Foreign investments get composite caps; retailers to benefit

The Cabinet Committee on Economic Affairs has introduced a concept to simplify foreign investment norms by clubbing all investments as part of a composite sectoral ceiling.

Under the new policy, all foreign investments like FIIs, NRIs and others will be clubbed together.

“Approval of composite cap for foreign investment, while may appear procedural, is a significant reform for the economy as a whole as there will be more capital flowing into the system and significantly easing the procedural investment decisions by foreign investors”, he said.

It will also bring in transparency and clarity on the country’s foreign investment policy.

In this connection, the government said on Tuesday that FDI in the country has seen a 48 percent growth since the launch of the “Make in India” initiative in September past year. FDI grew 27 per cent to $30.93 billion in the same period.In another decision, the cabinet sanctioned an additional Rs 700 crore for the recapitalisation of weak regional rural banks (RRBs).

In 2014-15, investment by FIIs grew by 717 per cent to $40.92 billion. These include up to 100 per cent foreign investment in asset reconstruction companies, 74 per cent in private banking, 20per cent in public-sector banks and 49 per cent in power exchanges.

Composite caps have been suggested for sectors like agriculture, petroleum and natural gas, manufacturing, airports, real estate and telecommunications amongst others.

Jaitley in his budget this year had proposed to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps.

All foreign investment already made in accordance with the policy in existence would not require any modification to conform to these amendments. Foreign investment in sectors under automatic route but with conditionalities, resulting in transfer of ownership and/or control of Indian entities from resident Indian citizens to non-resident entities, will be subject to compliance of such conditionalities.

The move essentially allows portfolio investors or foreign institutional investors (FIIs) to invest more in Indian companies.

Kapoor added that his bank had received board approval in April 2015, as well as an enabling approval from shareholders for increasing the FII limit to 74 per cent, in the annual general meeting in June 2015.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP, felt the government would have to undertake an exercise to map capital requirement in different sectors. While a senior official said that the “sectoral conditions i.e. individual FDI and FII limit would override the decision in two key sectors – banking and defence”, experts said that the banking sector would be beneficiary of today’s decision.