Sectoral cap on FDI to stay

In order to remove ambiguity on the new FDI guidelines, the government on Thursday clarified that downstream investment companies will have to maintain sectoral cap on foreign direct investment.

In order to remove ambiguity on the new FDI guidelines, the government on Thursday clarified that downstream investment companies will have to maintain sectoral cap on foreign direct investment (FDI).

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This implies that foreign companies will not be able to invest indirectly in sectors like multi-brand retail where sectoral cap is zero per cent.

However, in sectors like telecom where 74% FDI is permitted, foreign investment can go up to close to 99% through multi-layer structure where an investing company “owned and controlled” by Indians invests in parent company.

The impact of press note 4 issued on Thursday by the Department of Industrial Policy and Promotion (DIPP) clarifies that in areas like up-linking of current affairs and news channels, FM radio and defence production, where current FDI caps are at 26%, 20% and 26% respectively, foreign investment through indirect route can go well above the sectoral cap.

However, due to sectoral cap restrictions, it may not go close to 99 per cent.