Govt may put FDI & FII in same bracket
Highlights
NEW DELHI: The government is examining the possibility of redefining foreign investments in companies by removing the distinction between FDI and FII investments. The new policy, which will require changes in the Foreign Exchange Management Act (Fema) regulations, will look at foreign investments in a company as a whole, instead of treating foreign institutional investors (FIIs) as a separate entity.
The proposed policy change will impact several sectors, particularly those like asset reconstruction companies, direct-to-home distribution of broadcast signals and real estate, where separate sub-ceilings or conditions apply at present for foreign direct investment (FDI ), leaving FII investments outside their ambit.
Senior finance ministry officials are set to hold a meeting later this week with the Reserve Bank of India (RBI) and the Department of Industrial Policy and Promotion (DIPP) to take a final view on this matter. The debate over removing distinctions between FII investments and FDI came up following the DIPP proposal over foreign investments in the real estate sector.
Senior government officials told ET: ���It is becoming difficult to distinguish between FDI and investments from FIIs. Such distinctions are fast disappearing in developed markets.���
For example, while investments by GE Capital could be termed as FII, inflows from GE are classified as FDI. This, despite the fact that GE Capital could be a subsidiary of GE. Introducing conditions for FDI flows in sectors where there is a cap usually makes the matter more complicated. Treating all foreign investments, irrespective of FDI or FII, as the same when it comes to investment limits and conditions is seen as a more realistic approach.
The proposed policy change will impact several sectors, particularly those like asset reconstruction companies, direct-to-home distribution of broadcast signals and real estate, where separate sub-ceilings or conditions apply at present for foreign direct investment (FDI ), leaving FII investments outside their ambit.
Senior finance ministry officials are set to hold a meeting later this week with the Reserve Bank of India (RBI) and the Department of Industrial Policy and Promotion (DIPP) to take a final view on this matter. The debate over removing distinctions between FII investments and FDI came up following the DIPP proposal over foreign investments in the real estate sector.
Senior government officials told ET: ���It is becoming difficult to distinguish between FDI and investments from FIIs. Such distinctions are fast disappearing in developed markets.���
For example, while investments by GE Capital could be termed as FII, inflows from GE are classified as FDI. This, despite the fact that GE Capital could be a subsidiary of GE. Introducing conditions for FDI flows in sectors where there is a cap usually makes the matter more complicated. Treating all foreign investments, irrespective of FDI or FII, as the same when it comes to investment limits and conditions is seen as a more realistic approach.
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