The new guidelines on FDI will allow foreign investment in sectors like multi-brand retail where sectoral cap is zero per cent. This can be achieved through a multi layer structure where an investing company “owned and controlled” by Indians invests in parent company.
Consider an example of an investing company where 51 per cent equity is owned by Indians and the rest 49 per cent is owned by foreign entities. Under the new guidelines any investment made by this company in another company will be considered as Indian investment. Therefore, an investment by this company in a retail company will not be considered as FDI.
This allows foreign companies to invest in multi-brand retail through indirect route.
The new FDI guidelines say that foreign investment through an investing company “owned and controlled” by Indians would not be considered for calculation of indirect foreign investment.
“This would help in attracting foreign investment in all the sectors,” said Kamal Nath, Union minister of commerce. He also said that in case of transfer of ownership and control government permission has now become mandatory