NEW DELHI: A high-level panel set up by the government to overhaul the foreign investment regime in the country is set to recommend that any investment above 10% in a company’s equity be classified as foreign direct investment (FDI) and below that as portfolio investment.
The committee headed by economic affairs secretary Arvind Mayaram is expected to submit its report on Monday so that an announcement can be made in the interim budget, likely on February 17, said a senior finance ministry official.
The overhaul in the classification had been announced by finance minister P Chidambaram in the budget for 2013-14. Chidambaram is expected to unveil the new definition in his vote-on-account speech.
The committee has significantly scaled down its ambitions from reported draft proposals that had gone to the extent of suggesting significant reforms in the overseas investment regime. The committee is now likely to stick to the task assigned and only make recommendations regarding the distinction between foreign direct investment and foreign portfolio investment (FPI).
The move is aimed at simplifying things for companies regarding what rules to follow – FDI or FPI. The panel has refrained from suggesting any change in the limit on overseas investment, the official said. The default cap for foreign portfolio investment will continue to be 24%.
The distinction between FDI and FPI is in keeping with the practice in a number of countries such as Brazil and South Africa as well as the OECD countries.
All foreign investment in an unlisted company, irrespective of how much it is, will be classified as foreign direct investment.
The investment regime for non-resident Indians and foreign venture capital investors will be unchanged. The panel has also favoured grandfathering for investors with less than 10% in listed companies as FDI but haven’t entered through the portfolio route. Such an investment would be classified as portfolio investment in the new regime. The report is also likely to allow a similar dispensation for a foreign holding dropping below 10% as a result of corporate restructuring.
The panel headed by Mayaram had been constituted to draw up the framework for the changes in classifying overseas investment. The UPA government has liberalised the FDI regime in a number of sectors including telecom and single-brand retail over the past one year. These changes were based on a report by another panel headed by Mayaram.