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Government to be more liberal to FIIs
By siliconindia
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Thursday, 25 September 2008, 00:53 IST
New Delhi: Foreign institutional investors (FIIs) may be freed from the ambit of sectoral limits on foreign investment. Currently, this limit is applicable to both FIIs and foreign direct investments (FDIs).
To this effect, the Department of Industrial Policy and Promotion (DIPP) recently proposed a draft note for the Cabinet Committee of Economic Affairs to consider. The relaxation will apply to those sectors that have composite caps of both FDI and FII.
As per the new proposal, FII investment under the Portfolio Investment Scheme would be governed by schedule (2) of the Foreign Exchange Management Regulations, 2000, and not be taken into account for the overall FDI cap.
"The move will not impact sectors like banking and insurance which are governed by Acts of Parliament. However, sectors with composite caps which see administrative control like telecommunication services, broadcast services like direct-to-home and FM radio will benefit," a Delhi based FDI policy expert told Business Standard.
The proposal however demands certain preconditions, saying that such FIIs will not be able to seek board or managerial positions in the company in which they invest. And in if they are in any case planning to act in concert with the company concerned, they should disclose that in advance.
An official confirmation on the date of finalization of the new law is awaited though a senior ministry official said "the moves are being made in this direction."
The move could be read in the backdrop of the current situation when FIIs, traditionally strong investors in the country, is reducing commitments to India on the back of the global financial crisis.
A similar proposal was recommended in 2004 by the Ashok Lahiri committee, which had said, in general, FII investment ceilings be reckoned over and above prescribed FDI sectoral caps.