FDI hits a stonewall

NEW DELHI: The Investment Commission’s proposals for policy relaxation in crucial areas like banking, real estate and retail appear to have hit roadblocks.

Proposals under fire include reducing the minimum cap for foreign direct investment (FDI) in real estate, allowing 49% FDI in retail without restrictions, making pension funds and haritable trusts eligible to invest in listed securities and allowing foreign venture capitalists to acquire shares in secondary markets.

One of the major recommendations on relaxation of norms permitting investments by provident funds, pension funds and charitable trusts in listed securities that are AA-rated or better, of up to 10% of their investible funds, has been objected to by the finance ministry.

The revenue department has said that the existing scope of the permissible norms under IT Rules 1962 cannot be expanded further. The existing provisions allow trusts to invest in debt and equity markets through mutual funds.

On the real estate front, the ministry of urban development has said that it is not in favour of allowing small foreign investments in real estate, government sources said. The commission has suggested that FDI should be allowed up to 10,000 sq meter for construction projects and 10 hectares for housing projects. The current norms permit a minimum cap of 50,000 square meters and 10 hectares, respectively.

On the recommendation of permitting 49% FDI in retail without any rider, the Department of Industrial Promotion & Policy (DIPP) has said that it would have an adverse impact on the employment front. Small retail shops in neighbourhood are bread and butter of millions of people in the country.

According to sources, DIPP has also expressed reservations against a blanked opening up of FDI up to 49% as various sections of society have raised questions on the implications of such a move on employment opportunities.

On allowing foreign venture capital (VC) investors to invest their funds in listed securities and allowing them to buy shares in the secondary market, it is said that VC funds must invest two-third of their investible funds in unlisted companies.

VC funds already get several benefits under the existing law. Existing norms allow passing on income to investors without tax. Foreign VC funds are already exempted from entry and exit pricing regulations.