Foreign Direct Investment (FDI) equity inflows into India crossed the $500 billion milestone during April 2000 to September 2020 period; according to the data of the Department for Promotion of Industry and Internal Trade (DPIIT), the inflows during the period stood at $500.12 billion.

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Foreign Direct Investment (FDI) is when a company takes controlling ownership in a business entity in another country. With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they aren’t just bringing money with them, but also knowledge, skills and technology. Foreign Direct Investment (FDI) is considered as a major source of non-debt financial resource for the economic development; in order to supplement domestic capital, technology and skills for accelerated economic growth and development.

 FDI flows into India have grown consistently since liberalization and are an important component of foreign capital since FDI infuses long term sustainable capital in the economy and contributes towards technology transfer, development of strategic sectors, greater innovation, competition and employment creation amongst other benefits.

Automatic Route: Indian companies engaged in various industries can issue shares to foreign investors up to 100% of their paid up capital in Indian companies

Government Approval Route: Certain activities that are not covered under the automatic route require prior Government approval for FDIs.

There are a few industries in india where FDI is strictly prohibited under any route. These industries are

• Atomic Energy Generation
• Any Gambling or Betting businesses
• Lotteries (online, private, government, etc)
• Investment in Chit Funds
• Nidhi Company
• Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)
• Housing and Real Estate (except townships, commercial projects, etc)
• Trading in TDR’s
• Cigars, Cigarettes, or any related tobacco industry                                     A foreign institutional investor (FII) is an investor or investment fund investing in a country outside of the one in which it is registered or headquartered; outside entities investing in the nation’s financial markets. FIIs can include hedge funds, insurance companies, pension funds, investment banks, and mutual funds.

P-notes are, financial instruments, issued by registered foreign portfolio investors (FPIs) to overseas investors, hedge fund, who wish to invest in Indian securities   without registering themselves directly. They, however, need to go through a due diligence process.They are, in fact, offshore derivative instruments issued by foreign institutional investors and their sub-accounts against underlying Indian securities

P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets. An FII is an investor registered outside India but wants to invest in India. They collect money from investors and issue P notes to them.The PNs provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.

P notes  enables them to anonymously trade in securities or derivatives listed in the Indian stock market.  This saves time and costs for investors, but the negative aspect is that

• This route can also be used for bringing back the black money invested oversees
• There are apprehensions that the P-Notes are ideal money-laundering vehicles.
• Being used for “round-tripping” resident Indians’ money which is going out through questionable means and coming back using P-Note route.
• Sudden withdrawal by FIIs causes huge volatility in stock markets