Government notifies changes in FDI policy

NEW DELHI: The government has notified changes in the FDI policy, paving the way for larger overseas investments in sectors such as multi-brand retail and telecom.

It also widened the definition of the term 'control' for mergers and acquisitions involving overseas companies, a move that will provide more clarity to foreign investors. The notification follows the Cabinet decision of August 2 to relax overseas investment norms.

The foreign direct investment (FDI) policy is now notified under FEMA regulations and is effective from August 22, Department of Economic Affairs Secretary Arvind Mayaram told reporters here.

According to the new definition, 'control' will include "the right to appoint a majority of directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements."

"We believe since the announcement of FDI policy, FDI has increased...FDI is increasing in India and investor confidence is increasing," Mayaram said. In the first quarter of the current financial year, FDI was USD 9 billion, up from USD 5 billion in the corresponding period last year, he said.

The notification will have to be tabled in Parliament within 30 days of the commencement of the next session, Mayaram said, adding it could also be put to vote in case a member decides to challenge it.

As per the revised FDI guidelines, the government relaxed norms for multi-brand retail trading and eased the mandatory 30 per cent local sourcing norms for companies.

FDI in insurance has been kept at 26 per cent as the bill to raise the limit to 49 per cent is pending in the Rajya Sabha. The cap in telecom was increased to 100 per cent from 74 per cent. FDI of up to 49 per cent can come through the automatic route.

In multi-brand retailing, the mandatory 30 per cent local sourcing requirement has been diluted, according to the notification. States can also permit multi-brand retail outlets to be set up in cities with a population of less than 1 million. As much as 100 per cent FDI in single-brand retail was allowed, of which 49 per cent is through the automatic route.

The investment cap in defence production was retained at 26 per cent, although a higher level may be considered in state-of-the-art technology production by the Cabinet Committee on Security on a case-to-case basis.

FDI up to 49 per cent was allowed in petroleum refining under the automatic route, as against the earlier norm requiring approval. The government also raised the FDI limit in asset reconstruction firms to 100 per cent from 74 per cent earlier.

In courier services, FDI of up to 100 per cent was allowed under the automatic route. Earlier, the same level of investment could be made through the FIPB route. The government allowed 74 per cent FDI in credit information firms under the automatic route.

The decision to liberalise FDI norms comes in the backdrop of the country's economic growth plunging to 4.4 per cent in the April-June quarter. It had slumped to a decade's low of 5 per cent in the 2012-13 financial year.

The expanded scope of the term 'control' will help in the calculation of total foreign investment -- direct and indirect -- in Indian companies. Previously, 'control' meant the entity with the power to appoint the majority of directors in a company.

The revision is also in line with the definition provided in the Substantial Acquisition of Shares and Takeovers Regulations, 2011, and the Companies Bill, 2012.