Government may tighten norms governing FDI instruments
Jan 19, 2010 FEMA
The government is planning to tighten norms governing FDI through partly-paid shares, convertible warrants and units issued by venture capital funds (VCFs), as it looks to prevent misuse of these popular instruments. The finance ministry and the department of industrial policy & promotion (DIPP) have decided that the conditions such as sectoral ceilings, minimum-capitalisation and lock-in period governing foreign investment through equity should be applicable to these instruments.
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Tags: cabinet committee, capitalisation, case basis, ceilings, dea, economic affairs, eight months, entry restrictions, FDI, finance ministry official, FIPB, foreign investment promotion board, foreign investors, government officials, investment promotion board, norms, popular instruments, vcfs, venture capital funds, warrants
17 FDI proposal worth Rs. 4500 crore cleared by Govt. on recommendation of FIPB
Dec 2, 2009 FEMA
Based on the recommendations of Foreign Investment Promotion Board (FIPB) in its meeting held on November 20, 2009, Government has approved 17 Proposals of Foreign Direct Investment amounting to Rs. 4551.05 Crore approximately, the largest chunk of which is likely to be invested by a Russian government agency in telecom company Sistema Shyam.
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Tags: aerotropolis, cabinet committee, civil aviation, crore proposals, economic affairs, equity infusion, FDI, FIPB, foreign investment promotion board, indian subsidiary, international holdings ltd, investment promotion board, investment vehicle, pepsico, retail trading, russian government, scorpios, state property management, telecom company, telecom service provider
Funds behind Indian Browsers
Dec 1, 2009 Finance
Zero interest rates of US and low interest rates of other countries made cheap money to flow like water coming out of a fountain. All these cheap money founded BRIC economies assets at cheap valuations giving them enough scope to generate healthy ROI.
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Tags: cheap money, emerging market funds, emerging markets, FDI, fii, finance ministry, global liquidity, growth prospect, indian stock market, institutional investor, low interest rates, lucrative market, participatory notes, sudden surge, valuations, virtual stagnation, zero interest
State governments to monitor violation of FDI regulation in retail sector
Nov 26, 2009 FEMA
The Ministry of Commerce & Industry has put the onus of monitoring any violation by companies that have been allowed foreign direct investment (FDI) in the retail sector on state governments.
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Tags: domestic investment, FDI, FEMA, foreign direct investment, foreign exchange management, institutional users, management act, ministry of commerce, parliamentary standing committee, personal consumption, retail companies, retail sector, secretaries and administrators, state governments, union territories
The government plans to bring out yet another clarification to exclude banks from the purview of its revised foreign investment norms
May 2, 2009 FEMA
The government plans to bring out yet another clarification to exclude banks from the purview of its revised foreign investment norms, as it looks to prevent a clutch of Indian private banks from being categorised as foreign-owned, a senior department of industrial policy and promotion (DIPP) official said.
The status of investments made prior to the introduction of the new norms in February this year via Press Notes 2, 3 and 4 could also be subjected to further clarification.
This follows the Reserve Bank of India (RBI), backed by the finance ministry, asking DIPP, which sets the policy on foreign investment, to review its new foreign investment norms, as they could improperly categorise seven leading private banks as foreign-owned.
The RBI had recently pointed out to DIPP that under its revised FDI norms, these banks, including ICICI Bank, HDFC Bank, Development Credit Bank and ING Vysya, would cease to be counted as Indian-owned banks. The central bank has sought a review of the new guidelines.
The finance ministry, which had earlier vehemently opposed DIPP’s move to revise foreign ownership norms, has again raised these issues.
“Instead of reversing the new guidelines, as demanded by the finance ministry, the department would only seek to address and clarify a few key issues raised by the finance ministry and RBI,” said the official, asking not to be named.
These issues include treatment of FDI in the banking sector, shielding FDI-prohibitive sectors from foreign capital and treatment of investments made prior to introduction of the new FDI calculation norms.
According to the norms laid down under Press Note (FDI notification in government parlance) 2 and 3 of 2009, if a company is owned and controlled by Indians and has less than 50% foreign holding, it will be deemed as Indian-owned. If it has a majority of Indian directors on its board, it will be considered as controlled by Indians.
Conversely, a company that has more than 50% foreign investment, whether by way of direct investment or portfolio holdings or foreign currency debentures, it would be considered foreign-owned even if Indians have the right to nominate a majority of board members and thus have control.
“Though it is not possible to reverse the new guidelines, the department would take necessary steps to address a few issues related to banking and prohibitive sectors,” the DIPP official said. The DIPP is slated to meet both finance ministry and the Rbi to discuss the issues and therefater come out with clarifications.
The department will also address apprehensions relating to foreign money entering FDI-restricted sectors such as multibrand retail, agriculture and gambling under the garb of new FDI rules.
The finance ministry’s concern is that even if foreign holding in a company is as much as 49%, its investment in another downstream subsidiary company, which can even be in a sector not thrown open for FDI, will be termed as fully domestic investment.
Another Press Note or a clarification could be issued to make clear that the government will ensure that sectors such as multi-brand retail, agriculture, lottery and atomic energy, where foreign investment is prohibited, will be kept out of the reach of even indirect foreign investment.
However, investments that have been made prior to issue of new guidelines would remain unhampered, thus making the new rules prospective in operation, the official said.
