Telecom: FIPB rings for FDI norm review

NEW DELHI: With the Hutch-Vodafone legal wrangle laying bare the loopholes in the country’s FDI rules, FIPB has asked the government to hold a complete review of FDI guidelines and tighten norms related to direct and indirect shareholding.

FIPB has taken note of the various legal ways in which existing norms can be flouted and wants these plugged, a source said. Exploiting current loopholes, a foreign company can control stake –– through an Indian front –– even in sectors where FDI is not allowed.

The rules should be stringent enough to ensure foreign holding is not more than the stipulated sectoral FDI cap, the source said, adding the new FDI guidelines would also apply to the Hutch-Vodafone deal.

This implies that if the government comes up with stricter measures than the current conditions under which the Hutch-Vodafone deal has been approved, then the company will have to adhere to the new norms.

After the revision in guidelines, companies operating in sectors having FDI caps will have to prepare themselves for stricter norms by putting in place transparent corporate structures. They would also have to be careful in not allowing any slippage on the FDI limit as the government is set to crack the whip on companies in which foreign investors hold stake through Indian fronts.

It may be noted that sectoral caps exist for sensitive sectors such as defence and retail. The review of FDI norms may open a can of worms and the government may have to examine the holding structures of companies to rule out a situation wherein some Indian investor is acting as the face for a foreign investor.

The government is already considering redefining FDI and FII investments so there is a clear-cut demarcation between the two.