The Foreign Contribution (Regulation) Act, 2010 has been notified by the Central Government to come into effect from 1st May, 2011. The Act replaces the Foreign Contribution (Regulation) Act, 1976. The FCRA 2010 extends to the whole of India and also applies to citizens of India outside India, and to foreign associate branches or foreign subsidiaries of Indian companies/bodies. The FCRA prohibits...
Globalisation: Myth and Reality
A new study asserts that the importance and virtues of globalization, including cross-border trade and foreign investment, may have been overplayed. The Economist has a column discussing Pankaj Ghemawat’s book World 3.0: Global Prosperity and How to Achieve It. It points to some astonishing data and conclusions that emerge from the book: Mr Ghemawat points out that many indicators of global...
Attracting Sovereign Wealth Funds
Although there had been a great amount of discussion a couple of years ago regarding soverign wealth funds (SWFs), both in terms of their investments in the Indian markets and to to whether India should create one for itself, that seemed to have died down. This was largely because SWFs were expressly recognized in 2008 as foreign institutional investors (FIIs) under the SEBI FII Regulations, and...
Regulating Offshore Derivative Instruments
Over the last few years, SEBI has been adopting various strategies to regulate the use of offshore derivative instruments (ODIs) such as participatory notes that enable foreign investors to participate in the Indian markets without actually owning the underlying securities. The strategies include restricting the use of ODIs, and also requiring the application of know-your-client norms (KYC) by...
Changes to FDI Policy – Part V: Sectoral Rules
In this final post in the series, we look at the one change introduced by the Consolidated FDI Policy, Circular No. 1 of 2011 to the sectoral requirements in the agricultural sector, and also briefly touch upon some areas that have been overlooked in the current round of policy review (but yet are under active consideration). Earlier, FDI under the automatic route up to 100% was available for...
Changes to FDI Policy – Part IV: Downstream Investments
Indirect foreign investment into Indian companies had been a subject matter of ambiguity in the FDI policy. For instance, if an Indian company (that has foreign investors) makes investments into another Indian company, would that downstream investment be treated as domestic investment or foreign investment? While rules govern such investment? In order to streamline the policy, the Government had...
Changes to FDI Policy – Part III: Previous Venture
A significant condition in the FDI policy, first included in Press Note 18 of 1998 operated to restrict foreign investments. It required foreign investors to obtain prior Government approval to invest where they had a previous joint venture in India. In such cases, the automatic route was not available. This became an obstacle because FIPB, in considering applications, required a no-objection...
Changes to FDI Policy – Part II: Shares Against Non-Cash Consideration
The FDI policy allows issue of shares by Indian companies to foreign investors only against cash remittances received through normal banking channels. However, the only exceptions to this are conversion of external commercial borrowings outstanding as well as payment obligations towards lump sum fee or royalty for technical collaborations. Any other type of transaction involving an issue of...
Changes to FDI Policy – Part I: Convertible Securities
The Department of Industrial Policy and Promotion (DIPP), Government of India today released its new edition of the Consolidated FDI Policy, Circular 1 of 2011 that comes into effect April 1, 2011. This is part of the bi-annual review process that the DIPP commenced last year so as to ensure that the policy is in tune with dynamics in the economy and industry. The recent round of review has...
Possible Relaxation for Foreign Investors with “Existing Ventures”
Since 1998, the Indian Government’s policy has required foreign investors to obtain approval of the Foreign Investment Promotion Board (FIPB) while investing in a field where they have or had a previous joint venture in India. In other words, such investors are ineligible from investing under the automatic route. In considering a foreign investor’s application, FIPB usually seeks no-objection...
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