Budget 2015: Single cap for FDI and FPI may not boost foreign flows, say industry trackers

MUMBAI: The decision to have a common sectoral cap for foreign portfolio investment ( FPI) and foreign direct investment ( FDI) will make regulations simpler for investors, but may not lead to a rise in inflows, industry trackers say.

FM Arun Jaitley on Saturday announced that the government would merge the caps for FPI investments with FDI. "I propose to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps," he said.

"This means that if the cap on investment in a sector is 49%, both FPI and FDI combined cannot cross that limit. This is more of a sentimental boost, as it brings clarity on the otherwise ambiguous foreign investment cap, but may not lead to any tremendous boost in the actual investments," said Dev Raj Singh, ED, tax and regulatory services, Ernst and Young, India.

The biggest beneficiary would be the power and the commodities sectors. Consolidating FDI and foreign portfolio investment (FPI) based on percentage threshold will be helpful too, as will be the clarity on taxation.

"Attempts at aligning foreign investors and portfolio managers is a big positive," said Dhanpal Jhaveri, managing partner, PE, Everstone Capital.