Revised FDI Policy

The Department of Industrial Policy and Promotion (DIPP) has issued the new Consolidated FDI Policy Circular 1 of 2012 that is effective from today. An accompanying press release lists the key changes.
Some of the key changes relate to sectoral issues:
– relaxation for foreign investment in commodity exchanges whereby FII investment may be brought in through the automatic route; and
– clarification regarding the scope of ‘leasing’ for investment in non-banking finance companies (NBFCs).
Others relate to the imposition of additional restrictions on foreign direct investment (FDI):
– unavailability of share issuance option for purchase of second hand machinery from foreign suppliers; and
– the need to make prior intimation to the Reserve Bank of India (RBI) while increasing the limit of 24% foreign institutional investments (FIIs) in a single company.
The remaining changes formalize previous announcements that were already made by the Government:
– investments by foreign venture capital investors (FVCI) through private arrangements and purchase on stock exchange (discussed here);
– investments by qualified financial investors (QFI) (discussed here);
– liberalization of policy on transfer of shares in the financial services sector; and
– changes to sectoral policy in pharmaceuticals and single-brand retail trading.
In terms the periodicity of changes to the FDI policy, a decision has been taken to review the policy annually rather than to follow the current practice of bi-annual changes. In the interim, changes will be effected by way of press notes.

Although these are only the highlights of the policy, other issues might likely arise based on a detailed reading of the new policy, especially on matters of interpretation.

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.


  • Following is the text of RBI circular dated March 19, 2012:

    It is hereby clarified that the Indian company raising the aggregate FII investment limit of 24 per cent to the sectoral cap/ statutory limit, as applicable to the respective Indian company or raising the aggregate NRI investment limit of 10 per cent to 24 per cent, should necessarily intimate the same to the Reserve Bank of India, immediately, as hitherto, along with a Certificate from the Company Secretary stating that all the relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the Foreign Direct Policy, as amended from time to time, have been complied with.

    While the heading of the circular states "prior intimation", the text reproduced above appears to give an impression that, RBI should be informed after the limit has been increased (…..have been complied with) and there is no need to give prior intimation i.e. informing prior to initiating the process of increasing the limit.

    Any thoughts?

  • "….the new Consolidated FDI Policy Circular 1 of 2012 that is effective from today."

    "relaxation for foreign investment in commodity exchanges whereby FII investment may be brought in through the automatic route; and…"

    'effective FROM TODAY' AND 'MAY BE brought in'.


  • Rider>

    No wonder, every one of the policies so framed, or accompanying notification, etc. made, not just by SEBI, but by every other authority, owing to lack of clarity/inherent deficiencies, is invariably not being followed up by those responsible for enforcing, or complied by those expected to do or on whom they are intended to have a finding force !

    The following extract from a today Business Line Report(Markets / Stock Markets : SEBI lets off NSE with a warning for negligence) bears ample testimony to all such sordid state of public affairs commonly obtaining:

    SEBI also mentioned failure to provide information and clarification sought for. NSE in its reply said that modifications were an integral and operative part of the system and was permitted by SEBI to take care of human error while entering orders.
    NSE also submitted that excessive use of this facility resulted in the exchange initiating disciplinary proceedings against errant brokers.
    NSE said in its reply that it was difficult to know the intent behind the modification or require prior approval of the exchange with recorded reasons for every modification, given that millions of orders were entered everyday.
    The exchange further explained that modifications of client codes did not become illegal when such incidences were higher in number.


  • In continuation of my earlier comment, today's Financial Express (Page 5) is in fact going a step further, the headline says "prior permission" and not even "prior intimation" required for increasing FII holding.

    So is it "prior permission" or "prior intimation" or intimation post board and shareholders approval?

Top Posts & Pages


Recent Comments


web analytics

Social Media