FDI in the Small Scale Sector

Historically, there have been limited options for small-scale undertakings in India to obtain FDI. For instance, FDI was limited to 24%. FDI beyond this limit was permissible only if the unit deregistered itself as a small-scale unit. This policy has been relaxed by way of Press Note 6 of 2009, which permits micro and small enterprises to obtain FDI subject to the normal sectoral caps. Where an industrial undertaking manufactures items reserved for small scale industries (presently 21 items, prior Government approval is required for FDI in excess of 24%.

While this broadens options available for small scale units to raise capital, there are concerns that the benefit of these relaxations are not likely to be significant. For example, an Economic Times editorial calls for the creation of smaller local stock exchanges that cater to the needs of the small-scale sector. As discussed earlier here, SEBI has issued a discussion paper over a year ago regarding listing of stock by small and medium enterprises, including by establishing a separate stock exchange for such companies, but it is not clear if any concrete initiatives have yet been taken to realize this goal.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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