Seeking to simplify norms, a government panel has suggested that foreign investment of over 10 per cent in a listed company be treated as FDI and the one from NRIs on non-repatriable basis be deemed as domestic investment.
The panel on rationalising definitions of FDI and FII, headed by Finance Secretary Arvind Mayaram, said that foreign investment in an unlisted company should be treated as FDI.
It aims at removing ambiguities over clear demarcation between Foreign Direct Investment and Foreign Institutional Investment.
It also said an investors may be allowed to invest below the 10 per cent threshold and “this can be treated as FDI subject to the condition that the FDI stake is raised to 10 per cent or beyond within one year from the date of the first purchase”.
If the stake is not raised to 10 per cent or above, then the investment can be treated as portfolio investment.
Foreign direct investment is subject to sectoral caps.
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FDI reflects a lasting interest and long term relationship, while under portfolio investment the relationship between the investor and the company remains largely anonymous, the report said.
The report said any investment by way of equity shares, compulsorily convertible preference shares/debentures less than 10 per cent should treated as Foreign Portfolio Investment (FPI).
FPI includes portfolio investors like foreign institutional investors (FIIs) and qualified foreign investors (QFIs).
“The monitoring of the individual FPI limit of less than 10 per cent will be done as hitherto by SEBI. The compliance with the FPI aggregate limit is as of now being done by RBI…and this will continue,” the report said.
The panel further said that there is a case for treating “non-repatriable” investment as “domestic” and exempting it from FDI related conditions.
It said NRIs have set up large businesses abroad and may prefer investing through corporate entities.
“Overseas Corporate Bodies was one such vehicle, but for various reasons, that has been derecognised in late 2003. With suitable safeguards and checks, this can be revived in a different form and NRI investments enhanced,” the report suggested.
It further said a separate team of SEBI, RBI and DEA can look into all the aspects of Foreign Venture Capital Investors (FVCI) investment and rationalise the same.