FDI vs FPI — The 10% Line, the Two Entry Routes and the Sectors Foreign Money Cannot Enter

Three Deals, Three Different Answers

A US company buys 12% of a listed Indian firm. A Singapore fund buys 4% of another listed firm. A Chinese company wants 20% of an Indian start-up in a sector where foreign money is otherwise allowed automatically. Which is FDI, which is FPI, and which needs the government's permission?

The first is FDI, because it crosses 10%. The second is FPI, because it stays below 10%. The third is FDI, but it must take the government route — since 2020, investment from any country sharing a land border with India needs approval, whatever the sector.

This topic is a set of small rules like these: one percentage line, two entry routes, a short list of banned sectors and a handful of caps. Exams test each one in isolation, usually through a case exactly like the three above.

1. A foreign company buys 12% of the paid-up equity of a listed Indian company. How is this investment classified?

2. Which body registers and regulates Foreign Portfolio Investors (FPIs) in India?

3. Under Press Note 3 (2020), investment from which source must always take the government route, whatever the sector?

4. In which of the following is Foreign Direct Investment completely prohibited in India?

5. In which year was the Foreign Investment Promotion Board (FIPB) abolished?

6. Since 2020, up to what percentage of FDI is permitted in defence manufacturing under the automatic route?

7. The term 'hot money' in the Indian economy usually refers to:

8. A foreign company enters India by buying an existing factory from a domestic firm. This is an example of: