the new government, one would expect that the Budget would make wholesale
relaxations to the foreign investment policy and open up or further liberalise
various sectors. But, anyone adopting that tack is bound to be disappointed as
the Budget makes minimal changes regarding foreign investment.
investment funds receives a boost as it now eligible to receive foreign
investment. Hence, entities in India that are pooling vehicles for investments
such as private equity, hedge fund or real estate funds may now attract foreign
investment. This sector would therefore be able to attract further capital.
doubts remain on the effectiveness of such an approach given some
outstanding issues (including taxation) in relation to alternative investment
Budget seeks to abolish the differential caps on foreign investment under the
two categories of foreign direct investment (FDI) and foreign portfolio investment
(FPI). Currently, in several sectors there are different caps for FDI and FII.
For example, in the banking sector, while there is an overall foreign
investment cap of 74%, FPI is capped at 49%. The rest of the foreign investment
must necessarily come in through FDI. Once composite caps are introduced, the
total investment through either route (or both collectively) could be 74%.
Hence, FPI would obtain more headroom and enhance their stake (which is likely
to be the case in certain private sector banks as reported here
investment refers to a “Look East Policy” with a view to encouraging Indian
companies to make outbound investments in manufacturing facilities in countries
such as Cambodia, Myanmar, Laos and Vietnam.
on reforms pertaining to foreign investment. They are relatively minor in
nature. The Finance Minister appears to have adopted a cautious approach, and
has avoided the issue of opening up further sectors or enhancing the caps in
existing sectors open to foreign investment. Given the broad focus of the
Budget in terms of advancing industrial activity in India, this is somewhat