Govt issues consolidated FDI policy; overhaul in the works

The policy is being put together since March 2010

The government today issued a consolidated Foreign Direct Investment (FDI) policy, incorporating recent changes as in multi-brand and single-brand retailing, investment from Pakistan, etc.

The department of industrial policy and promotion (DIPP) said needed changes in the policy were being examined separately. “This is just a compendium of all issued circulars. Change in the FDI policy is a separate exercise,” DIPP Secretary Saurabh Chandra told Business Standard.

The government is reviewing FDI policy comprehensively. Today, Finance Minister P Chidambaram told a press conference that FDI caps must be looked into again.

Earlier this week, Prime Minister Manmohan Singh had said the government would announce more FDI reforms.

The consolidated FDI policy  is being put together since March 2010, to make it easy for investors.

In September 2012, the government made some changes, such as allowing up to 51 per cent FDI in multi-brand retailing, diluting sourcing norms for single-brand retailing and allowing up to 49 per cent FDI in Indian airlines by foreign carriers. All these have been incorporated in the latest Consolidated FDI Policy, the sixth so far. The changes also categorically said that FDI in multi-brand retailing was subject to state government permission.  The policy also included changes in asset reconstruction companies (ARCs), power exchanges,  broadcasting and non-banking financial companies (NBFCs).

Last year, the government had also raised the FDI cap to 74 per cent in various services of the broadcasting sector. The foreign investment ceiling in ARCs was also increased to 74 per cent from 49 per cent, a move aimed at bringing more foreign expertise in the segment. It has said the total shareholding of an individual foreign institutional investor in an ARC shall not exceed 10 per cent of the total paid-up capital. The government had also permitted foreign investment of up to 49 per cent in power trading exchanges.      

Further, the policy has incorporated the changes made with regard to FDI from Pakistan. A Pak citizen or entity can now invest in the country under the government approval route.     

On issue price of shares, a new paragraph has been added. Under this, where non-residents make investments in an Indian firm in compliance with 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 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 one. The Reserve Bank of India had earlier said non-residents could make investment in an Indian company at the face value of shares or debentures,subject to compliance with the FDI scheme.