In a move, which would simplify the rules governing foreign portfolio investors in India, the government is planning to unveil a new category for overseas investors called foreign portfolio investors (FPI) that do not come under the foreign direct investment (FDI) route. The FPI category is expected to include all classes of foreign investors such as NRIs, FIIs and qualified institutional investors whose investments are distinct from FDI inflows.
As per the existing framework, portfolio investment in any company through various routes such as FIIs (24%), NRIs (10%) and QFIs (10%) is allowed up to 44%. With the proposed changes, all these categories will be clubbed together as FPI therefore foreign funds up to 44% can be invested in a firm without being classified as FDI. The idea is to minimize the number of caps, and clearly define FDI and FII, which is in line finance minister’s Budget statement.
Finance Minister P Chidamabaram in his Budget speech, had proposed to follow the international practice with regard to defining FDI and FII, which says that foreign investment of 10 percent or less in a company is treated as FII and if more than 10 percent, the investment is treated as FDI.
In order to implement the FM's vision, a committee was constituted with top officers including chief economic advisor Raghuram Rajan and representatives from the departments of revenue, industrial policy, Reserve Bank and SEBI. Further, the committee will discuss the key issues regarding the foreign investments into the Indian companies.