rank 2022-23 | Country | % share | Sector | % share |
|---|---|---|---|---|
| 1 | Singapore | 30 % | Computer SW & HW | 20 % |
| 2 | Mauritius | 22 % | Services (Fin, R&D) | 15 % |
| 3 | USA | 10 % | Trading (e-com) | 13 % |
| 4 | Netherlands | 7 % | Automobile | 8 % |
| 5 | Japan | 6 % | Construction | 7 % |
Total FDI Equity FY 22-23: US $ 46.0 bn
Cumulative (Apr 2000-Mar 23): US $ 919 bn
4. FPI/FII Limits in Listed Companies
| Instrument | General Cap | Sector Cap (example) |
|---|---|---|
| Equity shares | 24 % of paid-up capital | 30 % PSU banks, 49 % insurance |
| Corporate bonds | No cap (within ECB norms) | – |
| G-Sec | 6 % of outstanding stock | – |
5. Quick-Reference Table – Routes & Ceilings
| Sector | Automatic Route Cap | Approval Needed Beyond |
|---|---|---|
| Defence | 74 % | 100 % |
| Telecom | 100 % | – |
| Railways | 100 % | – |
| Civil Aviation | 100 % (brownfield >49 % needs govt) | |
| Private Banking | 74 % (49 % automatic) | |
| Insurance | 74 % | 100 % |
| E-commerce marketplace | 100 % | FDI not in inventory model |
| Print Media | 26 % | – |
| Multi-brand retail | 51 % | Govt + local sourcing |
6. One-Liners for Last-Minute Revision
- FDI minimum 10 % voting power; FII always < 10 %.
- FIPB (Foreign Investment Promotion Board) scrapped in 2017.
- DPIIT releases quarterly FDI bulletin.
- Mauritius route preferred due to India-Mauritius DTAA (1983).
- FII is now called FPI (Foreign Portfolio Investor) under 2014 SEBI rules.
- NSDL & CDSL are custodians for FPI accounts.
- FDI creates capital assets; FII gives only financial capital.
- 100 % FDI allowed in RRBs (Regional Rural Banks) since 2021.
- “Press Note 3 (2020)” made neighbouring-country FDI subject to govt route.
- Highest ever monthly FDI: US $ 8.4 bn (Oct 2020).
- Gujarat topped FDI destination among states FY 22-23.
- FEMA violation handled by Enforcement Directorate (ED).
- FDI cap in Nidhi Company is 0 % – completely prohibited.
- FPI investment in G-Sec included in fully-accessible route (FAR) from 2020.
- Dividend Distribution Tax abolished in 2020; now classical system.
7. MCQ Corner (Railway Exam Pattern)
Q1. Minimum voting power to qualify as FDI is:
Ans: 10 %
Q2. Which body regulates FPI/FII in India?
Ans: SEBI
Q3. FIPB was abolished in which year?
Ans: 2017
Q4. Highest source-country for FDI equity in India (FY 22-23) is:
Ans: Singapore
Q5. FDI in multi-brand retail beyond 51 % is under which route?
Ans: Government route
Q6. FEMA replaced FERA in:
Ans: 1997 (came into force 1-6-2000)
Q7. FPI investment ceiling in a listed Indian company is:
Ans: 24 % (can be raised to sectoral cap by board)
Q8. Which sector is completely prohibited for FDI?
Ans: Lottery & gambling, Nidhi company, Chit funds
Q9. India crossed annual FDI inflow of US $ 100 bn first time in which FY?
Ans: 2021-22
Q10. “Press Note 3 (2020)” is related to:
Ans: Prior-govt approval for FDI from bordering countries
Q11. Which state received highest FDI equity inflow in FY 22-23?
Ans: Gujarat
Q12. FDI in insurance sector beyond 74 % up to 100 % needs:
Ans: Government approval + Parliament amendment (Insurance Act)
Q13. Custodian for FPI trades is:
Ans: NSDL/CDSL (designated depository participants)
Q14. Which of the following is NOT an automatic route sector?
Ans: Print media (26 % only, but under approval route)
Q15. Dividend paid to FII is now taxed under:
Ans: Classical system – in hands of investor (20 % max + surcharge)
Mnemonic:
“FII flies away quickly, FDI digs deep roots!”
BETA
