Current FDI policies in India categorize sectors under automatic and government approval routes. For sectors like defense, telecom, and financial services, investments above specified limits require government scrutiny, with limits capped at levels intended to maintain majority control within Indian entities. While 100% FDI is permitted in several non-sensitive industries under the automatic route, investments in sensitive sectors have restrictions, such as the cap on foreign investments in Air India, where foreign entities, including airlines, cannot own more than 49% of shares without government approval.
With national security and economic resilience becoming focal points, the government is particularly vigilant regarding FDI from neighboring countries with whom India shares strategic concerns. The current policy, introduced in 2020, mandates that investments from nations sharing a land border with India receive government clearance, a rule affecting investors from China, among others. This policy, widely regarded as an attempt to monitor foreign influence in critical sectors, aims to protect India's sovereignty amid growing geopolitical complexities.
Emerging trends indicate a global shift toward stringent FDI policies as countries like the United States and members of the European Union have moved to tighten foreign investment screening, particularly in technology sectors where security concerns overlap with economic interests. India’s approach, according to analysts, reflects this global trend while addressing unique challenges posed by its geographical and economic landscape. The proposed reforms may include refined screening criteria for investments in data-rich sectors and additional safeguards to protect intellectual property, technology, and national resources from undue foreign control.