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Foreign Investment Routes in India : The FDI and FPI

For growth of an economy capital is an important element .The capital requirements cannot
be met from internal resources alone. For this purpose countries turn to foreign investors to
supply capital. Foreign capital can be used to develop infrastructure, set up manufacturing
facilities and service hubs, and invest in other productive assets such as machinery and
equipment, which contributes to economic growth and stimulates employment
Until January 2014 common routes for overseas investors to invest in our country was
known as FII and FDI.Foreign institutional investors are institutional investors from overseas who
are registered with SEBI and are allowed to invest in Indian Capital Markets. They are mainly foreign
fund managers, pension funds etc. In order to remove the ambiguity that prevails on what is

Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), a Committee
was constituted by Government of India under the Chairmanship of Dr. Arvind Mayaram,
Secretary DEA, Ministry of Finance The Committees recommendations were accepted by the
Govt in June 2014 Foreign investment of 10 per cent or more in a listed company will now be
treated as foreign direct investment (FDI) . From January 2014 onwards, new overseas investors
wanting to enter the Indian market will be registered under the FPI Regulations. The regulation
was notified by Sebi in January 2014.The FPI regulations aimed at reducing the entry
barriers for overseas investors. . The existing FIIs/SAs may continue to buy, sell or deal in
securities till the expiry of their current registration. On the other hand, existing QFIs were
required to register within a year.
Certain conditions have been laid down for investment by FPIs in debt instruments. FPIs are
permitted to invest in only the following debt securities: a) Dated Government Securities b)
Commercial papers issued by an Indian company c) Rupee denominated credit enhanced bonds
d) Security receipts issued by asset reconstruction companies e) Perpetual debt instruments and
debt capital instruments, as specified by the Reserve Bank of India from time to time f) Listed
and unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure
sector, where infrastructure is defined in terms of the extant External Commercial Borrowings
(ECB) guidelines; g) Non-convertible debentures or bonds issued by Non-Banking Financial
Companies categorized as Infrastructure Finance Companies(IFCs) by the Reserve Bank of
India; h) Rupee denominated bonds or units issued by infrastructure debt funds; i) Such other
instruments specified by the Board from time to time.

FPIs have been prohibited from purchasing T-Bills. However they are permitted to invest only in
G-Secs having a minimum residual maturity of one year.

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