New norms remove disparity between capital: Nath

Defending the new foreign investment guidelines released this week, Commerce and Industry Minister Kamal Nath today said the norms would not distinguish between different forms of foreign capital.

Nath said the guidelines would take into account foreign direct investment (FDI), portfolio investments by FIIs, investments by non-resident indians (NRIs), ADRs, GDRs, foreign currency convertible bonds as well as foreign currency convertible debentures while calculating the indirect foreign investment (downstream investment made by an Indian company with foreign investment).

“The present guidelines correct anomalous situations created by the old system for calculating FDI,” he added.

At present, these forms of capital are not treated uniformly. For example, investments by NRIs are not considered as part of FDI. However, he said the change did not alter the existing sectoral caps.

Nath said in the April to December period, FDI inflows stood at $21.2 billion. This means that FDI inflows in December were $1.36 billion. “We will be able to get FDI worth $30 billion in 2008-09,” he said.

The new guidelines were cleared by the government last Thursday and define what constitutes direct and indirect FDI as well as bring in the concept of ownership while computing foreign equity in Indian companies.

The new guidelines specify that if an Indian-owned and -controlled company with foreign investment undertakes a downstream investment, such an investment will not be considered FDI. This allows foreign investment to be directed towards sectors with restrictions like media or retail. But the catch is that the foreign investment has to be directed through a company owned and controlled by Indians.

“While calculation of direct foreign investment in an Indian company had been fairly clear, the need for fresh guidelines on calculation of direct and indirect foreign investment arose as a result of the use of different regimes across different sectors,” Nath said.