New 2012 Edition of Consolidated FDI Policy Released
[Press Release on ‘Circular 1 of 2012’ dated 10th
April 2012]
The consolidated
FDI policy document is a single reference point for investors and regulators.
The first such consolidation was released in March, 2010 after which it has
been updated every six months. This ‘Circular
1 of 2012’-is the fifth edition of the consolidated policy document.
The significant
changes introduced in this edition of the Circular are:
(i) Policy for FDI in Commodity Exchanges:
At present,
foreign investment, within a composite (FDI & FII) cap of 49%, under the
Government approval route-i.e. through the Foreign Investment Promotion Board
(FIPB)-is permitted in commodity exchanges. Within this overall limit of 49%,
investment by Registered FIIs, under the Portfolio Investment Scheme (PIS) is
limited to 23% and investment under the FDI Scheme is limited to 26%. It has
now been decided to liberalise the policy and to mandate the requirement of
Government approval only for FDI component of the investment. Such investment
by FIIs, in commodity exchanges, will, therefore, no longer require Government
approval. This change aligns the policy for foreign investment in commodity exchanges,
with that of other infrastructure companies in the securities markets, such as
stock exchanges, depositories and clearing corporations.
(ii) Non Banking Finance Companies
(NBFC)-clarification on ‘leasing’:
It has been
clarified that the activity of ‘leasing and finance’, which is one among the
eighteen NBFC activities, where induction of FDI is permitted, covers only
‘financial leases’ and not ‘operating leases’. This provision intends to
clarify the coverage of the term ‘leasing and finance’, insofar as the NBFC
sector is concerned.
(iii) Import of capital goods/ machinery/ equipment (including
second-hand machinery)-conversion to equity:
At present,
conversion to equity is permitted for import of
capital goods/ machinery/ equipment (including second-hand machinery). It has
been represented before Government that the Indian capital goods sector, including the machine tools
industry, construction machinery and textile machinery, has been suffering
because of import of cheaper second hand machinery, which is often
sub-standard. With a view to incentivising machinery embodying
state-of-the-art technology, compliant with international standards, in terms
of being green, clean and energy efficient,
second-hand machinery has now been excluded from the purview of this provision.
(iv) Clarification on investment by
Foreign Institutional Investors (FIIs):
Currently, an
(v) Investment
by Foreign Venture Capital Investors (FVCIs):
Government has
permitted FVCIs
to invest in the eligible securities (equity, equity linked instruments, debt,
debt instruments, debentures of an IVCU or VCF, units of schemes / funds set up
by a VCF) by way of private arrangement / purchase from a third party also,
subject to stipulated terms and conditions. SEBI registered FVCIs have also
been permitted to invest in securities on a recognized stock exchange subject
to the provisions of the SEBI (FVCI) Regulations, 2000. These provisions have
now been reflected under the FDI policy as well.
(vi) Investment by ‘Qualified Financial Investors
(QFIs)’:
Government has
permitted QFIs to invest (DPs), in equity shares of listed Indian companies as
well as in equity shares of Indian companies which are offered to public in India
in terms of the relevant and applicable SEBI guidelines/regulations. QFls have
also been permitted to acquire equity shares by way of right shares, bonus
shares or equity shares, on account of stock split/consolidation or equity
shares on account of amalgamation, demerger or such corporate actions, subject
to the prescribed investment limits. These provisions have now been reflected
under the FDI policy as well.
(vii) General
permission for transfer of shares and convertible debentures:
The liberalised policy on transfer of shares/
convertible debentures of companies engaged in the financial services sector
has now been reflected under FDI policy.
(viii) Changes in FDI policy in single-brand retail
trading and pharmaceuticals sector:
The policy regarding Single Brand retail trading has been liberalized and
now FDI, up to 100%, is permitted, under the Government route, subject to
specified conditions, as per Press Note 1(2012) issued on 10.1.2012.
Accordingly, the revised provisions have been incorporated in the Circular. The
provisions of Press Note 3 of 2011, dated 8.11.2011, have also been
incorporated in the Circular.
In view of the
fact that Government has undertaken substantial rationalization/ liberalization
of the FDI policy, it is felt that the need for frequent amendments to the
Circular does not exist any longer. Further, any changes made in the FDI policy
are notified through Press Notes issued during the year. It has, therefore,
been decided that the Consolidated Circular on FDI Policy, which was, until
now, being released on a six-monthly basis, may, henceforth, be issued after
one year. As such, the next version of the Consolidated Circular on FDI Policy,
would be released on 29.3.2013.