Govt to change FDI norms for better inflow

The Times of India
1 April 2010

http://timesofindia.indiatimes.com/biz/india-business/Govt-to-change-FDI-norms-for-better-inflow/articleshow/5748645.cms

To promote foreign direct investment (FDI) in the country, the government is planning to bring some changes in FDI norms. Commerce and industry minister Anand Sharma said government is considering to allow foreign investment in limited liability partnerships (LLPs).

It is also trying to clarify whether investments through partly-paid shares and warrants should be considered as FDI or not. Clarifications will carry clear-cut definitions, he added.

FDI rose 15.4% to $1.7 billion in February compared to $1.5 billion in the same month last year. During April-February of this fiscal, the inflow declined to $24.6 billion, from $25.4 billion in the same period last year.

LLP, a fast emerging form of business structure, is a hybrid of companies and partnership firms, which allow unlimited number of partners in an entity but their liabilities are restricted to the extent of the stakes held by them. Since it is a new form of ownership, the government is yet to form guidelines for this structure.

However, the existing norms of calculating FDI (which came in December 2009) on the basis of ownerships and not on the basis of proportionate holdings of foreign entities in an Indian company through various layers, will continue. Because of these norms, ICICI Bank, in which foreign holding is almost 75%, is considered as a foreign bank. RP Singh, secretary at Department of Industrial Policy and Promotion, said government is aware of such issues but clarified that just because of such few cases, the policy can not be changed.

The central bank and the finance ministry have expressed their reservations on these norms, taking into account the status of a number of Indian banks.

The new document of consolidated FDI policy issued by DIPP on Wednesday will include all rules, relating to FEMA and RBI guidelines. But the document does not involve any policy changes. ‘‘The intension of this exercise is not to make changes in the existing guidelines but to make them comprehensible to all investors and stakeholders over a single platform," Sharma said.