Regulation on Investing in Indian Equity Gains Clarity
Feb. 23 – Foreign firms looking at investing in Indian companies on an installment basis now have more clarity. A Foreign Investment and Promotion Board official recently clarified regulations for FDI via partly paid up equity. According to the clarification, the FIPB will allow Indian companies to issue partly paid up capital to foreign companies if the foreign companies agree to fully pay the requisite equity within 18 months.
The clarification means that there is no longer any disconnect between the Foreign Exchange Management Act and the Companies Act. Earlier, the FEMA didn’t allow issue of partly paid-up shares to non-residents while the Companies Act permitted it. This created ambiguity in the law leading FIPB officials to decide on partly paid up capital on a case by case basis.
As the financial crisis grips India tighter, the country is opening its doors wider to FDI. The Cabinet Committee on Economic Affairs (CCEA) recently released a statement that equity investments routed through companies in which a majority ownership and control is in the hands of Indians would be treated as fully domestic equity. The move effectively made room for millions of dollars of FDI to pour into the country.
FDI investments have been rising steadily in India and the country is confident that investments will continue to pour into the country. India attracted US$23.3 billion in FDI from April to November 2008, a rise of 45 percent.
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