Following the decision of the Government of India to permit qualified foreign investors (QFIs) to invest in the Indian stock markets, SEBI and RBI yesterday issued detailed guidelines (here and here) to operationalise the investment mechanism. SEBI has introduced a number of checks and balances to prevent misuse of this route. For example, significant KYC obligations have been imposed on the...
Liberalisation of Foreign Investment in Single-Brand Retail
Although the proposed policy changes on foreign investment in multi-brand retail had to be put on hold due to stiff resistance, the Government has issued Press Note No. 1 (2012 Series) to increase the limit of foreign investment in single-brand retail from 51% to 100%. Such foreign investment would continue to require the approval of the Government of India (acting through the Foreign Investment...
The Options Saga Continues
A few months ago, we had discussed a change of policy stance by the Government of India in allowing options (such as puts and calls) on shares of Indian companies to foreign investors. While the Government initially specified that the existence of such options would turn the foreign investment into an external commercial borrowing, it was quick to withdraw this stipulation due to the immediate...
QFI Investments in Indian Stock Markets
With a view to creating further depth in the Indian capital markets and attracting greater foreign investment, the Government has provided another avenue for foreign investors to participate in the stock markets. Until now, the portfolio investment route (i.e. buying and selling on the stock exchange) was available only to two types of foreign investors, i.e. foreign institutional investors...
FDI in the Civil Aviation Sector
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...
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...
Relaxation on Foreign Fund Flows
Last week, the Government and the Reserve Bank of India (RBI) have announced decisions that relax erstwhile policy on external commercial borrowings (ECB) as well as foreign investment in limited ways. First, the Government has decided to relax the ECB policy to recognise the Chinese yuan as one of the permitted currencies. The overall limit under the automatic route has been increased from US$...
RBI’s Changes to Foreign Investment Policy
The Reserve Bank of India (RBI) has announced some policy measures as follows: 1. Issue of Shares for Consideration Other Than Cash In its recent foreign direct investment (FDI) policy, the Government of India had announced additional methods for issue of shares for consideration other than cash, such as: (a) import of capital goods/ machinery/ equipment (including second-hand machinery); (b) pre...
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