Wednesday, 19 August 2015

INTRODUCTION OF COMPOSITE CAPS FOR SIMPLIFICATION OF FOREIGN DIRECT INVESTMENT POLICY

Introduction

The government notified changes in the FDI policy under which there will be a composite cap on foreign investment in various sectors, except in banking and defence segments for simplification of Foreign Direct Investment policy. 

Composite Caps introduced

The government on 30/07/2015 notified changes in the FDI policy under which there will be a composite cap on overseas investment in various sectors, except in the banking and defence segments.

The press note issued by the Department of Industrial Policy and Promotion (DIPP) said that there will not no sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in securities market and power exchanges.

However, in private sector banking, there will a sub-limit of 49 per cent on portfolio investment within the overall foreign investment limit of 74 per cent, it said.
Similarly, in case of defense sector, the portfolio investment has been capped at 24 per cent under the automatic route.

There are other sectors which will also be benefited from this concept including, scientific journals, credit information companies, asset reconstruction companies, and power exchanges.

The press note clarified that the funds flow through debt instruments like foreign currency convertible bonds (FCCBs) and depository receipts (DRs) will not be treated as foreign investment till they are converted into equity.
It is clarified that the equity holding by a person resident outside India resulting from conversion of debt instrument will be reckoned as foreign investment.

It is also mentioned in the note that the aggregate FII/FPI/QFI investment which is made individually or made in conjunction with other kind of foreign investment shall not exceed sectoral/statutory cap.

The press note further said that the portfolio investment up to 49 per cent or sectoral/statutory cap, whichever is lower, will not need government approval, if they do not result in transfer of ownership or control from Indian citizens to non-Indian entities.

The note also clarifies that the onus of compliance of above provisions will be on the investee company.

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