Companies in sectors with foreign direct investment
(FDI) limits could soon be exempted from taking prior approvals for
participation by foreign funds in their share issues, as per new rules
being considered by the government to attract more overseas investments.
A committee of top government officials will soon consider a proposal
that seeks to explicitly do away with the Foreign Investment Promotion
Board's (FIPB) approval for investments by foreign institutional investors
(FIIs) in public offers of companies that operate in sectors with such
FDI limits, a government official said.
The proposal, mooted by the Department of Industrial
Policy and Promotion (DIPP), is likely to be taken up by the committee
of secretaries shortly, said the commerce and industry ministry official,
who asked not to be named. This move will remove all ambiguity in the
policy over whether FIPB permission is needed for such investments and
could benefit companies in sectors such as singlebrand retail, aviation
and telecom, all of which have strict foreign investment limits. At
present, the government's foreign investment policies are silent on
whether such investments need FIPB approval, but companies as a practice
take its approval for their public offers due to lack of clarity.
Recently, Oil India and National Hydel Power Corporation
sought FIPB approval for raising foreign capital in their planned initial
public offerings, though both the oil and power sectors come under the
automatic route where such approvals are not needed. "There is
a lack of uniformity and clarity in the existing policy as far as treatment
of FII investments vis-à-vis constituents of a sectoral cap is
concerned," the official said. The secretaries' panel will also
consider a separate proposal to just prescribe a single composite cap
on foreign investment, doing away with sub-limits on portfolio investments
by foreign funds and FDI. Sectors such as commodity exchanges, credit
information companies, stock exchanges and direct-to-home broadcasters
have sub-caps for FDI and portfolio holdings by foreign funds.
If approved, foreign investment in a company could
be through any route so long as it remained within the stipulated composite
ceiling. The committee of secretaries will also consider proposals for
easing various restrictions for foreign investment in the real estate
and aviation sectors. The proposal for aviation includes allowing up
to 49% FDI in aviation through the automatic route. For real estate,
the restrictions mainly pertain to minimum area and capitalisation requirements.
The proposal will seek to reduce the minimum area criteria to 10,000
square meters for commercial developments and 10 acres for residential
projects.
