One of our regular readers, Rajvendra Sarswat, brings to our attention a recent news report indicating a proposal for allowing foreign investors to take up partly-paid shares in Indian companies.
As Rajvendra rightly observes, “currently, if a foreign investor wishes to invest in India in installments, such as by paying half of the price for shares now, and the balance over a period of time, the same is not allowed” as there is considerable ambiguity in the FDI regulations. This problem becomes further acute in the present circumstances (triggered by the economic downturn) where available funding may not be sufficient for investors to meet the entire investment requirements up front. To that extent, the new proposal may be beneficial to foreign investors as it expands the scope for structuring the flow of their investments in installments.
However, Rajvendra also points to some issues that need to be addressed clearly in the regulations: “how and when will the balance payment be brought in, what issues may arise in case there is a dispute in payment, how will be consideration be determined say with factors like currency fluctuations etc.” These are valid concerns. In addition, what is also required is a concerted effort on the part of the Central Government (Department of Industrial Policy and Promotion) (DIPP) as well as the Reserve Bank of India (RBI) so that the policy and regulations issued by both these authorities are consistent leaving less scope for ambiguity and lacuna.