Rejig of FDI policy in offing

Govt is trying to minimise layers of caps, clearly define the break-up of FDI and foreign institutional investment sub-limits

After the foreign direct investment (FDI) reforms of September last year, the government is set for another overhaul of the FDI policy — to give a simpler structure to foreign investors. The idea is to minimise layers of caps, clearly define the FDI break-up and foreign institutional investment (FII) sub-limits, besides removing ambiguity on greenfield (new) and brownfield (expansion) projects.

The Department of industrial Policy & Promotion (DIPP) is likely to circulate a Cabinet note on the changes.

“There are different caps. In some cases FDI-FII break-up is given, but in some it is not there. There is a negative list where FDI is not permitted; distinction between brownfield and greenfield investment is too complicated; and then there are the automatic and approval routes,” said a finance ministry official who did not wish to be named.

In some sectors like pharmaceuticals and airports, FDI in brownfield projects is permitted, only with government’s approval, whereas there is automatic approval for greenfield ones. The government may look to remove the brownfield-greenfield distinction. The official said FDI ceilings and norms were the same for existing and new projects if the distinction was not clearly specified in the policy.

Last month, AirAsia’s proposal for 49 per cent FDI in a new airline with Tata Sons had become a subject of controversy, with the civil aviation ministry saying the word ‘operating’ in the policy meant FDI was allowed only in existingprojects. The finance ministry and DIPP insisted it included all projects, as greenfield ceiling was not defined separately.

“In some sectors like print media, only 26 per cent FDI is allowed but people bring in FII, as the sub-limit is not specified. There are two views on FDI-FII caps. One is that there should be a composite cap for FDI and FII. The other is that the break-up of FDI and FII limits should be clearly defined. As a matter of policy, the government would always promote FDI more than FII,” said another official.

He added the government would try to minimise layers in FDI ceilings. At present, there are ceilings — at 26 per cent, 49 per cent, 51 per cent, 74 per cent and 100 per cent. There has been an argument that keeping two caps below 51 per cent does not serve any purpose.