The government in its effort to simplify FDI norms, has notified the changes in the foreign direct investment (FDI) policy under which there will be a composite cap on overseas investment in various sectors, except in banking and defence segments. The move simplifies procedures and leaves room for further investments by overseas entities. Government in its release has said that portfolio investment up to 49 percent, subject to the sectoral ceiling, will not need government approval, if they do not result in transfer of ownership or control from Indian citizens to non-Indian entities.
The press note further stated that there will not be any sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in securities market and power exchanges. However, in private sector banking, it said, there will a sub-limit of 49 per cent on portfolio investment within the overall foreign investment limit of 74 per cent.
Government has reasoned that the decision to keep defence and banking sectors out of the purview of composite foreign investment caps was to avoid “fly-by-night operators” and “quick money” entering these sensitive sectors. At present, in the defence sector, foreign investment limit of 49 per cent is allowed under the automatic route. Similarly, in private sector banking, the FPI limit is 49 per cent.
The Cabinet had earlier this month approved introduction of concept of composite caps. At present, 100 percent foreign investment under government approval route is permitted in these sectors, except insurance and pension, where the cap is 49 percent. However in case of FDI, a foreign investor is required to obtain government approval above 26 percent, though there is no such restriction on portfolio investments.
