FDI in IPO-bound LIC likely to open up fresh scope for disinvestment

NHAI & AAI, which are not registered as companies, also likely to benefit

Allowing foreign direct investment (FDI) of up to 20 per cent in Life Insurance Corporation of India (LIC) may open up divestment opportunities in other “bodies corporate” in the government such as National Highways Authority of India (NHAI) and Airports Authority of India (AAI), which are not registered as companies.

The Union Cabinet on Saturday amended the FDI policy ahead of the big-ticket LIC IPO scheduled for March as the current policy only allowed FDI in Indian companies and not bodies corporate. A body corporate is an entity that has a separate legal existence through an Act of Parliament and is not registered as a company under the Companies Act. LIC was instituted through the LIC Act, 1956. Similarly, NHAI and AAI have been set up through NHAI Act, 1988 and AAI Act, 1994, respectively.

“The reform in the FDI policy will have several benefits. It would facilitate foreign investment in LIC and other bodies corporate, for which the government may have a requirement for disinvestment purposes. The reform will facilitate ease of doing business and lead to greater FDI inflows. And, also, ensure alignment with the overall intent/objective of the FDI policy. Increased FDI inflows will supplement domestic capital, technology transfer and skill development. This will lead to accelerated economic growth and development across sectors and support the implementation of Atmanirbhar Bharat,” a government official said.
The government hitting the 51 per cent ceiling in several listed central public sector enterprises (PSEs) has constrained further equity dilution possibilities for disinvestment.

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While it has come out with a PSE policy, allowing privatisation of PSEs in non-strategic sectors, it is also looking for more avenues to raise money, including through asset monetisation. Allowing FDI in profitable bodies corporate like NHAI may open up fresh avenues for raising disinvestment proceeds.

However, a second government official said the amendment is only an enabling provision. “We don’t have any immediate plans to bring FDI in NHAI or AAI,” he added.

An industry department official said there would be many bodies corporate within the government and one has to see it department-wise. “It is for those classes of cases, where for some reason, they are not registered in the Companies Act. This is applicable for all statutory bodies, both under the Centre and states,” he added.

However, the industry department official clarified that sectoral limits will come into play if the government permits FDI in any other bodies corporate.

“This amendment does not make all bodies corporate automatically eligible for FDI. Government has to permit it. It has to be done on a case-to-case basis. However, the structure has now become facilitative for allowing FDI in the disinvestment process in the future,” he said.

Ajay Dua, former industry secretary, said this is a big move. “Entities like NHAI and port trusts will be eligible for FDI after the amendment. So, you are opening up such infrastructure entities for FDI. Since the Indian capital market is small, there is no harm opening up such entities for foreign capital. The government is just widening the field from where it can raise money,” he added.