With the civil aviation industry in India facing concerns on the financing front, calls are being made to liberalise the foreign investment rules in the sector. Of course, that stance has been subjected to criticism on the ground that the foreign direct investment (FDI) policy should not be utilized to bail out certain players in the industry. In any event, there are a couple of issues to be...
FDI – Transfer of Shares
The Reserve Bank of India (RBI), through a circular issued last week, curtailed its own approval powers involving transfers of shares of Indian companies between residents and non-residents. Previously, certain specific transactions required the prior approval of the RBI, and these included (i) transfers not compliant with RBI’s pricing norms, (ii) those that required prior approval of the...
Reversal of FDI Policy on Options
Exactly a month ago, the Government announced its updated FDI policy which treated foreign investments in Indian securities as external commercial borrowings (ECB) in case such investments conferred options on the foreign investors. The wide amplitude of the restriction on options gave rise to significant concern among the corporate and investment community, and it has been the subject matter of...
Revised FDI Policy: Options Outlawed
In the comments section to my previous post on the new FDI policy, reader Menaka highlights another important clarificatory change regarding the policy stance of the Government that now clearly outlaws options in securities held by foreign investors in Indian companies. The relevant clause in Circular No 2 of 2011 is as follows: 3.3.2.1 Only equity shares, fully, compulsorily and mandatorily...
Revised FDI Policy
It is that time of the year when the Government conducts its bi-annual review of the policy on foreign direct investment (FDI). Consistent with the previous trend over the last couple of years, it yesterday announced the Consolidated FDI Policy in the form of Circular No. 2 of 2011, which comes into effect from October 1, 2011. The key changes announced are as follows: 1. Construction development...
UNCTAD’s World Investment Report 2011
There have been several reports in the recent past about the continuing slide in FDI inflows into India. This has been confirmed by UNCTAD’s World Investment Report issued yesterday in which India’s ranking on FDI inflows has slipped to 14th in the world from 8th place last year. The report states the following reasons: FDI to South Asia declined to $32 billion, reflecting a 31 per cent slide in...
Further Steps in Allowing FDI in Retail
Last week, the policy making machinery within the Government took the farthest steps so far towards permitting FDI in multi-brand retail. Reports indicate (here, here and here) that majority foreign ownership (up to 51%) will be allowed, although this is likely to be accompanied by a number of conditions including minimum foreign investment (said to be $100 million). Although further procedures...
Miscellaneous
The following developments and readings may be of interest: 1. Sahara: Public Offering vs. Private Placement We have been following the Sahara case as it involves the crucial question of what differentiates a public offering from a private placement of securities under Indian company law and securities regulation. Newspaper reports (here, here and here) indicate that the Supreme Court has now...
Discussion Paper on FDI Equity Caps
Continuing with its practice of engaging in public consultation before announcing changes to the FDI policy, the Department of Industrial Policy and Promotion (DIPP) has issued a discussion paper on “FDI Policy-Rationale and Relevance of Caps”. The discussion paper introduces the possibility of abolishing all sectoral caps for foreign equity shareholding below 49%. Before dealing with the...
Government Nod to FDI in LLPs
(The following post is contributed by Rohan Bagai) The Cabinet Committee on Economic Affairs (CCEA) recently approved foreign direct investment (FDI) in limited liability partnership (LLP) firms whilst setting out a few disclaimers in its press release dated May 11, 2011. This follows from a consultation process initiated last year pursuant to a discussion paper. As such, an LLP is a crossbreed...
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