Government To Relax FII Restrictions On FDI Capped Sectors

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Mar. 12 – The Government is considering proposals to scrap the cap mechanism by which foreign institutional investors are restricted in certain industries from investing in Initial public offerings, according to the Economic Times. The proposal, put forward by the Dept. of Industrial Policy & Promotion will be studied by various secretariats before being presented to parliament.

The move would lift the uncertainty over whether FDI applications in sectors such as retail, auto, aviation and telecoms will require permission from the Foreign Investment Promotion Board (FIPB). Currently, both the Reserve Bank of India, which manages foreign exchange and investment through the Foreign Exchange Management Act (FEMA) and regulations concerning FDI into India conflict over the requirement. Common practice is that applications to FIPB are required. It frees up uncertainty over the routes via which investments can be made, provided they remain within the pertinent capped FDI ceiling.

Signs too, are mounting that sectors such as real estate and aviation may also have their FDI caps relaxed. Aviation could be brought up to 49 percent ownership via direct investments, while the criteria for real estate in terms of required capitalization and development areas are also understood to be lowered. Currently foreign investors may only enter the Indian real estate market in projects in excess of 50,000 sqm (commercial) and 10 hectares for housing. The proposals would reduce these to 10,000 sqm and 10 acres respectively.

Foreign investors in brand retail, aviation, telecom and realty will find access to and participation within the Indian market far easier if these proposals are adopted.