India, FDI Rules in for Major Overhaul
- Please find below information to delink FII investment in
certain cases in India.
The Indian Government has proposed extensive changes in the
guidelines for foreign direct investment (FDI) that could
impact a range of industries such as telecom,infrastructure,
real estate and broadcasting.
The changes include such measures as including investments
by non-resident entities in sectoral limits, removing
foreign institutional investment (FII) towards calculating
sectoral equity limits with caveats and withdrawing key
norms in Press Notes 3(1997) and 9 (1999) on 100 per cent
foreign holding companies and their downstream investments.
These proposals were part of a note prepared by the
commerce ministry and discussed by the Cabinet committee.
They are aimed at liberalising the FDI regime not only to
attract more foreign investment against the background of
a global liquidity crisis but to standardise procedures
across various sectors.
The relaxations will apply to those sectors that have
composite limits (FDI plus FII) and for which there are
no separate statutes or rules that specifically govern FDI.
If the new norms are cleared, companies will get six months
to comply. The note suggests that the changes be
implemented in phases.
The first phase, which was discussed recently, will
finalise methods for calculating direct and indirect
foreign equity in Indian companies.
This includes counting investments by non-resident
entities(non-resident Indians and Overseas Corporate
Bodies) directly in an Indian company as FDI. NRI
investments currently do not figure in the sectoral
Streamlining FDI (Phase I)
* Investment by Indian companies in which foreign firms
have beneficial investment will be counted as direct FDI
* Indirect foreign investment through an investing Indian
company would not be considered for the calculation of
foreign investment if the Indian company is 'owned' and
controlled by resident Indian citizens
* Direct investments by non-resident entities to be
counted as FDI
* Investments by FIIs not to be counted towards sectoral
* Removal of Press Note 3 (1997) and Press Note 9 (1999)
meant for 100% holding companies.
According to the proposed guidelines, if a company based
in India declares that a foreign firm has a "beneficial
interest" in it, any investment made by the Indian company
in another domestic firm will be considered FDI.
Indirect foreign investment through an investing company
would not be considered in calculating foreign investment
if it is controlled and owned by resident Indian citizens.
This will apply if 50 per cent of the company is "owned"
by a resident Indian citizen or the resident Indian has
the power to name a majority of board directors in the
In the second phase the government will consider the issue
of excluding FII investment in calculating sectoral limits,
but a deadline has not been given. This adjustment has been
widely demanded by domestic and foreign investors.
The move will be a major plus for telecom companies many of
which are close to their 74 per cent equity FDI cap because
of FII investments.
Some exceptions, however, remain such as if the FIIs
choose to invest under the FDI scheme or when they submit
a declaration that they are acting in concert with any of
the companies that have invested in the Indian company.
To simplify procedures, the government has proposed
withdrawing Press Notes 3 and 9.
Press Note 3 of 1997 specifies that a foreign company will
have to secure Foreign Investment Promotion Board (FIPB)
approval to set up holding companies in India.
Press Note 9 of 1999 relaxed the conditions for setting up
holding companies and said foreign-owned Indian firms need
not take FIPB permission to make downstream investments in
sectors open to foreign investment.
The note said these notifications would lose their relevance
once the new norms for direct and indirect foreign equity
in an Indian company come into force.
Thanking you with best regards,
"TOGETHER WE ACHIEVE EXCELLENCE"
Yours in MAICCI,
(Hon. Secretary General, MAICCI)
Malaysian Associated Indian Chambers of Commerce & Industry
Megan Avenue II, B-9-1, (Block B, 9th Floor, Unit 1)
No. 12 Jalan Yap Kwan Seng
50450 Kuala Lumpur
Tel: 6 03 2171 2616
Fax: 6 03 2171 1195
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