Tags: Bank, clarifications, DIPP, FDI, finance ministry, foreign investment, hdfc, indian private banks, investment norms, investments, RBI, reserve bank of india
RBI, finance ministry divided on FDI relaxation given by of Press Notes
Apr 28, 2009 FEMA
It’s the central bank & finance ministry versus commerce over ‘unintended liberalisation’ permitted in February guidelines.
Differences have developed between both the Reserve Bank of India (RBI) and the finance ministry and within the government on the impact of Press Notes 2, 3 and 4 issued in February 2009 that significantly relax the guidelines on foreign direct investment (FDI).
The alignments appear to be RBI and the Department of Economic Affairs (DEA), which comes under the finance ministry, against the Department of Industrial Policy and Promotion (DIPP) under the commerce ministry, the nodal agency for FDI-related matters, to clarify several issues.
On March 20, RBI had asked the DEA to review the new guidelines on FDI issued under press notes 2, 3 and 4 in February 2009, saying they would lead de facto to full capital account convertibility.
The new norms need to be notified under the Foreign Exchange Management Act (Fema) by RBI to give it legal sanctity.
Significantly, the DEA also raised objections to the new FDI norms after receiving RBI’s letter and has asked the DIPP to clarify several issues. (DEA was, however, involved in the process of formulating the new press notes.)
According to government officials close to the developments, DIPP feels a comprehensive review of the new norms is not possible. The department, however, is open to releasing clarifications, which could take the form of “minor tweaking and not complete reversal of the new norms”.
Capital account convertibility means that an investor is allowed to move freely from the local currency to a foreign currency. India has limited capital account convertibility to prevent shocks to the capital account and maintain a stable exchange rate, by stipulating sectoral norms that ensure a lock-in period for investments.
The press notes simplify the method for calculating FDI and broadly state that as long as Indian promoters hold a majority stake (more than 51 per cent) in any operating-cum-investing company, it can bring investment up to 49.9 per cent through FDI. This company would be treated as an Indian company and it can invest through a joint venture in any other company that may be engaged in industries in which FDI has a sectoral limit. Several companies like retailer Pantaloon and media house UTV have restructured their organisations to raise FDI in their businesses through step-down joint ventures — FDI is prohibited in multi-brand retail and is restricted to 26 per cent for media
Questioning the proposed definition of Indian ownership and control, given in Press Note 2, RBI stated that ownership and control by a company may not be related to formal equity holding and the right to appoint a majority of directors on the board of the company in which the investments are being made.
“Control may be maintained through other forms such as funding through preference shares or loans, vesting of executive authority or super minority provisions (like right of first refusal or veto power) in minority shareholders through shareholder agreements,” argued the central bank in its letter. “Therefore, there is a need to fine-tune the definition of control rather than relying on the power to appoint majority directors,” the letter added.
Echoing RBI’s views, the DEA has also stated that an investing company with 49 per cent FDI can go ahead and invest in any FDI-prohibited sectors or exceed the sectoral limits in those industries that have them, sources said.
“In one sweep, therefore, any sectoral cap of 49 per cent and below has become meaningless in so far as downstream investment by a company with foreign investment below 50 per cent and qualifying as an Indian owned and controlled company,” the DEA argued in a letter, sources said.
“Such a company can apply for cable TV operations (49 per cent cap), FM broadcasting license (20 per cent cap), licensed defence items manufacture (26 per cent cap), printing news papers (26 per cent cap) up linking TV news channels (26 per cent cap) etc. Whether this stance has been approved as such or is an unintended liberalisation is not clear,” the DEA letter said..
The central bank expressed a similar view. “Not only will this lead to the formation of Indian companies that are primarily shell companies whose sole intention would be the downstream investment in sectors with FDI restrictions, but it would also lead to the near total circumvention of the extent FDI policy making it ineffective,” RBI said in the letter to the DEA.
Tags: capital account convertibility, DIPP, economic affairs, FDI, FEMA, Finance, finance ministry, foreign currency, foreign direct investment, foreign exchange management, RBI, reserve bank of india
Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment in Indian companies.
Feb 28, 2009 FEMA
Government of India
Ministry of Commerce & Industry
Department of Industrial Policy & Promotion
(FC Section)
Press Note No 2 (2009 Series)
Subject: Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment in Indian companies.
Investment in Indian companies can be made both by non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise of both resident and non-resident investment. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can be a cascading investment i.e. through multi-layered structure also.
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Tags: direct foreign investment, FDI, FEMA, FIPB, government of india, indian entities, indian insurance companies, indirect investment, investing company, investments, IRDA, irda regulations, ministry of commerce, NRI, telecom
Clarificatory guidelines on downstream investment by Indian Companies.
Feb 28, 2009 FEMA
Government of India
Ministry of Commerce & Industry
Department of Industrial Policy & Promotion
(FC Section)
Press Note No. 4 (2009 Series)
Subject: Clarificatory guidelines on downstream investment by Indian Companies.
The Policy for downstream investment by Indian companies seeks to lay down and clarify about compliance with the Foreign investment norms on entry route, conditionalities and sectoral caps. The ‘guiding principle’ is that downstream investment by companies ‘owned’ or ‘controlled’ by non resident entities would require to follow the same norms as a direct foreign investment i.e. only as much can be done by way of indirect foreign investment through downstream investment in terms of Press Note 2 (2009 series) as can be done through direct foreign investment and what can be done directly can be done indirectly under same norms.
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Tags: allotment, DIPP, direct foreign investment, downstream investment, FDI, FEMA, FIPB, indian companies act, investments, ministry of commerce, RBI, SEBI