Revised Guidelines on FDI

    Seeking to further simplify the foreign investment regime, government on Saturday came out with the revised consolidated guidelines on FDI.

    The guidelines incorporated changes with regard to inflows in multi brand retail and allowing Pakistan nationals and companies to invest in the country.

Besides, it has included policy changes in sectors like single brand retail, asset reconstruction companies (ARCs), power exchanges, civil aviation, broadcasting and non-banking financial companies (NBFCs).

    

    The government made these changes in the sixth edition of the Consolidated FDI Policy Circular, a ready reckoner on foreign investment-related regulations that is effective from April 5.

Last year, amid opposition from some of its key allies and state governments, the Centre permitted 51 per cent FDI in multi-brand retail sector. The government also allowed foreign airlines to pick 49 per cent stake in the cash-strapped domestic carriers.

Similarly, it has raised FDI cap to 74 per cent in various services of the broadcasting sector. The foreign investment ceiling in ARCs has also been increased to 74 per cent from 49 per cent, a move aimed at bringing more foreign expertise in the segment.

It has said that the total shareholding of an individual FII in an ARC shall not exceed 10 per cent of the total paid-up capital.

    

    Further, it has incorporated the changes made with regard to FDI from Pakistan. Now, a Pakistani citizen or an entity can invest in the country under the government approval route.

With regard to issue price of shares, a new paragraph has been added.

Under this, where a non-residents including NRIs are making investments in an Indian firm in compliance with the provisions of the Companies Act, 1956, by way of subscription to its Memorandum of Association, “such investments may be made at face value subject to their eligibility to invest under the FDI scheme“.

    The government has permitted foreign investment of up to 49 per cent in the power trading exchanges in the country.

The policy has also listed as many as eight mandatory conditions and one optional clause with regard to conversion of a company with FDI into a Limited Liability Partnerships (LLPs) firm.

Govt to review FDI Caps

‘If the cap is serving no purpose...then we should relax or remove it’

Govt to review FDI Caps  in various sectors as the ceiling were fixed long ago and might have outlived their utility.

   

     The government came out with revised consolidated guidelines on FDI in its bid to further simplify the foreign investment regime.

     The FDI caps,  were laid down historically at different points of time.Now we are into [the] 22nd year of liberalisation. These caps must be looked into again.”

At present, two committees, one under DEA (Department of Economic Affairs) Secretary Arvind Mayaram and the other constituted by the Reserve Bank of India (RBI), are examining different aspects of the FDI regime.

     The liberalisation of FDI in multi-brand retail, civil aviation and other areas, are important signals. Govt is reviewing the FDI policy comprehensively to see what more can be done in the coming months.

 

     Alongside, Commerce and Industry Minister Anand Sharma had also indicated that further relaxation of foreign investment norms could include hikes in the FDI cap for sectors such as insurance, banking and defence in a “calibrated and incremental” manner.

Meanwhile, the main brief of the eight-member Mayaram committee, which held its first meeting on April 4, is to look into and re-define what should be regarded as FDI and FII (foreign institutional investment) in keeping with the principles and practices being followed internationally.

As per the existing guidelines, if an investor has a stake of 10 per cent or less in a company, it is treated as FII and if the holding exceeds 10 per cent, the investment is treated as FDI.