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

Under India's FDI policy, what is the meaning of the 'automatic route' for foreign investment in an Indian company?

Under the automatic route, a non-resident can invest in an eligible sector without prior Government or RBI approval. The Indian company must still make the post-issue reports required under FEMA, so the route removes only the prior-approval step, not compliance.

  1. AThe non-resident investor needs no prior Government approval, though post-investment reporting to the RBI is still requiredCorrect
  2. BThe investment is exempt from all reporting and compliance requirements under FEMA
  3. CThe investment needs prior approval of the SEBI Board before shares are issued
  4. DThe investment can be made only through the stock exchange and not by private issue

Explanation

Under the automatic route, the foreign investor or the Indian company does not need prior approval from the Government or the RBI. Filings such as Form FC-GPR reporting after issue are still required. The option claiming exemption from reporting is wrong because FEMA reporting continues to apply.

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