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Govt. Eases Foreign Investment Rules
Jul 18, 2015

In a move that will attract more overseas inflows and improve the ease of doing business in India, the Government simplified foreign investment rules by bringing together different categories.

Key Points

  • A composite cap for all kinds of overseas inflows is include,  including foreign direct investment (FDI), foreign portfolio investment (FPI) and investments by non-resident Indians (NRIs).

  • Now banks will find it easier to attract foreign capital up to 74%. Banks are already reeling under the pressure of rising bad loans and need billions of dollars to meet capital requirements.

  • Besides banks, credit information firms, commodity and power exchanges, and defence and other retail companies among others, will also benefit from the policy. 

  • The most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments.

  • The policy will allow any sort of foreign investment up to 49% without government nod (through the automatic route). 

  • However, investments that are subject to government approval will continue to come under the Centre’s purview. 

  • The same will apply to sectors which allow 49% FDI. 

  • In case of companies seeking to rejig their portfolio of investors within the 49% cap, it can be done through the automatic route, except in banking and defence, where the FPI limit has been capped at 49% and 24%, respectively, subject to government nod.

  • In sectors with 49% cap, the policy remains the same, and any sort of foreign investment can be brought in subject to the government’s existing policy.

  • However, investments made through foreign currency convertible bonds and depository receipts would not be treated as foreign investment unless the debt is converted into equity.

FIIs invested $40.92 billion in 2014-15, a 717% against the year-ago period. 

FDI grew 27% to $30.93 billion in the previous fiscal compared to a year ago.

 


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