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FDI rules open all Sectors to Foreign Investment
Saturday, February 14, 2009

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.



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