Panel suggests foreign VC inflows to be defined as FDI

A government panel has proposed that foreign venture capital (VC) investments should be considered as foreign direct investment.

Written by Shruti Srivastava | New Delhi | Published:October 21, 2013 3:56 am

A government panel has proposed that foreign venture capital (VC) investments should be considered as foreign direct investment (FDI) and should be dealt by the department of industrial policy and promotion (DIPP).

The panel,set up by the government to define FDI and FII has suggested that it makes sense for venture capital to be treated as FDI because they are “not institutional in nature”,an official told The Indian Express.

The four-member committee is headed by department of economic affairs secretary Arvind Mayaram and includes DIPP secretary,a deputy RBI governor and a whole-time member of Securities and Exchange Board of India (Sebi).

The government panel will meet on October 25 to finalise the report,the official said,adding that the proposed distinction between FDI and FII will not impact the current FDI regime.

“They will also not need Cabinet nod as it can be clarified through notification itself,” the official added.

Market experts said that the proposal,if accepted,will create one more layer of procedures.

“I think venture capital is already drying up in the country and this will add to that,” Jaganadham Thunuguntla,chief strategist,SMC Global,said. However,he added,there will be no implication on the stock market.

The department of industrial policy and promotion (DIPP) agrees with the overall nature of the proposed report,sources said.

While differentiating between FDI and foreign institutional investors (FII),the special dispensation provided to non-resident Indians (NRIs) would continue,according to the draft recommendations of the panel.

Currently,NRIs can make investment in India,under various schedules of the Foreign Exchange Management (Issue or Transfer of Security by a Person Resident outside India) Regulations,2000.

Under FDI rules,NRIs are allowed special dispensation in the sector of townships,housing,built-up infrastructure and construction or development projects without the performance-linked conditionalities attached to FDI in such projects.

In sectors including air transport services,domestic scheduled passenger airlines,non-scheduled air transport services and ground handling services,NRI investment,up to 100 per cent,is permitted under the automatic route.

Earlier in budget 2013-14,finance minister P Chidambaram had announced that while ambiguity on FDI and FII needs to be removed,international practice needs to be followed where an investor having a stake of 10 per cent or less in a company is treated as FII and those having more than that as FDI.

Defining Investments

* The panel,headed by department of economic affairs secretary Arvind Mayaram,says that it makes sense for venture capital to be treated as FDI because they are “not institutional in nature”

* The panel will meet on October 25 to finalise the report.

* The department of industrial policy and promotion agrees with the overall nature of the proposed report,say sources

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