Change to India's FDI policy to spur greater overseas investment
Article 2 minute read

Change to India's FDI policy to spur greater overseas investment

16 September 2013

Alterations to India's foreign direct investment (FDI) policy, as notified by the Reserve Bank of India (RBI), could see larger investments come in from overseas.

Multi-brand retailing has been made more attractive to foreign investors, as the 30% local sourcing rule has been eased, while states are now able to permit multi-brand retail stores to open in cities populated by fewer than one million people.

Meanwhile, the cap in telecoms investment has been increased to 100% from 74%, and up to 49% can be automatic.

The move has also changed the way in which the term 'control' is defined under the Foreign Exchange Management Act (FEMA) in regards to mergers and acquisitions involving companies based abroad.

The definition states that 'control' gives ”the right to appoint a majority of directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements".

Previously, the term was used solely to refer to the power to appoint the majority directors.

As a result of this alteration, foreign investors should find that they are not able to acquire indirect control in sectors where FDI is not allowed or is capped at 49%.

"We believe since the announcement of FDI policy, FDI has increased … FDI is increasing in India and investor confidence is increasing," said Arvind Mayaram, Department of Economic Affairs Secretary.

He added that FDI stood at US$9m in the first quarter of the year, up from US$5m at the same time in 2012.

The move comes following the Cabinet decision to ease FDI norms on August 2nd. The new FEMA policy is effective from August 22nd.

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