FDI rules open all Sectors to Foreign Investment

With foreign direct investment in the country trickling
to $1.36 billion in December, the government has amended rules for foreign
direct investment, thereby opening up almost all sectors of the Indian
economy, including defence, to foreign investment.

Under the revised norms for foreign direct investment
issued by the government on Friday, foreign investor can invest up to
49 per cent in almost all industrial sectors of the economy.

”An Indian company may be taken as being owned by
non-residents entities, if more than 50 per cent of the equity interest
in it is beneficially owned by non-residents,” according to a press
note issued by the department of industrial policy and promotion (DIPP)
on Thursday.

For companies involved in defence and information
and broadcasting, the largest Indian shareholder will have to own 51
per cent equity, CNBC TV 18 quoted commerce minister Kamal Nath as saying.

The definition of ownership is in line with that in
the Companies Act and, for calculation of indirect FDI, all categories
of foreign investment would be considered, the report added.

Organised multi-brand retail, hitherto forbidden territory
for foreign investors, also now stands open, he pointed out. This has
been made possible by the latest amendments to the FDI rules, which
classifies any company with less than 50 per cent foreign ownership
in a company as Indian.

Addressing a press conference on Friday, commerce
and industry minister Kamal Nath, however, sought to explain that the
revised norms bring transparency and uniformity to assessment of foreign
investment, based on control and ownership.

He said all forms of foreign investment, including
FDI, FII holding, NRI investments, American Depository Receipts, Global
Depository Receipts, Foreign Currency Convertible Bonds, and convertible
preference shares, would be taken into account.

He also said, for assessing foreign stake in any company,
the only exception made was in the case of a joint venture company setting
up a wholly-owned subsidiary in India. In that situation, the foreign
stake in the subsidiary company will be considered as equal to the stake
in the holding company, he said.

An Indian company, according to the press note, would
be deemed controlled by non-resident, if foreign entities have the power
to appoint majority directors on board.

India received foreign investment of $21.20 billion
during April-December period, against a target of $30 billion for the
whole fiscal. It will be a daunting task to mop up the remaining $8.2
billion in the remaining period of the last quarter of fiscal 2008-08,
in the face of global credit crunch.

The country received foreign investment of around
$24.5 billion in the previous financial year 2007-08.

Capital flows into the economy, which averaged $2.5-3,0
billion a month till September 2008, fell in October to $1.4 billion
and further to $1.08 in November.

Photo: Phoenix Equinox Hitech City, Hyderabad 3 by Wasiul Bahar, licensed under CC BY-SA 4.0, via Wikimedia Commons.