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No govt nod needed for 49% FPI in most sectors

Business Standard:  July 31, 2015

New Delhi: The government on Thursday allowed up to 49 per cent foreign portfolio investment (FPI) through the automatic route in most sectors, including brownfield pharmaceuticals, single-brand retail, insurance, pension and facsimile editions of foreign newspapers. This is part of the new foreign investment policy, which allows composite foreign investment caps in all sectors barring private banking and defence.

Up to 49 per cent FPI could also come without government permission in commodity exchanges, credit information companies, stock exchanges, power exchanges, tea plantation, scientific journals, up-linking and down-linking of non-news current affairs TV channels, mining and mineral-separation of titanium.

Earlier, these sectors had lower caps for the automatic route. For instance, in the insurance and pension sectors, FPI of up to 23 per cent was allowed through the automatic route, while in brownfield pharma, any investment would require the government’s prior permission. This was also true of mining and mineral separation of titanium. In technical and scientific journals, facsimile editions of foreign newspapers and up-linking and down-linking of non-news current affairs TV channels, too, foreign investment required the government’s approval.

In single-brand retail, 100 per cent foreign direct investment (FDI) was allowed, but only up to 49 per cent could come through the automatic route. Now, up to 49 per cent FPI can come through the automatic route.

In commodity, power and stock exchanges, 49 per cent foreign investment was allowed automatically, but only 23 per cent could come as FPI. In credit information companies, 74 per cent foreign investment  was allowed through the automatic route, but only up to 24 per cent  could come as FPI.

Now, only a few sectors such as print media (dealing with news and current  affairs) would have a lower foreign investment cap (26 per cent), including for FPI.

Meanwhile, the government allowed composite caps for the sectors, instead of the earlier practice of separate caps for FDI and FPI. The Cabinet had taken a decision in this regard earlier this month.

“Now, there will be complete fungibility across all sectors and FII (foreign institutional investment) up to 49 per cent will be allowed automatically. Under the new rules, companies with a 100 per cent FDI limit can increase the limit of FII up to that level, of which 49 per cent requires no prior approval,” said a senior official of the Department of Industrial Policy and Promotion.

Private banking and defence are the only exceptions. In the private banking space, the aggregate FPI limit can go up to 49 per cent, while the overall foreign investment limit is 74 per cent. Through the automatic route, it could be up to 49 per cent and prior government permission would have to be sought for FDI beyond that. In the defence sector, foreign investment, including FPI and FDI, could be up to 49 per cent with prior permission of the government. Beyond that, the permission of the Cabinet Committee on Security has to be sought. These sectors were strategic and require more deliberation, the official said.

Earlier this year, Mumbai-based drug maker Lupin’s proposal to raise FII holding in the company from 31.77 per cent to 49 per cent was stuck. Subsequently, the company approached the government, following which it was allowed.

Now, Indian pharmaceutical companies can increase FPI, including FII, holding up to 49 per cent without government approval. However, if the entity intends to raise it to the sectoral limit of 100 per cent, it has to take the government’s prior permission.

The only caveat in this regard is if the foreign equity entering a certain company results in transfer of ownership from residents to foreign entities, the government’s permission in required.

As the government made foreign investment fungible, foreign investments would include FDI, FPI, investment from non-resident Indians and foreign venture capital investment. However, foreign currency convertible bonds and depository receipts will not be treated as foreign investment unless these are converted from debt instruments to equity holding.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.