Brands
Discover
Events
Newsletter
More

Follow Us

twitterfacebookinstagramyoutube
Youtstory

Brands

Resources

Stories

General

In-Depth

Announcement

Reports

News

Funding

Startup Sectors

Women in tech

Sportstech

Agritech

E-Commerce

Education

Lifestyle

Entertainment

Art & Culture

Travel & Leisure

Curtain Raiser

Wine and Food

YSTV

ADVERTISEMENT
Advertise with us

FDI Policy Changes

Wednesday March 11, 2009 , 4 min Read

Last few days saw some hectic activities/ movement from the Ministry of Commerce & Industry as it announced certain ‘reformative’ changes in the

FDI policy. Reformative, progressive, investor friendly or otherwise, it’s open to inference and perspectives.


Below is the gist of the 4 policy changes which have been brought about by the Ministry.


First: Press Note 1 of 2009 series provides the policy for foreign direct investment in print media dealing with news and current affairs. Main point of this press note is FDI upto 100% has been permitted with prior approval of the Government in publication of facsimile edition of foreign newspapers provided FDI is by the owner of the original foreign newspaper(s) whose facsimile edition is proposed to be brought out in India. For publications of Indian editions of foreign magazines dealing with news and current affairs, foreign investment including FDI by NRIs/PIOs/FIIs has been permitted upto 26% with prior approval of the Government. 


Second: Press Note 2 of 2009 series provides guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment in Indian companies. The said guidelines provide that any non-resident investment in an Indian company is ‘direct’ investment. An Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The guidelines also provide mechanisms for calculation of the holding in a company.


Third: Press Note 3 of 2009 series provides for the policy for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non – resident entities. The guidelines provide that in sectors with caps (each sector in the FDI policy are provided with a cap upto which FDI would be permitted and the conditions on which the investments would be permitted) such as defence production, air transport, ground handling services, asset reconstruction companies, private sector banking etc., approval from the Government would be required if the Indian company is incorporated with foreign investment and is owned by a non-resident entity; an Indian company with foreign investment controlled by a non-resident entity; control of an existing Indian company currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens that is being or would be transferred to a non-resident entity as a consequence of transfer of shares to non-resident entities through amalgamations, merger, acquisitions etc. The guidelines clarify that these guidelines will not apply for sectors where there are no FDI caps, that is, where FDI through automatic route is permitted.


Fourth: Press Note 3 of 2009 series provides clarificatory guidelines on downstream investment by Indian companies. These guidelines provide for definitions for ‘downstream investment’, ‘investing company’. The guidelines provide for operating companies, operating cum investing companies, investing companies, for companies that do not have any operations and also do not have any downstream investments for infusion of foreign investment into such companies, FIPB approval would be required irrespective of the amount or extent of foreign investment.  


These changes are brought in an attempt to create investor friendly and credible regulatory regime that would be a catalyst for more foreign investment inflow. However, on a careful reading of the changes they seem to have been made more for a particular section of industry (and its people). It will also give rise to many occasions of confusion in the regime. Guidelines for calculating foreign investment and transfer of ownership or control of Indian companies to non resident entities would, in my view, become a cause of much concern and interpretation.


These changes bring major implications for the holdings of telecom companies. FDI in Indian telecom companies is restricted to 74%, however, with these policy changes the holdings could and in all likelihood would go upto 98%. These policy changes, however, do not provide any clarity insofar as sectoral caps are concerned, something which is essential for investment policy. These policy changes also have a major impact on investment fund houses, which in turn invest in a spectrum of funds/ventures in India. Timing of these policy changes are a suspect though.


Further queries, discussions, exchange of thoughts are welcome on [email protected]


Abhishek Khare

B.S.L., LL.B.,BCL(Oxon)

Khare Legal Chambers