Govt aligns foreign portfolio investment limit with sectoral FDI caps

The union cabinet today gave its approval for a review of the existing foreign direct investment (FDI) policy in various sectors provided in the amended Consolidated FDI Policy Circular 2015, by introducing composite caps for simplification of FDI policy to attract foreign investments.

Accordingly, the individual companies will be allowed to increase the aggregate limit of 24 per cent for foreign portfolio investment to the sectoral cap / statutory ceiling, as applicable, through a resolution by its board of directors, followed by a special resolution to that effect by its general body and subject to prior intimation to RBI.

The aggregate FII / FPI / QFI investment, individually or in conjunction with other kinds of foreign investment will not, however, exceed sectoral/statutory cap.

An FII / FPI / QFI is allowed to invest in the capital of an Indian company under the portfolio investment scheme up to 10 per cent of the capital of the company and the aggregate limit for FII / FPI / QFI investment is 24 per cent of the capital of the company.

Foreign investment will include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under FDI, FII, FPI, NRI, FVCI, QFI, LLPs and DRs of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. FCCBs and DRs having underlying of instruments which are in the nature of debt, will not be treated as foreign investment.

However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement will be reckoned as foreign investment, an official release clarified today.

For the purpose of computation of indirect foreign investment, foreign investment in an Indian company shall include all types of foreign investments regardless of whether the said investments have been made under FDI, FII holding (as on 31 March), FPI (holding as on 31 March), NRI, FVCI, QFI (holding as on 31 March), LLPs and DRs of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, it said.

FCCBs and DRs having underlying of instruments which are in the nature of debt, will not be treated as foreign investment.

However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement will be reckoned as foreign investment.

While in sectors / activities where foreign investment limit has been indicated, FDI will be subject to the conditions of the extant policy and applicable laws / regulations, security  and other conditionalities, in sectors / activities not listed therein, foreign investment will be permitted up to 100 per cent on the automatic route, subject to applicable laws/regulations and security and other conditionalities.

Wherever there is a requirement of minimum capitalisation, it shall include share premium received along with the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor.

The amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share cannot be taken into account while calculating minimum capitalisation requirement.

Sectoral cap, unless provided otherwise, is composite and includes all types of foreign investments, direct and indirect, regardless of the investor.

FCCBs and DRs having underlying of instruments will not be treated as foreign investment.

However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment under the composite cap.

Foreign investment in sectors under government approval route resulting in transfer of ownership and / or control of Indian entities from resident Indian citizens to non-resident entities will be subject to government approval.

Foreign investment in sectors under automatic route but with conditionalities, resulting in transfer of ownership and / or control of Indian entities from resident Indian citizens to non-resident entities, will be subject to compliance of such conditionalities.

The sectors which are already under 100 per cent automatic route and are without conditionalities would not be affected.

However, portfolio investment up to aggregate foreign investment level of 49 per cent will not be subject to either government approval or compliance of sectoral conditions, as the case may be, if such investment does not result in transfer of ownership and / or control of Indian entities from resident Indian citizens to non-resident entities,

Total foreign investment, direct and indirect, in an entity will not exceed the sectoral/statutory cap.

Any existing foreign investment already made in accordance with the policy in existence would not require any modification to conform to these amendments. The onus of compliance of the provisions will be on the investee company.

Meanwhile, foreign direct investment has shown substantial increase across the sectors. During the period October 2014 to April 2015 FDI inflow recorded a growth of 42 per cent from $20.75 billion to $29.42 billion. FDI equity inflows also increased from $13.41 billion to $19.84 billion, recording an increase of 48 per cent.

Last year saw significant jump in the approval route though no new sector was placed under the government approval. In fact more sectors were liberalised during this period.

As against $1.19 billion received under the approval route in financial year 2013-14, during the financial year 2014-15 recorded FDI inflow of $2.22 billion with a growth of 87 per cent, the release said.

The changes in the FDI policy had been announced in view of the changed scenario, the finance ministry release added.