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Govt issues fresh FDI guidelines, questions remain

The department of industrial policy and promotion has formally issued the new guidelines for calculation of foreign investment in Indian companies.

business Updated: Feb 18, 2009 12:06 IST
HT Correspondent

The department of industrial policy and promotion (DIPP) has formally issued the new guidelines for calculation of foreign investment in Indian companies.

The guidelines issued under two different “Press Notes” lay down norms for calculation of total foreign holding in Indian companies.

The new norms stipulate that if a company is owned and controlled by Indians, its investments would be counted as Indian. Moreover, if foreign holding in a company is less than 50 per cent and foreigners have no other ‘beneficial interest’ in the company, it will be considered as Indian-controlled.

The guidelines do not state that such a company cannot invest in all sectors, including in sectors where foreign direct investment (FDI) is prohibited, raising questions whether the government has actually allowed FDI in the retail sector through the backdoor.

An Indian company would be considered as controlled by non-resident if the foreign entities have majority holding or have the power to appoint directors in it. In case a joint venture company sets up a wholly-owned subsidiary in India, the
foreign holding in the downstream company will be treated as equal to the level of FDI in the parent company.

In areas such as broadcasting, defence production and others where there are sectoral caps of 49 per cent or less, the company will have to be owned and controlled by an Indian.

It has also been made mandatory for Indian companies to seek Foreign Investment Promotion Board’s (FIPB) approval if ownership and control is transferred to a foreign company where FDI in sectors like telecom and defence production where there is a ceiling FDI.

It also states that foreign institutional investment (FII) holdings, American and global depository receipts, NRI investment and investment through foreign currency convertible bonds (FCCBs) would now be included while calculating FDI.