Foreign investors may get a taste of ease of doing business

India could take steps to create a simpler regime for overseas investment by diluting the rigid distinction between foreign portfolio investment (FPI) and foreign direct investment (FDI), economic affairs secretary Ajay Seth told ET in a post-budget interview.

Similarly, norms could be revisited to help Indian industrialists whose overseas investments are greater than those in the country to invest at home more easily. This proposed revamp will include changes to the Foreign Exchange Management Act (FEMA), he said. Currently, a single FPI is allowed to hold up to 10% of a company's stock. In case of FDI, investment up to 100% is allowed in most sectors. "What if an investor were to say I had come via the stock market route but want to be an FDI (player). I want to be a significant beneficial owner in this firm. Do we have a route (to make it happen)?" said Seth. "No. Should we deny that route? The answer is no. So, whatever approval process we require, let's put it in place."

Watertight Regulations

In her budget speech on July 23, finance minister Nirmala Sitharaman said FDI and overseas investment rules will be simplified. Seth acknowledged that the extant regulations do not make for smooth sailing for these categories of investors and that needs to be addressed.

"There are now eight schedules of FEMA regulations, and they have served their purpose. But at the moment, there are watertight regulations (which don't allow easy flow of investment under one schedule to another)," Seth said, adding that administrative convenience should not override the broader economic interest.

FDI is restricted only in strategic or sensitive sectors and there is not much room for further relaxation. Therefore, the government is now turning its attention to the substantive issues of easing restrictive regulations to woo foreign investors.

Gross FDI inflows into the country have moderated in recent years. Having scaled a peak of almost $85 billion in FY22, inflows have eased for a second straight year through FY24 to touch $71 billion.