Government notifies norms of composite cap to simplify FDI

NEW DELHI: Government has notified the norms of composite caps for simplifying the foreign direct investment (FDI) policy, approved by the Union cabinet earlier this month. All sectors barring banking and defence can now get up to 49 per cent foreign institutional investment through the automatic route.

Sectors including brownfield pharma, retail, insurance, pension, non-news current affairs will be the biggest beneficiaries with room to attract more foreign portfolio investment. In sectors under government approval route any transfer of ownership due to foreign investment will require prior nod from the government. As per the new norms, all direct and indirect overseas investments, whether portfolio or FDI, will be subject to a composite foreign investment cap for that particular sector.

Banking and defence, which has been identified as strategic sectors by the government, there will be a sub-limit of 49 per cent and 24 per cent respectively on foreign portfolio investment. Funds flow through debt instruments like Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) will not be treated as foreign investment till they are converted into equity, a press note by the Department of Industrial Policy and Promotion said.

The press note also said that any equity holding by a person residing outside India resulting from conversion of any debt instrument under any arrangement will be reckoned as foreign investment under the composite cap. The note also clarified that there are no sub-limits of portfolio and other kind of foreign investments in commodity exchanges, credit information companies, infrastructure companies in the securities market and power exchanges.

Earlier this month cabinet had approved the introduction of composite caps in order to simplify the FDI policy.