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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Sunrise Textiles Ltd, an Indian company, plans to issue shares to a foreign investor in a sector where FDI is permitted only with Government approval. Through which route must the investment be made?

The investment must follow the Government route. Where a sector permits FDI only with approval, the foreign investor or the Indian company must obtain prior approval from the competent Government authority before issuing shares, rather than simply reporting to the RBI after allotment.

  1. AAutomatic route, with a report filed after allotment
  2. BGovernment route, with prior approval obtained through the competent authority before the investmentCorrect
  3. CPortfolio route, through recognised stock exchanges
  4. DRemittance route, under the Liberalised Remittance Scheme

Explanation

Sectors or activities that are not under the automatic route require prior Government approval, called the Government route. The application is routed through the single-window portal to the administrative ministry or department concerned. Automatic route reporting after allotment applies only to sectors that do not need approval.

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